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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 333-23769
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DOBSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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OKLAHOMA 73-1110531
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13439 NORTH BROADWAY EXTENSION
SUITE 200
OKLAHOMA CITY, OKLAHOMA 73114
(Address of principal executive offices) (Zip Code)
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(405) 391-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to 12(b) of the Act: NONE
Securities registered pursuant to 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 15, 1998, there were 473,152 shares of the registrant's $1.00
par value Class A Common Stock outstanding. The Common Stock is privately held
by affiliates of the registrant.
Documents incorporated by reference: NONE
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DOBSON COMMUNICATIONS CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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ITEM NUMBER PAGE
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PART I
1 Business......................................................................................... 1
2 Properties....................................................................................... 24
3 Legal Proceedings................................................................................ 24
4 Submission of Matters to a Vote of Security Holders.............................................. 25
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters............................ 25
6 Selected Financial Data.......................................................................... 26
7 Management's Discussion and Analysis of Financial Condition and Results of Operations............ 27
7A Quantitative and Qualitative Disclosure About Market Risk........................................ 40
8 Financial Statements and Supplementary Data...................................................... 41
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 69
PART III
10 Directors and Executive Officers of the Registrant............................................... 69
11 Executive Compensation........................................................................... 71
12 Security Ownership of Certain Beneficial Owners and Management................................... 74
13 Certain Relationships and Related Transactions................................................... 76
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 79
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PART I
ITEM 1. BUSINESS
GENERAL
Dobson Communications Corporation ("Dobson" or the "Company") provides
diversified telecommunications products and services in eight states across the
country. The Company was organized in Oklahoma in 1936 as Dobson Telephone
Company and adopted its current organizational structure in 1998. The Company
operates in two telecommunications business segments: wireless and wireline.
Segment reporting information may be found in Note 12 to the consolidated
financial statements in Item 8.
Dobson's wireless operations focus on the ownership, operation and
development of rural cellular systems. The Company currently provides rural
cellular telephone services in RSAs and small MSAs in western Oklahoma and the
Texas panhandle, in northeastern Kansas and northwestern Missouri near Kansas
City, in Maryland and Pennsylvania near the Washington-Baltimore metropolitan
area, in Arizona between Phoenix and Tucson and in south-central Texas. Upon
consummation of the proposed wireless acquisitions of California 4 and Santa
Cruz, the Company will also own and operate rural cellular systems in northern
and southern California. In addition, the Company recently purchased PCS
licenses covering 9 BTAs in Oklahoma, Kansas and Missouri.
Dobson's wireline operations include competitive local exchange carrier
("CLEC") operations which recently began providing services in October 1997 and
currently operates in three markets, including Oklahoma City and Tulsa, Oklahoma
and Amarillo, Texas. Upon consummation of the Pending Wireline Acquisitions, the
Company will also provide services in five major Texas markets, including
Houston, Dallas, Fort Worth, San Antonio and Austin. Dobson's wireline
operations also include local telephone exchange ("local exchange") services in
Oklahoma and regional fiber optic transmission networks ("fiber") in Oklahoma,
Texas and Colorado.
The Company was incorporated under the laws of the State of Oklahoma in
February 1997. The principal executive offices of the Company are located at
13439 North Broadway Extension, Suite 200, Oklahoma City, OK 73114 and its
telephone number is (405) 391-8500.
For definitions of certain terms used in this Form 10-K, see "Certain Terms"
at the end of this Item 1.
WIRELESS OPERATIONS
HISTORY
The Company's wireless business began in 1990 when it initiated operations
in part of the Oklahoma/ Texas Cluster. Since then, the Company has developed
organizational, marketing and operational programs designed to increase the
number and stability of subscribers, promote superior customer service, control
subscriber acquisition costs and enhance operating cash flow. These programs
include increasing the Company's local presence by adding retail outlets and
participating in community affairs, expanding coverage through the addition of
cell sites, enhancing system technology and offering simplified rate plans. For
the years ended December 31, 1997, 1996 and 1995, wireless service revenue
accounted for 45%, 41% and 40%, respectively, of the Company's consolidated
revenue, while wireless roaming revenue accounted for 31%, 18% and 13%,
respectively, of the Company's consolidated revenue.
The following table sets forth the chronology of wireless acquisitions made
by the Company:
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CELLULAR SYSTEMS DATE ACQUIRED
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Oklahoma/Texas Cluster............................. August 1989--September 1991
Kansas/Missouri Cluster............................ March 1996
Maryland/Pennsylvania Cluster...................... February--March 1997
Arizona 5.......................................... October 1997
Texas 16........................................... January 1998
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BUSINESS STRATEGY
The wireless operations' primary business strategy is to focus on the
development and acquisition of rural cellular systems. The principal elements of
the Company's strategy include the following:
LEVERAGE STRATEGIC RELATIONSHIPS. The Company develops strategic
relationships with operators of cellular systems in major MSAs near the
Company's systems. These relationships include reciprocal roaming agreements
which allow the Company's subscribers to use the system in the neighboring MSA
at favorable rates which, in certain circumstances, are comparable to the
subscriber's home rates. Under these agreements, similar benefits are available
to the MSA operator's subscribers roaming in the Company's areas. The Company
seeks to enter into agreements with the operator marketing its cellular services
under the predominant brand name in the neighboring MSA. As part of these
relationships, the Company will implement the digital technology in its system
area which is selected in the neighboring MSA. By entering into these strategic
agreements, the Company is able to increase its roaming revenue, offer its
subscribers larger home rate areas and leverage the recognized brand names of
its partners and their extensive marketing efforts.
AGGRESSIVE LOCAL MARKETING AND PROMOTION OF WIRELESS SERVICES. The
Company's marketing objective is to distinguish the Company as the local
market's leading wireless services provider, stressing its service quality,
local sales offices staffed with local personnel, and commitment to the
community. The Company's sales efforts are conducted primarily through its
direct sales force operating out of its local retail stores, and, to a lesser
extent, through independent agents in other retail outlets. Management believes
that, as an operator with strong local distribution of products and services,
the Company has an advantage over its competitors which do not emphasize a local
presence or focus on local market requirements and community involvement. The
Company intends to continue to open new retail outlets and introduce simplified
rate plans in each of its market areas.
TARGETED SALES EFFORTS. The Company focuses its marketing programs on
attracting subscribers who are likely to generate high monthly revenue and low
churn rates. Local management undertakes extensive market research to identify
and design marketing programs to attract these subscribers and tailor
distinctive rate plans and roaming rates to emphasize the quality, value and
advantage of the Company's cellular service. In addition, the Company has
implemented a sales force compensation system designed to maximize the
acquisition of these high use, reduced churn subscribers, which is intended to
result in higher monthly revenue per subscriber and lower marketing and selling
costs per gross additional subscriber.
SUPERIOR CUSTOMER SERVICE. The Company strives to maintain a high level of
customer satisfaction through a variety of techniques, including maintaining
24-hour customer service and active ongoing contact with customers. Customer
service is supported on a local level through the Company's direct sales force
and its retail stores, and through regional customer service centers. The
Company believes that its emphasis on superior customer service has enabled it
to achieve an average monthly churn rate of 1.89% for the year ended December
31, 1997.
CONTINUED SYSTEM DEVELOPMENT AND EXPANSION. The Company intends to continue
to expand and improve coverage, increase capacity and build out its systems. The
Company believes that expanding and improving coverage and capacity in its
systems will attract additional subscribers, enhance the use of its systems by
existing subscribers, increase roaming activity due to the larger geographic
area covered by the cellular network and further enhance the overall efficiency
of the network.
The Company is upgrading its systems with digital technology to enable it to
increase roaming (by servicing the increasing number of digital cellular
subscribers and PCS subscribers with dual mode phones) and provide enhanced
capabilities, including caller ID, longer battery life and zone billing. The
Company recently completed upgrading its system in the Oklahoma/Texas Cluster to
analog/IS-136 TDMA digital technology, and is currently upgrading its
Maryland/Pennsylvania Cluster to analog/IS-136 TDMA. In Arizona 5, the Company
has completed the upgrade of its core cell sites to analog/CDMA. The timing and
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extent of the upgrading of the Company's other systems will depend upon the
technology selected by the Company's neighboring strategic partners, market
conditions and financial considerations.
DISCIPLINED EXPANSION THROUGH ACQUISITIONS. The Company continuously
evaluates opportunities to create new cellular clusters or expand current
clusters by acquisitions of additional cellular systems. In evaluating
acquisitions, the Company targets RSAs and small MSAs that have some or all of
the following characteristics: (i) are adjacent to major metropolitan areas;
(ii) have a strong demographic profile, including positive population growth
trends; (iii) include a high concentration of expressway corridors that
facilitate a significant amount of roaming activity; (iv) are large enough, or
offer clustering opportunities, to obtain certain economies of scale; (v) have
underdeveloped areas with low penetration levels; (vi) generate positive
operating cash flow; (vii) have the potential to develop a strategic
relationship with operators of neighboring cellular systems and the ability to
offer services under a leading brand name; and (viii) are likely to have fewer
PCS competitors.
The Company is presently evaluating, and in discussions with, a number of
acquisition candidates. The Company has recently entered into definitive
agreements to purchase the FCC licenses for, and certain assets relating to,
California 4 and Santa Cruz and has also entered into non-binding letters of
intent to purchase the FCC license for, and certain assets relating to,
California 7 and Texas 7. Even though the letter of intent with respect to the
Texas 7 Acquisition has expired, negotiations are continuing.
MARKETS AND SYSTEMS
The following table sets forth certain data with respect to the Company's
existing cellular systems as of December 31, 1997.
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TOTAL MARKET
CELLULAR SYSTEMS TOTAL POPS OWNERSHIP NET POPS SUBSCRIBERS(1) PENETRATION(2)
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Oklahoma/Texas Cluster(3).................... 344,300 (4) 256,484 36,226 10.5%
Kansas/Missouri Cluster(5)................... 243,800 100% 243,800 6,245 2.6%
Maryland/Pennsylvania Cluster(6)............. 874,200 100% 874,200 49,224 5.6%
Arizona 5 RSA................................ 184,400 75% 138,300 8,398 4.6%
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Total........................................ 1,646,700 1,512,784 100,093 6.1%
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(1) As of December 31, 1997.
(2) Determined by dividing total subscribers by the total Pops covered by the
applicable FCC cellular license.
(3) The Oklahoma/Texas Cluster includes the following: Oklahoma 5 RSA, Oklahoma
7 RSA, Texas 2 RSA, Enid, OK MSA, and Oklahoma 2 RSA. The Company also owns
a 5% interest in a partnership which owns a cellular system in Oklahoma 3
RSA, which had total Pops of 205,600. Information on the Oklahoma 3 RSA is
excluded because the Company does not manage the system.
(4) The Company is the operating manager for partnerships which own the FCC
licenses for, and assets relating to, the Oklahoma 5 RSA, Oklahoma 7 RSA and
Texas 2 RSA. The Company's ownership interests in these partnerships are
64.4%, 64.4% and 61.0%, respectively. The Company owns 100% of both the
Enid, OK MSA and Oklahoma 2 RSA.
(5) The Kansas/Missouri Cluster includes the following: Kansas 5 RSA, Missouri 1
RSA, Missouri 4 RSA and Missouri 5 RSA. The Company also operates Missouri 2
RSA under an interim operating authority granted by the FCC which will
terminate after the permanent licensee commences commercial service in the
market. The FCC has issued a license for Missouri 2 RSA to a permanent
licensee, but the issuance has been challenged. The FCC license for the
Missouri 5 RSA covers only the Linn County portion of the RSA. Information
for this RSA relates only to the area covered by the Company's FCC license.
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(6) The Company's Maryland/Pennsylvania Cluster includes the following: Maryland
2 RSA, Cumberland, MD MSA, Hagerstown, MD MSA, Maryland 3 RSA, and
Pennsylvania 10 West RSA. The FCC license for the Cumberland, MD MSA covers
only the towns of Cumberland and Frostburg and surrounding areas (total Pops
estimated by the Company to be 68,000) and the FCC license for the
Pennsylvania 10 West RSA covers only Bedford County. Information for this
MSA and RSA relates only to the area covered by the Company's FCC licenses.
The following is a description of the Company's existing cellular markets
and systems.
OKLAHOMA/TEXAS CLUSTER
GENERAL. The Oklahoma/Texas Cluster, which consists of the Oklahoma 5 and 7
RSAs, Texas 2 RSA, the Enid, Oklahoma MSA and the Oklahoma 2 (Woodward) RSA,
extends west from Oklahoma City to Amarillo. The Company initiated cellular
operations in the Oklahoma 5 and 7 and Texas 2 RSAs in 1990 subsequent to the
issuance of the FCC licenses. The Oklahoma 5 and 7 and Texas 2 RSAs were
start-up operations in which the Company activated its first cell site in March
1991. The Enid, Oklahoma MSA and the Oklahoma 2 RSA were acquired by the Company
in 1991 from owners who had not developed the market area.
DEMOGRAPHICS. The Oklahoma/Texas Cluster covers a contiguous area of
approximately 27,000 square miles. The cluster includes the cities of Chickasha,
Clinton, Enid and Woodward in Oklahoma and Pampa and Borger in Texas. The
Oklahoma 5 and 7 RSAs extend west from Oklahoma City along I-40 to the Texas
state line. The Texas 2 RSA is located in the eastern half of the Texas
panhandle. The Enid, Oklahoma MSA and Oklahoma 2 RSA are located north and
northwest of Oklahoma City. Enid, with a population of approximately 45,000, is
the largest city in the Oklahoma/Texas Cluster. The Oklahoma/ Texas Cluster is
primarily agricultural and oil and gas industry oriented.
KANSAS/MISSOURI CLUSTER
GENERAL. In March 1996, the Company purchased the cellular licenses and
assets of the Kansas 5 RSA, Missouri 1 RSA, Missouri 4 RSA and a portion of the
Missouri 5 RSA. The Kansas/Missouri Cluster is located in northeastern Kansas
and northwestern Missouri near Kansas City. Cellular services have been provided
in the Kansas/Missouri Cluster since 1992.
DEMOGRAPHICS. The Kansas/Missouri Cluster covers a contiguous area of
approximately 10,500 square miles. The Kansas 5 RSA is northwest of Kansas City.
Leavenworth, Kansas is the largest city in the Kansas/Missouri Cluster and
serves primarily as a bedroom community to Kansas City. The Missouri 1 RSA is in
northwest Missouri directly north of St. Joseph and the Missouri 4 RSA is
northeast of Kansas City. The Kansas/Missouri Cluster also includes Linn County,
Missouri in the northwest corner of the Missouri 5 RSA, which is contiguous to
the Missouri 4 RSA.
MARYLAND/PENNSYLVANIA CLUSTER
GENERAL. On March 3, 1997, the Company purchased the FCC cellular license
for, and certain assets relating to, the Maryland 2 RSA. The prior owner of the
Maryland 2 RSA license had no employees, distribution facilities or cell sites,
and the RSA was serviced by Washington Baltimore Cellular Limited Partnership
("WBCLP"), an affiliate of SWBM, under an interim operating authority. WBCLP
continues to operate Maryland 2 under its interim operating authority on behalf
of the Company, and the Company leases the existing cell sites and related
equipment from WBCLP. In October 1997, the Company assumed control of customer
service, billing and activations in Maryland 2. The Company intends to build out
its own infrastructure in Maryland 2 and assume control of the remaining
operations conducted by WBCLP in the second quarter of 1998. On February 28,
1997, the Company also purchased the FCC cellular licenses for, and certain
assets relating to, the Western Maryland Properties. Cellular service has been
provided in the Western Maryland Properties since 1991.
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DEMOGRAPHICS. The Maryland/Pennsylvania Cluster covers approximately 6,200
square miles. The Maryland 2 RSA encompasses suburban areas south and east of
Washington, D.C. as well as the eastern shore of Maryland. Many residents in the
Maryland 2 RSA commute to Annapolis, Baltimore and Washington, D.C. and there is
a heavy traffic pattern in Maryland 2 RSA during the summer months as tourists
travel to and from several popular vacation spots along the eastern shore,
especially Ocean City.
The Western Maryland Properties are within 50 miles of Washington, D.C. and
Baltimore. The area has numerous high-technology businesses and is considered a
high-commuter market due to its proximity to nearby metropolitan areas.
ARIZONA 5
GENERAL. On October 1, 1997, the Company acquired a 75% interest in the
Arizona 5 Partnership, which owns the FCC license for and the system for the
Arizona 5 RSA. At the same time, Gila River Telecommunications Subsidiary, Inc.,
a wholly owned subsidiary of the Gila River Indian Community, acquired a 25%
interest in the Partnership. The Company is the operating manager of the Arizona
5 Partnership. See Item 13. Certain Relationships and Related Transactions.
DEMOGRAPHICS. Arizona 5 is located southeast of Phoenix and northwest of
Tucson, covering an area of approximately 10,100 square miles in southern
Arizona. The principal industries in Arizona 5 are mining and smelting. In
addition, the area experiences significant tourist traffic to the local Indian
dwellings and commuter traffic to Phoenix and Tucson. The service area includes
approximately 100 miles of I-10.
TEXAS 16
GENERAL. On January 26, 1998, the Company purchased the FCC cellular
license for, and certain assets relating to, the Texas 16 RSA. The property is
located in south-central Texas in an area bordered by Austin, Houston and San
Antonio. Texas 16 has 326,300 total Pops and, as of December 31, 1997, there
were over 4,000 subscribers (representing a 1.2% market penetration).
DEMOGRAPHICS. Texas 16 covers an area of approximately 10,900 square miles
in south-central Texas. The principal industries in Texas 16 are agriculture,
oil and gas, steel and plastics. The service area includes approximately 98
miles of I-10, which connects Houston and San Antonio, 60 miles of US-59, and 90
miles of US-290. US-290 runs parallel to I-10 and connects Houston to the state
capital in Austin.
PROPOSED WIRELESS ACQUISITIONS
The following describes the cellular markets and systems to be acquired upon
consummation of the proposed wireless acquisitions.
CALIFORNIA 4
GENERAL. The Company has entered into definitive agreements to purchase all
of the stock of two corporations which, together, own the California 4
Partnership for an aggregate purchase price of $87.0 million, subject to
adjustment. The Company has placed $2.5 million into escrow pending closing of
the acquisition, which is expected to occur early in the second quarter of 1998.
California 4 is located in northern California approximately 50 miles inland
from California's central coast in an area between Fresno and Modesto.
California 4 has 363,400 total Pops and, as of December 31, 1997, there were
approximately 15,800 subscribers (representing a 4.4% market penetration).
DEMOGRAPHICS. California 4 covers an area of approximately 5,500 square
miles in northern California. The principal industries in California 4 are
manufacturing and agriculture. In addition, the area experiences significant
tourist traffic as one of the entrances to Yosemite National Park is located in
the eastern segment of the market. The service area includes approximately 37
miles of Route 99 between Sacramento and Los Angeles as well as 60 miles of I-25
between San Francisco and Los Angeles.
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MARKETING AND ROAMING. The Company expects to enter into roaming agreements
with AT&T Wireless which will permit the Company to include AT&T Wireless'
service area in its home rate area, allowing the Company to offer a wider
service area. The AT&T Wireless service area includes San Francisco, Fresno and
Modesto. The Company's principal competitor will be GTE. The Company intends to
use a national brand name to market the services it offers in California 4;
however, the Company has not yet entered into any definitive license agreement.
See "--Service Marks."
At present, California 4 has five retail locations. The Company intends to
open additional stores in 1998.
SYSTEMS. California 4 has one switch and 29 cell sites which cover more
than 95% of the population in the market area. The Company intends to upgrade
the system's existing equipment to analog/IS-136 TDMA digital technology in
1999.
SANTA CRUZ
GENERAL. The Company has entered into a definitive agreement to purchase
70% of the outstanding stock of the corporation that owns the FCC cellular
license for, and the assets relating to, the Santa Cruz MSA, for $25.2 million,
subject to adjustment, and is negotiating to acquire the remaining 30% of the
outstanding stock of such corporation. The Company has placed $1.0 million into
escrow pending closing of the acquisition which is expected to occur late in the
second quarter of 1998. The property is adjacent to California 4 and is located
southwest of San Jose and north of the Monterey Peninsula, on California's
Pacific coastline. Santa Cruz has 242,000 total Pops (169,400 Net Pops) and, as
of December 31, 1997, there were approximately 14,300 subscribers (representing
a 5.9% market penetration).
DEMOGRAPHICS. Santa Cruz covers approximately 446 square miles in central
California. The service area includes 37 miles of State Highway 1 that runs
along the California Pacific coastline and 13 miles of State Highway 17 that
connects Santa Cruz to San Jose.
MARKETING AND ROAMING. The Company expects to enter into roaming agreements
with AT&T Wireless and Bay Area Cellular (a partnership between AT&T Wireless
and AirTouch). The Company's principal competitor will be GTE. The Company
intends to use a national brand name to market the services it offers in Santa
Cruz; however, the Company has not yet entered into any definitive license
agreement. See "--Service Marks."
At present, Santa Cruz has three retail locations. The Company intends to
open additional retail locations in 1998.
SYSTEMS. Santa Cruz has 12 cell sites which cover approximately 99% of the
population in the market area. The Company intends to replace all of this
equipment and install additional cell sites over the next several years
utilizing analog/IS-136 TDMA digital technology.
The Company continuously evaluates opportunities to create new cellular
clusters or expand current clusters by acquisitions of additional cellular
systems. The Company is evaluating, and in discussions with, a number of
potential acquisition candidates. The Company has recently entered into
non-binding letters of intent with respect to California 7 and Texas 7 for a
purchase price of approximately $21.0 million and $61.0 million, respectively.
These acquisitions will be subject to the satisfaction of a number of
significant conditions, including the satisfactory completion of due diligence,
the satisfactory resolution of certain pending claims with respect to the FCC
license for Texas 7, the negotiation and execution of definitive purchase
agreements, the receipt of board and shareholder approval and the receipt of all
required regulatory approvals. There can be no assurance that the Company will
consummate these or any other acquisitions.
An affiliate of the seller of Texas 7 is presently negotiating to purchase
the FCC license for, and certain assets relating to, the Arkansas 11 RSA for not
more than $6.0 million. Pursuant to the letter of intent for Texas 7, the
Company would receive an assignment of such affiliate's rights, if any, to
acquire
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Arkansas 11 upon the execution of a definitive agreement for the Company's
acquisition of Texas 7. The Company would pay the seller of Texas 7 $1.0 million
for such assignment upon the closing of the Arkansas 11 acquisition. The letter
of intent with respect to Texas 7 has expired, but negotiations with the seller
are continuing.
PRODUCTS AND SERVICES
The Company provides a variety of cellular services and products designed to
address a range of consumer, business and personal needs. In addition to mobile
voice and data transmission, the Company offers ancillary services such as call
forwarding, call waiting, three-party conference calling, voice message storage
and retrieval and no-answer transfer. The nature of the services offered by the
Company varies depending upon the market area. The Company also sells cellular
equipment at discount prices as a way to encourage use of its mobile services.
The Company offers cellular service for a fixed monthly access fee (accompanied
by varying allotments of unbilled or "free" minutes), plus additional variable
charges per minute of use and for custom calling features. Various pricing
programs (which may be based on multi-year service contracts) are utilized.
Unlike some of its competitors, the Company designs rate plans on a
market-by-market basis. The Company's local general managers generally have the
authority to initiate and modify rate plans, depending upon market and
competitive conditions. Generally, these rate plans include a high-volume user
plan, a medium-volume user plan, a basic plan and an economy plan. In general,
rate plans which include a higher monthly access fee typically include a lower
usage rate per minute. An ongoing review of equipment and service plan pricing
is maintained and, as appropriate, revisions to pricing are made to meet the
demands of the local marketplace.
The Company intends to upgrade its cellular systems to digital technology to
enable it to increase roaming (by servicing the increased number of digital
cellular subscribers and PCS subscribers with dual mode phones) and provide
enhanced capabilities, including caller ID, longer battery life and zone
billing. The Company has completed the upgrade to digital technology in the
Oklahoma/Texas Cluster, and is in the process of upgrading its
Maryland/Pennsylvania Cluster to analog/IS-136 TDMA. The Company has completed
the upgrade of the core cell sites in Arizona 5 to analog/CDMA. The Company
expects to upgrade its technology in the Kansas/Missouri Cluster to analog/CDMA.
Currently, the Company does not
intend to actively market digital cellular services to its customers until
market conditions in each area will support such services. Because its digital
switches will be capable of handling both analog and digital transmission, the
Company will be able to continue to offer analog cellular service to those
customers who do not transfer to digital handsets.
CUSTOMER SERVICE
Customer service is an essential element of the Company's marketing and
operating philosophy. The Company is committed to attracting new subscribers and
retaining existing subscribers by providing consistently high-quality customer
service. In each of its cellular service areas, the Company maintains
installation and repair facilities and a local staff, including a market
manager, customer service representatives, technical and sales representatives.
Each cellular service area handles its own customer-related functions such as
customer activations, account adjustments and rate plan changes. Local offices
and installation and repair facilities enable the Company to service customers
better, schedule installations and make repairs. Through the use of
sophisticated, centralized monitoring equipment, the Company will be able to
centrally monitor the technical performance of its cellular service areas.
In addition, the Company's customers generally are able to report cellular
telephone service or account problems 24-hours a day to the Company's two
regional customer service centers located in Oklahoma City, OK and Frederick, MD
on a toll-free access number (with no airtime charge). Upon completion of the
California 4 Acquisition, the Company intends to open a regional customer
service center in California. Management believes its emphasis on customer
service affords it a competitive advantage over its large competitors. The
Company contacts its subscribers at frequent intervals in order to evaluate and
measure, on an ongoing basis, the quality and competitiveness of its services.
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SALES, MARKETING AND DISTRIBUTION
The Company focuses its marketing program on attracting subscribers who are
likely to generate high monthly revenue and low churn rates. The Company
undertakes extensive market research to identify and design marketing programs
to attract these subscribers and tailor distinctive rate plans and roaming rates
to emphasize the quality, value and advantage of the Company's cellular service.
The Company has established marketing alliances with neighboring cellular
systems to create larger home rate areas and to effectively expand the Company's
footprint in order to increase its roaming revenue and to attract new
subscribers. The Company markets its service offerings primarily through its
direct sales force and Company-owned retail stores. The Company also uses a
network of dealers and other agents, such as electronics stores, car dealerships
and department stores. In addition to these traditional channels, the Company's
marketing team continuously evaluates other, less traditional, methods of
distributing the Company's services and products, such as targeted telemarketing
and direct mail programs. The Company markets its cellular products and services
under both national brand names and a Company brand name. See "--Service Marks."
The service mark selected for use by the Company in each of its clusters
depends, to a large extent, upon the service mark used in neighboring MSAs.
Management trains and compensates its sales force in a manner designed to
stress the importance of customer service, high penetration levels and minimum
acquisition costs per subscriber. The Company believes that its direct sales
force is better able to select and screen new subscribers and select pricing
plans that realistically match subscriber means and needs than are independent
agents. In addition, the Company motivates its direct sales force to sell
appropriate rate plans to subscribers, thereby reducing churn, by linking
payment of commissions to subscriber retention. As a result, the Company's use
of a direct sales force keeps marketing costs low both directly, because
commissions are lower, and indirectly, because subscriber retention is higher
than when independent agents are used.
The Company believes that the after-sale telemarketing program conducted by
its sales force and customer service personnel helps to reduce its churn rate.
This program enhances customer loyalty and allows the sales staff to check
customer satisfaction as well as to offer additional calling features, such as
voicemail, call waiting and call forwarding.
The Company currently has 27 retail stores and thirteen other retail outlets
as of February 28, 1998. The retail stores range in size from 750 square feet to
5,000 square feet, and each retail store is fully equipped to handle customer
service and telephone maintenance and installation. Some of these stores are
also authorized warranty repair centers. The Company's stores provide
subscriber-friendly retail environments (extended hours, large selection, an
expert sales staff and convenient locations) which make the sales process quick
and easy for the subscriber.
ROAMING
The Company believes that regional roaming is an important service component
for many subscribers. Accordingly, where possible, the Company attempts to
arrange reciprocal roaming agreements that allow customers to roam at
competitive prices. The Company believes this increases usage on all cellular
systems, including the Company's. Roaming is a substantial source of revenue for
the Company. The Company focuses on systems that are adjacent to major
metropolitan areas and include a high concentration of expressway corridors that
tend to result in a significant amount of roaming activity. The Company has
entered into roaming agreements with operators of cellular systems in adjoining
MSAs and others which provide for reciprocal roaming rates that allow customers
to roam at competitive prices which, in certain
8
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instances, are comparable to home area rates. The following table lists the
Company's principal roaming partners in each of its cellular clusters:
<TABLE>
<CAPTION>
CELLULAR SYSTEMS CELLULAR ROAMING PARTNERS
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Oklahoma/Texas Cluster............................. SWBM, AT&T Wireless
Kansas/Missouri Cluster............................ CMT, Western Wireless, U.S. Cellular
Maryland/Pennsylvania Cluster...................... SWBM, Vanguard, AT&T Wireless
Arizona 5.......................................... WMC
Texas 16........................................... Houston Cellular, AT&T Wireless
</TABLE>
The Company has agreements with NACN, which is the largest wireless
telephone network system in the world linking cellular operators throughout the
United States and Canada. NACN connects key areas across North America so that
customers can use their cellular phones to place and receive calls in these
areas as easily as they do in their home areas. Through NACN, customers receive
calls automatically without the use of complicated roaming codes as they roam in
more than 5,000 cities and towns in the United States and Canada. In addition,
special services such as call forwarding and call waiting automatically follow
subscribers as they travel.
PCS
In April 1997, the Company was granted PCS licenses in nine markets in
Oklahoma, Kansas and Missouri that are adjacent to or overlap the Company's
existing cellular markets. The PCS licenses obligate the Company to construct
network facilities that cover at least 25% of the population in each market
within five years from the grant of the license. The licenses cover an aggregate
of approximately 4.2 million Pops.
TECHNOLOGY AND SYSTEM DEVELOPMENT
OVERVIEW. Historically, most cellular services have transmitted voice and
data signals over analog-based systems, which use one continuous electronic
signal that varies in amplitude or frequency over a single radio channel.
Digital systems, on the other hand, 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 enhanced
capacity, along with enhancements in digital protocols, allows digital-based
wireless technologies to offer new and enhanced services, such as greater call
privacy and single number (or "find me") service, and more complex data
transmission features, such as "mobile office" applications (including
facsimile, electronic mail and connecting notebook computers with computer/data
networks).
While digital technology generally serves to reduce transmission
interference relative to analog technology, capacity limitations in the 8
kilobit cellular digital handsets now deployed by most digital cellular
operators also cause a perceptible decline in transmission quality. This gap in
transmission quality has proven to be a significant barrier to cellular
operators seeking to switch their customers from analog to digital service.
Enhanced 13 kilobit digital handsets developed by vendors for digital cellular
systems became available in late 1997. These new handsets offer transmission
quality comparable to, if not better than, current analog cellular handsets.
SYSTEM DEVELOPMENT. The Company develops or builds out its cellular service
areas by adding channels to existing cell sites and by building new cell sites
with an emphasis on improving coverage for hand-held phones in
heavily-trafficked areas. Such development is designed to increase capacity and
to improve coverage for projected subscriber demand and in response to
competitive factors. Projected subscriber demand is calculated for each cellular
service area on a cell-by-cell basis. The Company has historically met such
demand through a combination of augmenting channel capacity in existing cell
sites and building new cell sites. In January 1998, the Company entered into an
agreement with Lucent to purchase, over a four-year period, 300 cell sites, two
switches and certain related hardware and software.
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<PAGE>
The agreement also requires the Company to pay an annual software maintenance
fee and to make certain additional payments based on the number of subscribers
added in the areas serviced by the cell sites. The aggregate net cost to the
Company under this agreement is estimated to be $81 million, of which $8.2
million has been budgeted for 1998.
Cell site expansion is expected to enable the Company to continue to add and
retain subscribers, enhance subscriber use of the systems, increase roamer
traffic due to the larger geographic area covered by the cellular network and
further enhance the overall efficiency of the network. The Company believes that
the increased cellular coverage will have a positive impact on market
penetration and subscriber usage.
The Company also continues to evaluate expansion through acquisitions of
other cellular properties that will further enhance its network. In evaluating
acquisition targets, the Company considers, among other things, demographic
factors, including population size and density, traffic patterns, cell site
coverage and required capital expenditures. See "--Business Strategy" and
"--Proposed Wireless Acquisitions."
DIGITAL TECHNOLOGY. Digital signal transmission is accomplished through the
use of frequency management technologies, or "protocols." These protocols
"manage" the radio channel either by dividing it into distinct time slots (TDMA)
or by assigning specific coding instructions to each packet of digitized data
that comprises a signal (CDMA). While the FCC has mandated that licensed
cellular systems in the United States must utilize compatible analog signaling
protocols, at present there is no required universal digital signaling protocol.
Because the CDMA and TDMA protocols are incompatible, a subscriber of a system
that relies on TDMA technology, for example, will be able to use a handset in an
area served by CDMA, only if it is a dual-mode handset that permits the
subscriber to use the cellular system in that area. Dual-mode handsets for
TDMA/CDMA are not yet available and analog/TDMA handsets have only recently
become available. However, the FCC or industry organizations may decide to move
toward a universal digital switching protocol in the future.
Over the next decade, it is expected that many cellular systems will convert
from analog to digital technology. This conversion is due in part to capacity
constraints in many of the largest cellular markets, such as New York, Los
Angeles and Chicago. As carriers reach limited capacity levels, it may not be
possible to complete certain calls, especially during peak hours. Digital
technology increases system capacity and offers other advantages, often
including improved overall average signal quality, improved call security,
potentially lower incremental costs for additional subscribers and the ability
to provide data transmission services. The conversion from analog to digital
technology is expected to be an industry-wide process that will take a number of
years to complete. While management does not believe that its network will
experience capacity constraints in the foreseeable future that would require
converting its network from analog to digital technology, management intends to
effect such conversion based upon market demand so that its subscribers will
enjoy the added benefits of digital technology, and the Company will benefit
from increased roamer revenue.
The technology utilized by the Company will be governed, to a large extent,
by the technology used by the large, dominant carriers in MSAs near the
Company's systems. The timing of the conversions will be governed by the
conversion rate of larger, neighboring MSAs, market conditions and financial
considerations. The Company's systems in its Oklahoma/Texas Cluster have been
upgraded to enable the Company to offer analog/IS-136 TDMA digital services. The
systems in the Maryland/Pennsylvania Cluster (including Cumberland, MD MSA,
Hagerstown, MD MSA, Maryland 3 RSA and Pennsylvania 10 West RSA) have been
upgraded to analog/IS-136 TDMA technology and the Company is in the process of
upgrading to analog/IS-136 TDMA technology for Maryland 2 RSA. The Company's
core cell sites in Arizona 5 have been upgraded to analog/CDMA digital
technology. The Company expects to convert its systems in the Kansas/Missouri
Cluster to analog/CDMA digital technology, which is the digital technology for
the Kansas City and St. Joseph MSAs chosen by CMT, and in Texas 16 to
analog/IS-136 TDMA technology. Upon completion of the California 4 and Santa
Cruz acquisitions, the Company expects to convert the acquired to analog/IS-136
TDMA digital technology.
10
<PAGE>
INFORMATION SYSTEMS. All billing functions for the Company's cellular
operations are currently provided by International Telecommunications Data
Service ("ITDS"). Proprietary software furnished by ITDS serves all functions of
billing for corporate and retail locations. All administrative and customer
maintenance functions are handled in-house with invoice processing and printing
handled by ITDS. The Company uses complementing software to the billing system
allowing the use of credit, collection and switch interfaces. Bill processing is
performed off-site by a billing vendor.
The Company operates a Nortel Meridian phone system with voice mail
features. In addition, the Company's customer service and collections groups
extensively utilize the automatic call distribution queues and traffic and
productivity reporting capacities of the system.
REGULATION
OVERVIEW. The wireless telecommunications industry is subject to extensive
governmental regulation on the federal level and to varying degrees on the state
level. Many aspects of such regulation have recently been impacted by the
enactment of the Telecommunications Act of 1996 (the "1996 Act") and are
currently the subject of administrative rulemakings and judicial proceedings
that are significant to the Company. For example, a number of incumbent local
exchange carriers ("ILECs") and state commissions have challlenged the FCC's
rules governing interconnection in the 8th Circuit Court of Appeals. While the
8th Circuit Court of Appeals left the FCC's rules governing local exchange
carrier ("LEC")--commercial mobile radio service ("CMRS") interconnection in
tact, review of other aspects of the rules is currently pending before the U.S.
Supreme Court. In addition, SWBT and other ILECs have challenged the 1996 Act's
restrictions on RBOC provision of in-region interexchange services in Federal
District Court in Wichita Falls, Texas. The district court held the 1996 Act's
restrictions unconstitutional, and review of the court's decision is pending
before the 5th Circuit Court of Appeals in New Orleans. Neither the outcome of
these rulemakings nor their impact upon the cellular telephone industry or the
Company can be predicted at this time. The following is a summary of the federal
laws and regulations that materially affect the wireless telecommunications
industry and a description of certain state laws. This section does not purport
to be a summary of all present and proposed federal, state and local regulations
and legislation relating to the wireless telecommunications industry.
FEDERAL REGULATION. The licensing, construction, modification, operation,
ownership and acquisition of cellular telephone systems are subject to
regulations and policies of the FCC under the Communications Act of 1934, as
amended (the "Communications Act"). The FCC has promulgated rules and
regulations governing, among other things, applications to construct and operate
cellular communications systems, applications to transfer control of or assign
cellular licenses and technical and operational standards for the operation of
cellular systems (such as maximum power and antenna height).
The FCC licenses cellular systems in accordance with 734 geographically
defined market areas comprised of 306 MSAs and 428 RSAs. In each market, the
frequencies allocated for cellular telephone use are divided into two equal 25
MHz blocks. Block B licenses initially were reserved for wireline telephone
companies, such as the Company, while non-wireline licenses initially were
reserved for entities that were not affiliated with a wireline telephone
company. Apart from the different frequency blocks, there is no technical
difference between wireline and non-wireline cellular systems and the
operational requirements imposed on each by the FCC are the same. Under current
FCC rules, with FCC approval, wireline and non-wireline licenses are
transferable without restriction as to wireline affiliation. No entity may own,
directly or indirectly, more than a 5% interest in both systems in any one MSA
or RSA, unless such ownership will not pose a substantial threat to competition,
and no entity may, directly or indirectly, own a controlling interest in, or
otherwise have the ability to control, both such systems. The FCC may prohibit
or impose conditions on transfers of licenses. In addition, under FCC rules, no
person may have an attributable interest (as defined in FCC rules) in a total of
more than 45 MHz of licensed broadband PCS, cellular and ESMR spectrum regulated
as Commercial Mobile Radio Services ("CMRS") with significant overlap in any
geographic area (significant overlap will occur when at least 10% of the 1990
11
<PAGE>
census population of the PCS licensed service areas is within the CGSA (as
defined below) and/or the ESMR service area).
Under FCC rules, the authorized service area of a cellular provider in each
of its markets is referred to as the "Cellular Geographic Service Area" or
"CGSA." The CGSA may conform exactly with the boundaries of the FCC designated
MSA or RSA, or it may be smaller if a licensee has chosen not to provide
services to certain areas. A cellular licensee has the exclusive right to expand
its CGSA boundaries within the licensee's MSA or RSA for a period of five years
after grant of the licensee's initial construction permit. At the end of this
five-year build-out period, however, any entity may apply to serve portions of
the MSA or RSA outside the licensee's then designated CGSA. The five year
build-out period has expired for most licensees (Maryland 2 being an exception)
and the FCC has granted several "unserved area" applications filed by parties
other than the original MSA or RSA licensee.
Cellular service providers also must satisfy a variety of FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent cellular users,
permittees and licensees in order to avoid interference between adjacent
systems. In addition, the height and power of base station transmitting
facilities and the type of signals they emit must fall within specified
parameters. The Company is obligated to pay certain annual fees and assessments
to the FCC in connection with its cellular operations including regulatory fees
and assessments for Telecommunications Relay Services, numbering administration
and universal service.
The Communications Act requires prior FCC approval for substantive,
non-proforma transfers or assignments to or from the Company of a controlling
interest in any license or construction permit, or any rights thereunder.
Although there can be no assurance that any future requests for approval of
applications filed will be approved or acted upon in a timely manner by the FCC,
the Company has no reason to believe such requests or applications would not be
approved or granted in due course.
The FCC also regulates a number of other aspects of the cellular business.
For example, the FCC regulates cellular resale practices and recently extended
the resale requirement to broadband PCS and ESMR licensees. Cellular, PCS and
ESMR providers may not restrict any customers' resale of their services or
unreasonably discriminate against resellers of their services. Under present FCC
policy, all resale obligations for cellular, broadband PCS and ESMR operators
will terminate five years after the date that the last group of initial PCS
licenses are granted. The FCC has also adopted requirements for cellular and
other providers of two-way voice services to implement enhanced 911 services,
providing emergency service providers to better locate callers that have used
wireless 911 features. Under these requirements, such implementation began in
December 1997 and will continue in stages through October 2001. Cellular and PCS
carriers are also required to provide law enforcement agencies with capacity and
technical assistance for wiretaps. These wireless 911 and law enforcement
requirements may create additional capital obligations for the Company to make
necessary system changes.
In addition, the FCC regulates the ancillary service offerings that cellular
and PCS licensees can provide and recently revised its rules to permit cellular,
PCS, paging and ESMR licensees to offer fixed services on a primary basis along
with mobile services. This rule change may facilitate the provision of wireless
local loop service, which involves the use of wireless links to provide
telephone service by cellular licensees, as well as broadband PCS and ESMR
licensees. In this regard, the FCC also recently adopted telephone number
portability rules for local exchange carriers, as well as cellular, broadband
PCS and ESMR licensees, that could facilitate the development of local exchange
competition, including wireless local loop service. The new number portability
rules generally require cellular, broadband PCS and ESMR licensees to have the
capability to deliver calls from their systems to ported numbers by December 31,
1998 and to offer number portability and roaming to ported numbers by June 30,
1999. These requirements may result in added capital expenditures for the
Company to make necessary system changes; however, the Company currently has not
budgeted for any such expenditures.
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<PAGE>
Interconnection charges paid to local exchange carriers are a major
component of the Company's cost structure. Changes in the interconnection charge
rate structure imposed by the FCC or mandated by the 1996 Act may have a
material impact on the Company.
The 1996 Act, which makes significant changes to the Communications Act and
terminated the antitrust consent decree applicable to the Regional Bell
Operating Companies ("RBOCs"), affects the telecommunications industry. This
legislation, among other things, affects competition for local
telecommunications services, interconnection arrangements for carriers,
universal service funding and the provision of interexchange services.
The 1996 Act requires state public utilities commissions and/or the FCC to
implement policies that mandate reciprocal compensation between local exchange
carriers for the interconnection of networks and interchange of traffic, a
category that will, for these purposes, include cellular carriers and PCS
licensees, for interconnection services at rates more closely related to cost.
On August 1, 1996, the FCC adopted rules implementing the interconnection
policies imposed by the 1996 Act. Various aspects of the order have been
overturned by a federal court, which decision remains subject to further review.
However, the FCC's orders remain in effect as to interconnection of CMRS
carriers to the local exchange. While it is too soon to predict the actual
effect of the FCC's order, the Company believes that the new rules are likely to
reduce the interconnection expenses incurred by the Company.
The 1996 Act requires the FCC to adopt rules that require interstate
communications carriers, including cellular carriers, to "make an equitable and
non-discriminatory contribution" to a universal service fund that reimburses
communications carriers that provide basic communications services to users who
receive services at subsidized rates. The FCC's universal service rules require
cellular and PCS licensees to pay monetary contributions to support federal
universal service programs based on gross revenues earned from
telecommunications services and could result in increased costs for the
Company's cellular operations. These provisions may also impact the Company's
wireline operations. The 1996 Act also eases the restrictions on the provision
of interexchange telephone services by wireless carriers affiliated with RBOCs.
RBOC-affiliated wireless carriers have interpreted the legislation to permit
immediate provision of in region long distance call delivery for their cellular
customers.
The 1996 Act specifically exempts all cellular carriers from the obligation
to provide equal access to interstate long distance carriers. However, the 1996
Act gives the FCC the authority to impose rules to require unblocked access
through carrier identification codes or 800/888 numbers, so that cellular
subscribers are not denied access to the long distance carrier of their
choosing, if the FCC determines that the public interest so requires. The
Company currently provides "dial around" equal access to all of its customers.
The overall impact of the 1996 Act on the business of the Company is unclear
and will likely remain so for the foreseeable future. The new limitations on
local zoning requirements may facilitate the construction of new cell sites and
related facilities. See "--State, Local and Other Regulation." However, other
provisions of the new statute relating to interconnection, telephone number
portability, universal service, equal access and resale could subject the
Company to additional costs and increased competition.
STATE, LOCAL AND OTHER REGULATION. The Communications Act preempts state or
local regulation of the entry of, or the rates charged by, any commercial mobile
service or any private mobile service provider, which includes cellular
telephone service providers. The FCC has denied the petitions of eight states to
continue their rate regulation authority, including authority over cellular
operators. As a practical matter, the Company is free to establish rates and
offer new products and service with a minimum of regulatory requirements. The
states in which the Company operates, and in which it will operate upon
completion of the proposed wireless acquisitions, maintain nominal oversight
jurisdiction, primarily focusing upon prior approval of acquisitions and
transfers and resolution of customer complaints.
13
<PAGE>
The location and construction of cellular transmitter towers and antennas
are subject to FCC and Federal Aviation Administration ("FAA") regulations and
are subject to federal, state and local environmental regulation, as well as
state or local zoning, land use and other regulation. Before a system can be put
into commercial operation, the grantee of a construction permit must obtain all
necessary zoning and building permit approvals for the cell site microwave tower
locations. The time needed to obtain zoning approvals and requisite state
permits varies from market to market and state to state. Likewise, variations
exist in local zoning processes.
Zoning and planning regulation may become more restrictive in the future as
many broadband PCS carriers are now seeking sites for network construction. The
1996 Act may provide some relief from state and local laws that arbitrarily
restrict the expansion of personal wireless services, which include cellular,
PCS and ESMR systems. For example, under the 1996 Act, localities are now
precluded from denying zoning approval for cell sites based upon electromagnetic
emission concerns, if the personal wireless service operator's system complies
with FCC emissions standards. In addition, localities are prohibited from
adopting zoning requirements that simply prohibit or have the effect of
prohibiting personal wireless services, or that discriminate between
"functionally equivalent" services. Many wireless telecommunications carriers
are challenging local zoning laws that restrict growth, but it remains unclear
whether the costs of expanding cellular systems by adding cell sites will
increase and whether significant delays will be experienced due to local zoning
regulation.
There can be no assurance that any state or local regulatory requirements
currently applicable to the Company's systems will not be changed in the future
or that regulatory requirements will not be adopted in those states and
localities which currently have none.
FUTURE REGULATION. From time to time, legislation that potentially could
affect the Company, either beneficially or adversely, is proposed by federal or
state legislators. There can be no assurance that federal or state legislation
will not be enacted, or that regulations will not be adopted or actions taken by
the FCC or state regulatory authorities that might adversely affect the business
of the Company. Changes such as the allocation by the FCC of radio spectrum or
services that compete with the Company's business could adversely affect the
Company's operating results. In this regard, the FCC has allocated and licensed
an additional 30 MHz for wireless communications services, and will soon license
an additional 1.3 GHz in the 28 GHz band which can be used for fixed wireless
services.
LICENSES
Initial cellular and PCS licenses are generally granted for terms of ten
years, beginning on the date of the grant of the initial operating authority,
and are renewable upon application to the FCC. The Company's existing cellular
licenses expire at various dates beginning in October 1998, and the licenses to
be acquired in the California 4 and Santa Cruz Acquisitions will expire at
varying dates beginning in October 1998. Licenses may be revoked and license
renewal applications denied for cause after appropriate notice and hearing. Near
the conclusion of the license term, licensees must file applications for renewal
of licenses to obtain authority to operate for up to an additional 10-year term.
The Company expects to file for and anticipates being granted a renewal
expectancy for all FCC licenses due to expire in 1998. The FCC will award a
renewal expectancy to a cellular licensee that meets certain standards of past
performance. If the existing licensee receives a renewal expectancy, it is very
likely that the existing licensee's cellular license will be renewed without
becoming subject to competing applications. To receive a renewal expectancy, a
licensee must show that it has provided "substantial" service during its past
license term, and has substantially complied with applicable FCC rules and
policies and the Communications Act. "Substantial" service is defined as service
which is sound, favorable and substantially above a level of mediocre service
that might only minimally warrant renewal. If the existing licensee does not
receive a renewal expectancy, competing applications for the license will be
accepted by the FCC. The parties will be subject to a comparative hearing and
the license may be awarded to another entity.
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<PAGE>
In order to increase competition in wireless communications, promote
improved quality and service and make available the widest possible range of
wireless services, federal legislation was enacted directing the FCC to allocate
radio frequency spectrum for all CMRS licensees, including PCS, by competitive
bidding. A PCS system operates under a protected geographic service area license
granted by the FCC for either an MTA or BTA on one of six frequency blocks
allocated for broadband PCS service. The FCC has divided the United States and
its possessions and territories into PCS markets based upon Rand McNally's 493
BTAs, all of which are included in the 51 MTAs. 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, 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 total of more than 2,000 licenses.
The FCC has adopted standards to apply to PCS renewals under which the FCC
will award a renewal expectancy using standards similar to those applied to
cellular licensees. All 30 MHz broadband PCS licensees must construct facilities
that offer coverage to one-third of the population of their service area within
five years, and two-thirds of the population within ten years, of their initial
license grants. All 10 MHz licensees must provide service to at least 25% of the
service area within five years of their initial license. Licensees that fail to
meet the coverage requirements may be subject to forfeiture of the license.
FCC rules restrict the voluntary assignments or transfers of control of
certain licenses awarded to "small businesses" with bidding enhancements in the
C Block and F Block auctions. During the first five years of the license term,
assignments or transfers affecting control are permitted only to assignees or
transferees that meet the eligibility criteria for participation in the
entrepreneur block auction at the time the application for assignment or
transfer of control is filed or, if the proposed assignee or transferee holds
other licenses for C Block and F Block, met the same eligibility criteria at the
time of receipt of such licenses. Any transfers or assignments during the entire
ten-year initial license terms are subject to unjust enrichment penalties, i.e.,
forfeiture of any bidding credits and acceleration of any installment payment
plans should the assignee or transferee not qualify for the same benefits. In
the case of the C Block and F Block, the FCC will conduct random audits to
ensure that licensees are in compliance with the FCC's eligibility rules.
Violations of the Communications Act or the FCC's rules could result in license
revocations, forfeitures or fines. The Company was qualified to hold C and F
licenses at the time such licenses were awarded, and anticipates remaining so
qualified throughout the term of the PCS licenses awarded to it.
For a period of up to five years after the grant of a PCS license (subject
to extension), a PCS licensee will be required to share spectrum with existing
licensees that operate certain fixed microwave systems within its license area.
To secure a sufficient amount of unencumbered spectrum to operate its PCS
systems efficiently and with adequate population coverage, the Company may need
to relocate many of these incumbent licensees, at the Company's expense, to
other frequencies or to reimburse other PCS entrants for expenses they have
incurred in relocating incumbent licensees in a manner that benefits the
Company. In an effort to balance the competing interests of existing microwave
users and newly authorized PCS licensees, the FCC has adopted (i) a transition
plan to relocate such microwave operators to other spectrum blocks and (ii) a
cost sharing plan so that if the relocation of an incumbent benefits more than
one PCS licensee, the benefitting PCS licensees will share the cost of the
relocation. This transition plan allows most microwave users to operate in the
PCS spectrum for a one-year voluntary negotiation period and an additional
one-year mandatory negotiation period. For public safety entities dedicating a
majority of their system communications for police, fire or emergency medical
services operations, the voluntary negotiation period is three years, with an
additional two-year mandatory negotiation period. Parties unable to reach
agreement within these time periods may refer the matter to the FCC for
resolution, but the incumbent microwave user is permitted to continue its
operations until final FCC resolution of the matter. The transition and cost
sharing plans expire on April 4, 2005, at which time remaining incumbents in the
PCS spectrum will be responsible for their costs to relocate to alternate
spectrum locations. The Company
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has not yet determined the extent, if any, of expenses it may need to incur for
the relocation of microwave incumbents in order to provide PCS services using
the PCS licenses it has been awarded.
Applications for FCC authority may be denied and in extreme cases licenses
may be revoked if the FCC finds that an entity lacks the requisite "character"
qualifications to be a licensee. In making the determination, the FCC considers
whether an applicant or licensee has been the subject of adverse findings in a
judicial or administrative proceeding involving felonies, the possession or sale
of unlawful drugs, fraud, antitrust violations or unfair competition, employment
discrimination, misrepresentations to the FCC or other government agencies, or
serious violations of the Communications Act or FCC regulations. The FCC also
requires licensees to comply with statutory restrictions regarding the direct or
indirect ownership or control of certain FCC licenses by foreign persons or
entities.
SERVICE MARKS
The Company owns the service mark DOBSON CELLULAR-SM- which it uses in its
cellular telephone systems in western Oklahoma. While the Company has not
attempted to federally register the brand name "Dobson Cellular," the Company
believes that its prior use of this brand name in the limited areas where it is
used will enable the Company to effectively police against any infringing uses
of such brand name.
The following table sets forth the service mark the Company uses for
products and services in each of its cellular clusters:
<TABLE>
<CAPTION>
CELLULAR SYSTEMS SERVICE MARK
- ------------------------------------------------ ------------------------------------------------------
<S> <C>
Oklahoma/Texas Cluster.......................... DOBSON CELLULAR-SM-, CELLULAR
ONE-Registered Trademark-
Kansas/Missouri Cluster......................... CELLULAR ONE-Registered Trademark-
Maryland/Pennsylvania Cluster................... CELLULAR ONE-Registered Trademark-
Arizona 5....................................... AIRTOUCH-SM- CELLULAR
Texas 16........................................ CELLULAR ONE-Registered Trademark-
</TABLE>
CELLULAR ONE-Registered Trademark- is a registered service mark with the
U.S. Patent and Trademark Office. The service mark is owned by Cellular One
Group, a Delaware general partnership of Cellular One Marketing, Inc., a
subsidiary of SWBM, Cellular One Development, Inc., a subsidiary of AT&T
Wireless, and Vanguard. The Company uses the CELLULAR ONE-Registered Trademark-
service mark to identify and promote its cellular telephone service pursuant to
licensing agreements with Cellular One Group. Licensing and advertising fees are
determined based upon the population of the licensed areas. The licensing
agreements require the Company to provide high-quality cellular telephone
service to its customers and to maintain a certain minimum overall customer
satisfaction rating in surveys commissioned by the licensor. The licensing
agreements have original five-year terms expiring in 2002 and may be renewed at
the Company's option, subject to the satisfaction of certain operating
standards, for two additional five-year terms.
AIRTOUCH-SM- CELLULAR is a registered service mark licensed by WMC, an
affiliate of AirTouch and U S WEST. In connection with the Arizona 5
Acquisition, the Company entered into a licensing agreement which permits the
Company to use the AIRTOUCH-SM- CELLULAR service mark to identify and promote
its cellular telephone service in Arizona 5. The Company's right to use the
service mark in the territory is non-exclusive and non-transferrable. The
licensing agreement for the AIRTOUCH-SM- CELLULAR mark requires the Company to
provide high-quality cellular telephone services to its customers and to
otherwise maintain reasonable standards set by WMC. The licensing agreement is
for an initial term of 20 years with automatic extensions for additional
five-year periods.
Following the completion of the California 4 and Santa Cruz Acquisitions,
the Company intends to market its services in the California 4 and Santa Cruz
markets using a national brand name. However, the Company has not yet entered
into any license agreements, and there can be no assurance that the Company will
be able to do so.
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COMPETITION
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements, and changes in consumer preferences and expectations. Accordingly,
the Company expects competition in the wireless telecommunications industry to
be dynamic and intense as a result of the entrance of new competitors and the
development of new technologies, products and services.
Each of the markets in which the Company competes will be served by other
two-way wireless service providers, including licensed cellular and PCS
operators and resellers. Many of these competitors have been operating for a
number of years, currently serve a substantial subscriber base and have
significantly greater financial and technical resources than those available to
the Company. Some competitors are expected to market other services, such as
cable television or internet access, with their wireless telecommunication
service offerings. Several of the Company's competitors are operating, or
planning to operate, through joint ventures and affiliation arrangements,
wireless telecommunications systems that encompass most of the United States.
The Company competes primarily against one other facilities-based cellular
carrier in each of its RSA and MSA markets. Competition for customers between
cellular licensees is based principally upon price, the services and
enhancements offered, the quality of the cellular system, customer service,
system coverage and capacity. Such competition may increase to the extent that
licenses are transferred from smaller, stand-alone operators to larger, better
capitalized and more experienced cellular operators that may be able to offer
consumers certain network advantages. The following table lists the Company's
cellular competitors in each of its cellular clusters:
<TABLE>
<CAPTION>
CELLULAR SYSTEMS PRINCIPAL CELLULAR COMPETITORS
- ------------------------------------------------ ------------------------------------------------------
<S> <C>
Oklahoma/Texas Cluster.......................... AT&T Wireless, Western Wireless, Enid Cellular
Kansas/Missouri Cluster......................... SWBM, Kansas Cellular, ALLTEL, Chariton Cellular
Maryland/Pennsylvania Cluster................... BAM, Sprint, U.S. Cellular
Arizona 5....................................... BAM
Texas 16........................................ GTE
</TABLE>
FUTURE COMPETITION. The FCC requires that all cellular system operators
provide service to resellers on a nondiscriminatory basis. A reseller provides
cellular service to customers but does not hold an FCC license or own cellular
facilities. Instead, the reseller buys blocks of cellular telephone numbers from
a licensed carrier and resells service through its own distribution network to
the public. Therefore, a reseller may be both a customer of a cellular
licensee's services and a competitor of that licensee. Several well-known
telecommuncations companies resell cellular service as a complement to their
long distance, local telephone, paging, cable television or internet offerings.
A growing source of direct competition to cellular providers in the near
term from a new technology is broadband PCS. Broadband PCS services consist of
wireless two-way telecommunications services for voice, data and other
transmissions employing digital micro-cellular technology. PCS operates in the
1850 to 1990 MHz band. Like cellular, PCS technology utilizes a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. Many of the PCS licensees that compete,
or will compete, with the Company have access to substantial capital resources.
In addition, many of these companies or their affiliates already operate large
cellular telephone systems and thus bring significant wireless experience to
this new marketplace.
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ESMR is a wireless communications service supplied by converting analog SMR
services into an integrated, digital transmission system. The ESMR system
incorporates characteristics of cellular technology, including multiple low
power transmitters and interconnection with the landline telephone network. ESMR
service provided by companies such as Nextel Communications, Inc. may compete
with analog cellular service by providing high quality digital communication
technology, lower rates, enhanced privacy and additional features such as
electronic mail and built-in paging. ESMR handsets are likely to be more
expensive than cellular telephones.
A consortium of telecommunications providers known as American Mobile
Satellite Corporation has been licensed by the FCC to provide mobile satellite
service ("MSS"). In addition, Motorola has been licensed by the FCC for a low
earth-orbit satellite system, called "Iridium," that would provide mobile
communications to subscribers throughout the world. Other proposals for MSS are
pending before the FCC. The FCC is developing rules for these services and
international and foreign regulatory authorities must also approve aspects of
some mobile satellite systems and services. Mobile satellite systems could
augment or replace communications within land-based cellular systems. The
Company is aware of one low earth-orbit satellite based ("LEO") system which has
commenced commercial operations. While the Company may experience increased
competition from LEO systems in the future, to date, such systems have not
affected the Company's operations.
The commercial development and deployment of most of these new technologies
remain in an early phase. The Company expects this activity to be focused
initially in relatively large markets in view of the substantial costs involved
in building and launching systems using these technologies. The Company believes
that it can effectively face this competition from its position as an incumbent
in the cellular field with a high quality network, an extensive footprint that
is not capacity constrained, strong distribution channels, superior customer
service capabilities and an experienced management team. Since the Company
operates in medium to small markets, the new entrants may be unable to offer
wireless service at competitive rates in many of the Company's markets in the
near term. The extensive capital expenditures required to deploy infrastructure
are more readily justifiable from an economic standpoint in larger, more densely
populated urban areas, than in the rural areas in which the Company operates.
The Company believes that its cellular subscription rates and roaming rates are
generally competitive with the rates of competitors in its markets.
WIRELINE OPERATIONS
HISTORY
Since 1936, the Company has provided rural local exchange services and
currently owns and operates nine contiguous local telephone exchanges in western
Oklahoma and three contiguous local telephone exchanges adjacent to and
immediately east of Oklahoma City. At December 31, 1997, the Company's local
telephone exchanges served 12,633 access lines. The Company provides local and
long-distance telecommunications services with enhanced and value-added calling
and billing features. For the three years ended December 31, 1997, 1996 and
1995, local exchange service revenue accounted for 16%, 31%, and 37% of the
Company's consolidated revenue.
The Company intends to leverage its reputation, knowledge of local markets
and its local exchange experience by reselling local, long distance and wireless
services. The Company commenced offering these services in October 1997 and
currently operates in three markets, including Oklahoma City and Tulsa, Oklahoma
and Amarillo, Texas. The Company uses its own switches and leases local exchange
lines in the Oklahoma markets. In the Amarillo, Texas market, the Company leases
both switch services and local exchange lines. The Company has an integrated
billing system designed to provide a single bill to customers for all services
provided.
The Company operates over 545 miles of long-haul fiber optic facilities. It
owns and operates approximately 360 miles of long-haul fiber optic facilities
between Oklahoma City and Amarillo which link
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the Company's local exchanges. The Company also is a 20% partner in, and
manages, a partnership which owns and operates approximately 185 miles of
long-haul fiber optic facilities between Springfield, Colorado and Colorado
Springs. The Company's fiber networks are linked to other networks through
interconnection agreements that allow it to provide voice and data
telecommunications services to cities in Washington, Idaho, Montana, Wyoming,
North Dakota, South Dakota, Minnesota, Wisconsin, Iowa, Illinois, Missouri,
Nebraska, Colorado, Kansas, New Mexico, Oklahoma and Texas. These networks
utilize advanced technologies capable of efficiently transmitting
capacity-intensive services, such as internet, multimedia applications, frame
relay and ATM services. The Company sells capacity on a wholesale basis to
telecommunications carriers, including certain subsidiaries of the Company, and
also sells services to public and private businesses and governmental agencies.
WIRELINE BUSINESS STRATEGY
The Company intends to leverage its reputation and knowledge of local
markets and its local exchange experience by offering CLEC services, including
local, long distance and wireless services initially in the greater Oklahoma
City and Tulsa, Oklahoma and Amarillo, Texas areas. The Company recently signed
a definitive agreement to acquire, American Telco, Inc. ("ATI"), a CLEC which
provides services in five major markets, including Houston, Dallas, Fort Worth,
San Antonio and Austin. The Company targets small and mid-sized business
customers with needs for a wide range of telecommunications services and a
preference for a simplified, single bill. The Company intends to resell local
services initially and leverage off of the existing infrastructure of ATI,
thereby limiting capital expenditures required in the near term, and to install
infrastructure to support local switched services as market conditions warrant.
The Company intends to initiate additional marketing programs to increase
its customer base and to increase the use of its long-haul fiber optic networks
by its existing customers. While the Company has no plans to expand its
long-haul fiber optic infrastructure, it will seek to expand its networks to
additional cities through new interconnection agreements.
Dobson Wireline Company ("Dobson Wireline"), the Company's subsidiary which
owns the Company's local exchange carrier, fiber and CLEC operations, has been
designated an "Unrestricted Subsidiary" under the Company's outstanding Senior
Notes and Senior Preferred Stock and, therefore, is not subject to covenant
restrictions which apply to the rest of the Company's operations.
LOCAL EXCHANGE CARRIER
The Company provides wireline telephone services to nine contiguous local
exchanges in western Oklahoma and three contiguous local exchanges adjacent to
and east of the Oklahoma City metropolitan area. These services are provided
through a subsidiary of the Company, Dobson Telephone Company, Inc. (Telco). At
December 31, 1997, the Company's local telephone exchanges served 12,633 access
lines.
Telco, like other wireline companies that operate in areas where, due to
factors such as geographic conditions or subscriber density, the cost to provide
service is higher than normal, receives reimbursement from state high cost
support funds (HCF) and from the federal universal service fund (USF).
Approximately 36% of the Company's revenue from its wireline local exchange
operations for the year ended December 31, 1997 was from these two sources.
Telco's other primary sources of revenue consist of end user revenue and access
revenue. End user revenue includes charges for local service and enhanced
services such as call waiting and call forwarding. Access revenue represents
amounts charged by Telco to IXCs for providing access from the IXCs' point of
presence to the end user who makes or receives a long-distance call.
The Telecommunications Act of 1996 (the "1996 Act") potentially impacts all
of these revenue sources. Under previous regulation, access charges contained
implicit support for high cost areas. The FCC recently adopted rules that would
remove implicit support from access revenues and place more emphasis for such
support on HCF/USF. The FCC's recently adopted changes may, over time, reduce or
eliminate
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subsidies to telephone companies. The Company will continue to pursue its
strategy to lessen the impact of any future regulatory changes by reducing its
operating costs through consolidation of operations at the Company level in
order to achieve economies of scale. Additionally, efforts are continuing to
maximize revenues from sources such as enhanced services, rather than from
support funds. Although there can be no assurance, management believes these
pro-active steps will assist in maintaining the stability of Telco's long-term
revenue.
CLEC
The Company commenced reselling local exchange, long-distance and wireless
services in October 1997 and currently operates in three markets, including
Oklahoma City and Tulsa, Oklahoma and Amarillo, Texas with plans to commence
offering these services in other metropolitan areas in the Company's regions
based on market demand. The Company has an agreement which allows the Company to
provide these services in all markets served by SWBT and GTE in Oklahoma. The
Company has also established an agreement with SWBT for the markets served by
SWBT in Texas and is currently awaiting approval by the Texas Public Utility
Commission on the agreement with GTE for the markets served by GTE in Texas.
Initially, however, the Company will focus on Oklahoma City and Tulsa, where the
Company can leverage off of its existing wireline operations in McLoud,
Oklahoma. By using its own switches and leasing local exchange lines, the
Company expects to offer these services without building out an extensive
infrastructure. The Company intends to utilize its existing reputation and
goodwill by offering a full range of telecommunication services under the
LOGIX-SM- brand name. The Company will focus primarily on small and mid-sized
businesses.
FIBER
The Company operates over 545 miles of long-haul fiber optic facilities. The
Company entered the fiber business in 1990 when it joined with AT&T to place
fiber between Oklahoma City and Amarillo, which links the Company's local
exchanges. The Company and AT&T each has its own cable, sharing in all legal
rights to the private right-of-way where the cables are located. The Company's
cable covers approximately 360 route miles and consists of 36 strands of fiber.
In 1991, the Company acquired a 20% interest in Forte of Colorado Partnership
which has 24 strands of fiber from Springfield, Colorado, to Colorado Springs,
approximately 185 miles in length. To enhance the revenue potential for the
above segments, the Company, Forte of Colorado and other segment providers have
interconnected their networks and currently offer fiber-based transport services
among Albuquerque, Amarillo, Colorado Springs, Dallas, Denver, Kansas City,
Lubbock, Oklahoma City, Omaha, Midland, Wichita and Wichita Falls. Other segment
providers have expressed interest in interconnecting to this network and
expansion may occur north to Chicago, south to Houston and San Antonio, and east
toward Atlanta. There can be no assurance that such expansion will occur to all
or any of these cities, or if such expansion does occur, when it may occur or on
what terms and conditions.
Revenue from the fiber business is generated from three principal sources:
(1) wholesale long-haul transport services as a "carrier's carrier"; (2)
services to private business and government end users; and (3) long-haul
transport services for the Company's other businesses. Substantially all of the
Company's revenues from its fiber business is generated from its long-haul
services, including those of the Company's other businesses.
The Company has long-haul service contracts with various long-distance
carriers, including AT&T, SWBT, Sprint and NTS. NTS, which, in turn, resells to
MCI and WorldCom, is the largest customer of the Company's fiber business,
accounting for approximately 41% and 49% of its gross fiber revenue for the
years ended December 31, 1997 and 1996, respectively. The Company also provides
services to the State of Oklahoma and Vyvx.
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<PAGE>
The Company currently markets its fiber services through one full-time sales
employee and an independent marketing agent. The Company intends to initiate
additional marketing programs to increase its customer base and the use of its
fiber network by its existing customers. While the Company has no plans to add
additional fiber optic lines, it will seek to expand its network to additional
cities through new interconnection agreements.
The Company believes that it has a competitive advantage in the market area
that it serves because it has the only long-haul fiber network between Oklahoma
City and Amarillo, other than AT&T. AT&T's network, however, does not branch off
to small communities between Oklahoma City and Amarillo. By expanding its
network through interconnect agreements to access other major population centers
(including routes which may be attractive to major carriers) and providing
high-quality, reliable transmission services on a fixed-cost basis at
competitive rates, the Company can increase its fiber revenue.
PENDING WIRELINE ACQUISITIONS
In January 1998, the Company entered into a non-binding letter of intent
with Zenex to purchase contractual rights, information data and other rights
with respect to its commercial long distance resale customers in Oklahoma for
$5.8 million, subject to adjustment. Even though the letter of intent with
respect to the Zenex purchase has expired, negotiations are continuing.
In March 1998, the Company entered into a definitive agreement to purchase
substantially all of the assets of ATI for $130.0 million, subject to
adjustment. The Company has placed $5.0 million into escrow pending closing of
the acquisition which is expected to occur late in the second quarter of 1998.
ATI is a Houston-based CLEC which provides resale services to primarily
commercial customers in five major Texas markets including Houston, Dallas, Fort
Worth, San Antonio and Austin.
REGULATION
Telco is subject to the regulatory authority of the Oklahoma Corporation
Commission (the "OCC"), which sets rates, terms and conditions of service, and
mandates minimum service and quality of service requirements for telephone
companies in Oklahoma. Telephone companies in Oklahoma have elected to be access
providers, providing long distance service only between their own exchanges.
Interexchange carriers, including SWBT, provide all other long distance services
for other customers. The Company has received authority to provide competitive
local exchange telecommunications services and to resell intrastate long
distance services within Oklahoma. The Company has received authority to resell
intrastate long distance services within Texas and has an application pending to
provide facility-based intrastate services in Texas.
On July 1, 1997, the Oklahoma Telecommunications Act of 1997 (the "Oklahoma
Act") became effective. The Oklahoma Act created the Oklahoma Universal Service
Fund ("OUSF") with one of its stated purposes to promote and ensure the
availability of both primary universal services, at rates that are reasonable
and affordable, and special universal services, and to provide for reasonably
comparable services at affordable rates in rural areas as well as in urban
areas. The Company's local exchange operations have been determined by the OCC
to be eligible to receive both federal universal funds and OUSF funds. The
Oklahoma Act specifically provides that eligible local exchange
telecommunications service providers are to receive OUSF funding to reimburse
them for their reasonable investment and expenses incurred in providing
universal services which are not recovered from the federal universal service
fund or any other state or federal fund, for infrastructure expenditures or
costs incurred in response to facility or service requirements established by
governmental mandate and for other purposes deemed necessary by the OCC to
preserve and advance universal service. The OCC is promulgating rules to
implement the Oklahoma Act. The interpretation of the Oklahoma Act and
application of the OCC rules implementing the OUSF could have a material effect
on Company's wireline operations.
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The 1996 Act potentially impacts the Company's wireline operations. Under
previous regulations access charges contained implicit support for high-cost
areas. The FCC has initiated proceedings to overhaul the contribution mechanism
for federal support revenue. Recently adopted rules would remove implicit
support from access revenues and place more emphasis for such support on
HCF/USF. In May 1997, the FCC adopted changes that may, over time, reduce or
eliminate subsidies to telephone companies in areas where the cost of connecting
and maintaining phone lines is demonstrated to be above the industry or area
norm. While it is too early to predict the effect of FCC orders, the rules
ultimately adopted by the FCC may have a material adverse effect on the
Company's wireline operations.
In addition, on May 16, 1997, the FCC released an order revising its access
charge rate structure. The new rules substantially increase the costs that local
exchange carriers, including the Company, which are subject to the FCC's price
cap rules ("price cap LECs"), recover through monthly, non-traffic sensitive
access charges and substantially decrease the costs that price cap LECs recover
through traffic sensitive access charges. In the order, the FCC also announced
its plan to bring interstate access rate levels more in line with cost. The FCC
has stated that this plan will grant price cap LECs increased pricing
flexibility upon demonstrations of increased competition (or potential
competition) in relevant markets. The manner in which the FCC further implements
this approach to lowering access charge levels could have a material effect on
the Company's ability to compete in providing interstate access services and on
the Company's wireline operations. An October 1997 FCC access charge decision,
for example, requires local exchange carriers to provide interexchange carriers
with certain information about the number and types of charges they impose on
interexchange carriers' presubscribed customers. Several parties have appealed
the May 16, 1997 order. Those appeals have been consolidated and transferred to
the United States Court of Appeals for the Eighth Circuit where they are
currently pending.
SERVICE MARKS
The Company owns the service mark LOGIX-SM- which it uses in its competitive
local exchange operations in the Oklahoma City and Tulsa areas.
COMPETITION
There are currently no competitors in the areas served by the Company's
local exchanges. In connection with its CLEC resale services, including local,
long distance and wireless services, the Company competes in Oklahoma City and
Tulsa with the incumbent local exchange carrier, SWBT, which has long-standing
relationships with its customers, has financial, technical and marketing
resources substantially greater than those of the Company and benefits from
certain existing regulations that favor the local exchange carrier over the
Company in certain respects. Upon completion of the ATI acquisition and planned
expansion, the Company's CLEC operations will also compete in seven Texas
markets including Houston, Dallas, Fort Worth, San Antonio, Austin, Amarillo and
Lubbock. Local competition in the Texas markets will include SWBT, GTE,
WorldCom, ACSI and ICG. Long distance competition in the Texas markets will
include AT&T, Sprint, MCI, Excel and LCI. Other competitors in the CLEC
operations may include Brooks, Allegience, Intermediate and other competitive
local exchange carriers, microwave and satellite carriers, wireless
telecommunications providers and other resellers. In addition, AT&T, MCI and
Sprint have announced plans to offer integrated local and long distance
telecommunications services. There can be no assurance that the Company will be
able to achieve or maintain significant revenue or compete effectively in its
resale business. Finally, a number of RBOCs have challenged the 1996 Acts
restrictions on RBOC provision of in-region interexchange services in Federal
courts. The resolution of these judicial challenges may alter the Company's
ability to compete effectively with SWBT and other carriers in connection with
its CLEC resale services.
In providing bulk long-haul circuit capacity, the Company's primary
competitors are IXC Communications, Inc., QWest Communications International
Inc. and AT&T. AT&T is the largest supplier of long distance voice and data
transmission services in the United States and has a transmission line adjacent
to
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the Company's between Oklahoma City and Amarillo. The Company also competes with
other facilities-based IXCs, such as MCI, WorldCom and Sprint, all of which have
substantially greater financial resources than the Company and a far more
extensive transmission network than the Company's network. In Oklahoma, the
Company's principal competitor is a subsidiary of SWBT. The Company may also
face competition from the RBOCs, GTE and others such as electric utilities and
cable television companies.
EMPLOYEES AND AGENTS
As of December 31, 1997, the Company had approximately 369 employees. In
addition, as of such date, the Company had agreements with 160 independent sales
agents, including car dealerships, electronics stores, paging service companies
and independent contractors. None of the Company's employees are represented by
a labor organization, and the Company considers its employee relations to be
good.
CERTAIN TERMS
For cellular regulatory purposes, the Federal Communications Commission
("FCC") has designated regions of the United States as either a Metropolitan
Statistical Area ("MSA") or Rural Service Area ("RSA"). Interests in cellular
markets are commonly measured on the basis of the population of the MSA or RSA
served, with each person in the market area referred to as a "Pop." As used in
this Memorandum, unless otherwise indicated, the term "Pops" means the estimate
of the population of an MSA or RSA, as derived from the CELLULAR/PCS POP BOOK:
1997 by Paul Kagan Associates, Inc. The term "Net Pops" means the estimated
population with respect to a given service area multiplied by the percentage
interest that the Company owns in the entity licensed in such service area. MSAs
and RSAs are also referred to as "markets." The term "non-wireline license"
refers to the license for any market that was initially awarded to a company,
individual or group, not affiliated with any landline carrier providing service
in the market. The term "wireline license" refers to the license for any market
that was initially awarded to a company, individual or group, affiliated with a
landline carrier providing service in the market. There is, however, no
technical distinction between a wireline and a non-wireline license. The term
"system" means an FCC-licensed cellular telephone system. The term "cell" refers
to the service area of an individual transmitter located in a cellular system.
The term "footprint" refers to the total system coverage area served under an
FCC license by a given licensee. "Churn" means the number of cellular subscriber
cancellations per month as a percentage of the total cellular subscribers at the
end of such month. Churn is stated as the average monthly churn rate for the
period. The term "TDMA" means a digital technology that uses time division
multiple access and the term "CDMA" means a digital technology that uses code
division multiple access. The term "PCS" means personal communications services.
The term "ATM" means asynchronous transfer mode. The term "CTIA" means the
Cellular Telecommunications Industry Association. The term "NACN" means the
North American Cellular Network. For PCS regulatory purposes, the FCC has
designated regions of the United States as either a Major Trading Area ("MTA")
or Basic Trading Area ("BTA").
Recent acquisitions referred to in this report include the Company's
acquisition of (i) the FCC licenses for and assets related to the Kansas 5 RSA,
Missouri 1 RSA, Missouri 4 RSA and Missouri 5 RSA (collectively, the
"Kansas/Missouri Cluster") completed on March 19, 1996, (ii) the FCC licenses
for and assets related to the Maryland 2 RSA ("Maryland 2") (the "Maryland 2
Acquisition") completed on March 3, 1997, (iii) the FCC licenses for and assets
related to the Cumberland MSA, Hagerstown MSA, Maryland 3 RSA and Pennsylvania
10 West RSA (collectively, the "Western Maryland Properties" and, together with
Maryland 2, the "Maryland/Pennsylvania Cluster") (the "Western Maryland
Properties Acquisition") completed on February 28, 1997, (iv) the FCC license
for and a 75% interest in the partnership (the "Arizona 5 Partnership") which
owns the system for the Arizona 5 RSA ("Arizona 5") (the "Arizona 5
Acquisition") completed on October 1, 1997, and (v) the FCC license for and
assets related to the Texas 16 RSA ("Texas 16") (the "Texas 16 Acquisition")
completed on January 26, 1998. Proposed wireless acquisitions referred to in
this report include (a) the acquisition of the two entities which own a 100%
interest in the partnership (the "California 4 Partnership") which owns the FCC
license and systems
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for the California 4 RSA ("California 4") (the "California 4 Acquisition") and
(b) the acquisition of 70% of the outstanding stock of a corporation that owns
the FCC license for and assets related to the Santa Cruz MSA ("Santa Cruz") (the
"Santa Cruz Acquisition"). Other wireless acquisitions referred to in this
report include the (i) the FCC license for and assets related to the California
7 RSA ("California 7") (the "California 7 Acquisition"), (ii) the FCC license
for and assets related to the Texas 7 RSA ("Texas 7") (the "Texas 7
Acquisition") and (iii) the FCC license for and assets related to the Arkansas
11 RSA ("Arkansas 11") (the "Arkansas 11 Acquisition"). The term "Pending
Wireline Acquisitions" means (a) the acquisition of the stock of American Telco,
Inc. ("ATI") and (b) the acquisition of certain assets of Zenex Long Distance,
Inc. ("Zenex"). The term "Senior Notes" means the Company's 11.75% Senior Notes
due 2007 issued on February 28, 1997, and the term "Senior Preferred Stock"
means the Company 12.25% Senior Exchangeable Preferred Stock Mandatorily
Redemable 2008 issued on January 22, 1998.
The term "EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization, extraordinary items and changes in accounting
principles.
As used herein the following companies and businesses are identified as
indicated: "ACSI" means American Communications Services, Inc.; "AirTouch" means
AirTouch Communications, Inc.; "Allegiance" means Allegiance Telecom, Inc.;
"ALLTEL" means ALLTEL Corporation and its affiliates; "AT&T" means AT&T Corp.;
"AT&T Wireless" means AT&T Wireless Services, Inc. and its affiliates; "ATTI"
means Associated Telecommunications and Technologies, Inc., an affiliate of the
Company; "BAM" means Bell Atlantic Mobile; "Brooks" means Brooks Fiber
Properties, Inc.; "BellSouth Mobility" means BellSouth Mobility, Inc.; "Chariton
Cellular" means Missouri RSA 5 Partnership d/b/a Chariton Valley Cellular; "CMT"
means CMT Partners, a partnership between AT&T Wireless and AirTouch; "Enid
Cellular" means Enid MSA Partnership d/b/a Enid Cellular; "Ericsson" means
Telefonaktiebolaget LM Ericsson and its affiliates; "Excel" means Excel
Communications, Inc.; "Fleet Investors" means, collectively, Fleet Venture
Resources, Inc., Fleet Equity Partners VI, L.P. and Kennedy Plaza Partners;
"GTE" means GTE Corporation and its affiliates; "Houston Cellular" means a
partnership between AT&T Wireless and BellSouth Mobility; "ICG" means ICG
Telecom Group, Inc.; "Intermedia" means Intermedia Communciations, Inc.; "Kansas
Cellular" means Independent Networks, Inc. d/b/a Kansas Cellular; "LCI" means
LCI International, Inc.; "MCI" means MCI Communications Corporation; "Motorola"
means Motorola, Inc.; "NTS" means NTS Communications, Inc.; "OmniPoint" means
OmniPoint Communications Corporation and its affiliates; "PacTel" means Pacific
Telesis Mobile Services; "Sprint" means Sprint Corporation and affiliated
companies; "SWBM" means Southwestern Bell Mobile Systems, Inc.; "SWBT" means
Southwestern Bell Telephone Company; "U.S. Cellular" means United States
Cellular Corporation; "U S WEST" means U S WEST, Inc. and its affiliated
companies; "Vanguard" means Vanguard Cellular Systems, Inc.; "Vyvx" means Vyvx,
Inc.; "Western Wireless" means Western Wireless Corporation; "WMC" means WMC
Partners, L.P., an affiliate of AirTouch and U S WEST; and "WorldCom" means
WorldCom, Inc.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Oklahoma City, Oklahoma.
The Company leases this space, which is approximately 24,600 square feet, from
an affiliate of the Company at a monthly rental of approximately $23,000. See
Item 13. Certain Relationships and Related Transactions. As of February 28,
1998, the Company's wireless operations leased 35 and owned four sales and
administrative offices, at aggregate annual rentals of approximately $.8
million. The Company anticipates that it will review these leases from time to
time and may, in the future, lease or acquire new facilities as needed. The
Company expects to lease or purchase additional sales and administrative office
spaces in connection with proposed wireless acquisitions. The Company does not
anticipate that it will encounter any material difficulties in meeting its
future needs for any leased space. The Company also owns and leases cell sites,
162 as of February 28, 1998.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any pending legal proceedings that
individually or in the aggregate are material to the Company. The Company is a
party to routine filings and customary regulatory proceedings with the FCC and
the OCC relating to its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established trading market for the Company's Common Stock. As of
March 15, 1998, there were two record holders of the Company's Class A Common
Stock.
In 1997, the Company declared monthly cash dividends aggregating $7.6
million on the Class A Common Stock until its reorganization on February 28,
1997, and during 1996 the Company declared monthly cash dividends aggregating
$.6 million on the Class A Common Stock for the year. Such dividends were used
by the holder of 99.3% of the Class A Common Stock to pay accrued interest on
the outstanding principal amount of a bank loan in favor of the stockholder and
guaranteed by the Company. See Item 13. Certain Relationships and Related
Transactions. The Board of Directors has no present plan to declare cash
dividends on any Common Stock. In addition, the terms of the Company's Senior
Notes, its Senior Preferred Stock, the purchase agreement for its Class B
Preferred Stock and its bank credit facilities restrict the ability of the
Company to pay dividends on its Common Stock for the foreseeable future.
On January 22, 1998, the Company sold 175,000 shares of Senior Preferred
Stock in a private placement to Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery Securities
LLC (the "Placement Agents") pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 (the "Securities Act").
The Placement Agents resold the shares to qualified institutional buyers, as
defined in, and in reliance on the exemption from registration provided by, Rule
144A under the Securities Act. The aggregate offering price for the shares was
$175 million, and aggregate discounts and commissions are estimated to be
approximately $8.0 million.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical consolidated financial
data with respect to each of the five years ended December 31, 1997 which have
been derived from the Company's audited consolidated financial statements. The
historical consolidated financial data should be read in conjunction with Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations and the audited consolidated financial statements and related notes
thereto included in Item 8.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997(1) 1996(2) 1995 1994 1993
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE AND PER SUBSCRIBER
DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Wireless revenue...................................................... $ 66,128 $ 26,107 $ 18,990 $ 15,169 $ 11,089
Wireline revenue...................................................... 18,455 16,286 14,766 12,871 11,550
Other revenue......................................................... 586 832 693 206 158
--------- --------- --------- --------- -----------
Total revenue....................................................... 85,169 43,225 34,449 28,246 22,797
Costs and expenses:
Cost of service and equipment sales................................... 21,344 9,076 7,014 5,418 4,965
Marketing and selling................................................. 11,762 4,908 3,157 3,098 2,552
General and administrative............................................ 19,877 12,087 10,138 9,621 7,971
Depreciation and amortization......................................... 21,729 9,720 6,653 5,534 4,563
--------- --------- --------- --------- -----------
Total costs and expenses............................................ 74,712 35,791 26,962 23,671 20,051
Operating income........................................................ 10,457 7,434 7,487 4,575 2,746
Interest expense........................................................ (30,098) (6,478) (3,833) (2,970) (2,567)
Other income (expense), net............................................. 2,880 (1,586) (478) (147) 145
Minority interests in (income) losses of subsidiaries(3)................ (1,693) (675) (1,334) (1,105) (502)
Income tax (provision) benefit.......................................... 3,287 411 (738) (119) 78
--------- --------- --------- --------- -----------
Income (loss) before extraordinary items................................ (15,167) (894) 1,104 234 541
Extraordinary items(4).................................................. (1,567) (527) -- 228 --
--------- --------- --------- --------- -----------
Net income (loss)....................................................... (16,734) (1,421) 1,104 462 541(5)
Dividends on preferred stock............................................ (2,603) (849) (591) (83) --
--------- --------- --------- --------- -----------
Net income (loss) applicable to common stockholders..................... $ (19,337) $ (2,270) $ 513 $ 379 $ 541
--------- --------- --------- --------- -----------
Basic net income (loss) applicable to common stockholders per common
share................................................................. $ (40.87) $ (4.80) $ 1.08 $ .80 $ 1.14
--------- --------- --------- --------- -----------
Dividends per average common share...................................... $ 16.13 $ 1.18 $ 1.40 $ .11 $ --
--------- --------- --------- --------- -----------
Basic weighted average common shares outstanding........................ 473,152 473,152 473,152 473,152 473,152
--------- --------- --------- --------- -----------
OTHER FINANCIAL DATA:
EBITDA (6):
Wireless Telecommunications(7)........................................ $ 21,977 7,005 5,439 3,923 2,680
Wireline Telecommunications........................................... 8,173 7,270 7,262 5,518 5,158
Other................................................................. 2,036 2,880 1,439 669 (529)
--------- --------- --------- --------- -----------
Total............................................................... $ 32,186 $ 17,155 $ 14,140 $ 10,110 $ 7,309
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Ratio of earnings to fixed charges(8)................................... -- -- 1.47x 1.12x --
Ratio of earnings to combined fixed charges and preferred stock
dividends(8).......................................................... -- -- 1.28x 1.09x --
Capital expenditures, excluding cost of acquisitions.................... $ 23,216 $ 17,438 $ 3,925 $ 5,267 $ 7,353
OTHER DATA:
Ending cellular subscribers............................................. 100,093 33,955 26,614 21,481 15,283
Cellular penetration(9)................................................. 6.08% 5.77% 8.02% 6.45% 4.63%
Cellular churn(10)...................................................... 1.89% 1.84% 1.52% .92% .45%
Average monthly revenue per cellular subscriber(11)..................... $ 41.05 $ 48.31 $ 50.00 $ 50.45 $ 52.77
Marketing and selling costs per gross additional cellular
subscriber(12)........................................................ $ 397.55 $ 539.57 $ 451.23 $ 429.06 $ 392.04
Cellular cell sites (at period end)..................................... 135 67 46 36 26
Wireline access lines (at period end)................................... 12,633 11,959 11,806 11,322 10,899
Route miles (at period end)(13)......................................... 545 545 516 485 485
Fiber miles (at period end)(14)......................................... 11,554 11,537 11,189 10,817 10,817
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
BALANCE SHEET DATA:
Net fixed assets......................................................... $ 88,350 $ 61,930 $ 46,987 $ 48,834 $ 48,469
Total assets............................................................. 383,214 116,948 73,490 69,647 67,250
Long-term debt, net of current portion................................... 363,069 104,304 64,405 60,727 53,051
Mandatorily redeemable preferred stock(15)............................... 11,623 10,000 5,913 5,913 --
Stockholders' equity (deficit)........................................... (36,773) (9,802) (6,972) (6,824) 4,760
</TABLE>
- ------------------------------
(1) Includes the operations of the Western Maryland Properties, Maryland 2 and
Arizona 5 from February 28, 1997, March 3, 1997 and October 1, 1997,
respectively, the dates they were acquired by the Company.
(2) Includes the operations of Kansas/Missouri Cluster from March 19, 1996, the
date of its acquisition by the Company.
(3) Reflects minority interests in partnerships in which the Company owns the
majority interests.
(4) Extraordinary items reflect the gain or (loss), net of tax related to early
extinguishment of debt.
(5) Includes $641,000 of additional income to give cumulative effect to
accounting change resulting from the implementation of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
(6) EBITDA is provided because it is a measure commonly used in the industry to
determine a company's ability to incur or service debt. EBITDA is not
derived pursuant to generally accepted accounting principles and should not
be construed as an alternative to net income, as a measure of performance,
or to cash flows, as a measure of liquidity. The calculation of EBITDA does
not include the Company's commitments for capital expenditures or payments
of debts and should not be deemed to represent funds available to the
Company.
(7) Includes EBITDA attributable to minority interests in subsidiaries in which
the Company owns a majority interest. Each such subsidiary has outstanding
indebtedness to the Company and all of the subsidiaries' cash flow is used
to service such indebtedness and is not available for distributions to the
holders of the minority interests. The portion of EBITDA attributable to
minority interests was $2.9 million, $2.3 million, $2.0 million, $1.5
million and $.9 million for the years ended December 31, 1997, 1996, 1995,
1994 and 1993, respectively.
(8) For the years ended December 31, 1997, 1996 and 1994, earnings were
insufficient to cover fixed charges by $18.5 million, $1.3 million and $.2
million, respectively. For the years ended December 31, 1997, 1996 and 1993,
earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $21.1 million, $2.2 million and $.2 million,
respectively. "Earnings" is defined as earnings before extraordinary items
and accounting changes, interest expense, amortization of deferred financing
costs, taxes and the portion of rent expense under operating leases
representative of interest. Fixed charges consist of interest expense,
amortization of deferred financing costs and a portion of rent expense under
operating leases representative of interest.
(9) Determined by dividing the Company's total ending cellular subscribers for
the period by the estimated total Pops covered by applicable FCC cellular
licenses or authorizations held by the Company.
(10) "Churn" means the number of cellular subscriber cancellations during a
month as a percentage of the total cellular subscribers at the end of such
month. Churn is stated as the average monthly churn rate for the period.
(11) Excludes roaming revenue.
(12) Determined by dividing cellular marketing and selling costs by the gross
cellular subscribers added during such period. Cellular marketing and
selling costs represent selling expenses and losses incurred on equipment
sales.
(13) Route miles refers to the number of miles over which fiber optic cables are
installed.
(14) Fiber miles refers to the number of route miles multiplied by the number of
fibers installed along that path.
(15) On January 22, 1998, the Company issued Senior Preferred Stock having an
aggregate liquidation preference of $175.0 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company provides diversified telecommunication products and services.
The Company currently provides wireless telecommunication services in its
Oklahoma/Texas Cluster, its Kansas/Missouri Cluster, its Maryland/Pennsylvania
Cluster and in Arizona 5 and Texas 16. Upon consummation of the proposed
wireless acquisitions of California 4 and Santa Cruz, the Company will also own
and operate cellular
27
<PAGE>
systems in northern and southern California. The Company's wireline
telecommunication operations include local telephone exchange services in
Oklahoma, regional long-haul fiber optic transmission networks in Oklahoma,
Texas and Colorado and CLEC operations which began to resell local, long
distance and wireless services in 1997 and currently operates in three markets,
including Oklahoma City and Tulsa, Oklahoma and Amarillo, Texas. Upon
consummation of the Pending Wireline Acquisitions, the Company will also resell
services in Houston, Dallas, Fort Worth, San Antonio and Austin.
OVERVIEW
SIGNIFICANT EVENTS IN 1997
The following events materially impacted the Company's results of operations
and financial position in 1997.
On February 28, 1997, the Company purchased the FCC cellular licenses for,
and certain assets relating to, two MSAs and two RSAs located in Maryland and
Pennsylvania for $77.6 million. The properties are located immediately outside
the Washington/Baltimore metropolitan area. On March 3, 1997, the Company
purchased the FCC cellular license for, and certain assets relating to, Maryland
RSA 2 for $75.8 million. The property is located to the east of the
Washington/Baltimore metropolitan area.
On February 28, 1997, the Company's bank credit agreement was amended and
restated to provide the Company with a $200 million revolving credit facility
maturing in 2005 (the "Bank Facility"). Interest on borrowings under the Bank
Facility accrued at a variable rate (weighted average rate of 8.43% at December
31, 1997). Initial loan proceeds were used to refinance existing indebtedness,
finance the Maryland/Pennsylvania Cluster acquisitions described above and for
general corporate purposes, including the payment of a $7.5 million dividend in
February 1997 to holders of the Company's Class A Common Stock. The principal
stockholder used $6.0 million of the dividend to repay a loan which had been
guaranteed by the Company and approximately $.5 million to repay indebtedness
owed to the Company with respect to certain legal fees. As a result of the $7.5
million dividend, the holders of Class B Convertible Preferred Stock were issued
100,000 shares of Class C Preferred Stock, having a liquidation preference of
approximately $1.6 million. See Item 13. Certain Relationships and Related
Transactions. In connection with the closing of the Bank Facility, the Company
extinguished its then existing credit facility. The Company financed the Arizona
5 Partnership acquisition discussed below with borrowings under the Bank
Facility.
On February 28, 1997, the Company issued pursuant to a private offering $160
million of 11.75% Senior Notes maturing in 2007 and used the net proceeds
($155.2 million) to finance the Maryland/ Pennsylvania Cluster acquisitions
($116.9 million) and to purchase securities ($38.4 million) which were pledged
and escrowed to secure payment of the first four semi-annual interest payments
on the notes, which began on October 15, 1997. Except for the first four
interest payments, the Senior Notes are unsecured obligations of the Company,
redeemable at the option of the Company, in whole or in part, on or after April
15, 2002. In addition, at any time prior to April 15, 2000, the Company may
redeem up to 35% of the aggregate principal amount with the net proceeds of
sales of capital stock of the Company. In June 1997, the Company completed an
offer to exchange all of the outstanding senior notes for substantially
identical notes registered under the Securities Act of 1933.
On October 1, 1997, the Company purchased for $39.8 million a 75% interest
in the Arizona 5 Partnership, which owns the cellular license for Arizona 5 as
well as the associated tangible operating assets. Certain affiliates of the
Company indirectly owned a 20.6% interest in the Arizona 5 Partnership and
received approximately $9.5 million in connection with the acquisition. See Item
13. Certain Relationships and Related Transactions. In addition, the Company
loaned $5.2 million to the current partner which acquired a 25% interest in the
Arizona 5 Partnership.
SIGNIFICANT RECENT EVENTS
On January 22, 1998, the Company issued, in a private offering, 175,000
shares of 12.25% Senior Preferred Stock. The net proceeds to the Company were
approximately $167.0 million. Dividends on the
28
<PAGE>
Senior Preferred Stock are cumulative and payable quarterly, commencing April
15, 1998, in cash or, until January 15, 2003 at the option of the Company, in
additional shares of Senior Preferred Stock. The Senior Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company, into
12.25% Senior Subordinated Exchange Debentures due 2008 (the "Exchange
Debentures") of the Company. The Company may redeem the Senior Preferred Stock
or, if issued, the Exchange Debentures, in whole or in part, at any time on or
after January 15, 2003. In addition, at any time prior to January 15, 2001, the
Company may redeem up to 35% of the Senior Preferred Stock or Exchange
Debentures originally issued from the proceeds of sales of the Company's common
stock.
On January 26, 1998, the Company purchased the FCC cellular license for, and
certain assets relating to, Texas 16 for $56.6 million, subject to adjustment,
using proceeds from the Senior Preferred Stock offering. Texas 16 is located in
south-central Texas between Houston, San Antonio and Austin.
On March 19, 1998, the Company entered into a definitive agreement to
purchase the remaining 25% interest in the California 4 Partnership for $21.7
million bringing the aggregate California 4 purchase price to $87.0 million,
subject to adjustment. Previously in November 1997, the Company entered into a
definitive agreement to purchase a 75% interest in the California 4 Partnership
for $65.3 million.
On March 25, 1998, the Company entered into a definitive agreement to
purchase 70% of the outstanding stock of the corporation that owns the FCC
cellular license for, and the assets relating to, the Santa Cruz, CA MSA for
$25.2 million, subject to adjustment. The Company is negotiating to acquire the
remaining 30% of the outstanding stock of such corporation.
On March 26, 1998, the Company entered into a definitive agreement to
purchase the common stock of ATI for approximately $130.0 million. ATI is based
in Houston, Texas and provides resale services to primarily commercial customers
in five major Texas markets, including Houston, Dallas, Fort Worth, San Antonio
and Austin.
On March 27, 1998, the Company established a $200 million senior secured
credit facility and replaced its existing revolving credit facility with a $250
million senior secured credit facility. The credit facilities will be used
primarily to refinance existing bank indebtedness, finance capital expenditures,
consummate acquisitions, finance interest payments on the Senior Notes, and fund
general corporate operations. Interest on the facilities will accrue at variable
rates and will terminate in 2006.
WIRELESS OPERATIONS
The Company's wireless or cellular revenues consist of service, roaming and
equipment sales revenues. There has been an industry trend of declining average
revenue per minute, as competition among service providers has led to reductions
in rates for airtime and subscriptions and other charges. The Company believes
that the impact of this trend will be mitigated by increases in the number of
wireless telecommunications subscribers and the number of minutes of usage per
subscriber. There has also been a broad trend in the wireless telecommunications
industry of declining average revenue per subscriber. The Company believes that
the downward trend is primarily the result of the addition of new lower usage
customers who utilize cellular services for personal convenience, security or as
a backup for their traditional landline telephone. Although the Company has
experienced a decline in average revenue per subscriber, the Company has
introduced new services, such as voice mail and call forwarding, which has
increased revenue and encouraged additional usage to a limited extent.
Roaming accounted for 39.7% of the Company's cellular revenue for the year
ended December 31, 1997. While the industry trend is to reduce roaming rates,
the Company believes that, historically, its roaming rates have been generally
lower than rates offered by others in or near the Company's systems and that its
roaming rates have not been materially impacted by this trend. Roaming yield
(roamer service revenue, which includes airtime, toll charges and surcharges,
divided by roaming minutes of use) was $.70 (excludes Arizona 5 for 1997, for
which the roaming minutes of use were not available), $.75 and $.70 per minute
for the years ended December 31, 1997, 1996 and 1995, respectively.
29
<PAGE>
The Company's cellular churn rate increased from 1996 to 1997 due to
increased competition among cellular providers and the addition of the
Maryland/Pennsylvania Cluster in March 1997, which has higher churn rates than
in the Company's other market areas. The Company's overall cellular penetration
rates decreased in 1996 and 1997 compared to 1995 as a result of the Company's
acquisition of the cellular systems in the Kansas/Missouri Cluster and the
Maryland/Pennsylvania Cluster, and will decrease further after consummation of
the California 4 and Santa Cruz Acquisitions. Cellular penetration rates in the
Oklahoma/Texas Cluster increased in 1995, 1996 and 1997. The Company believes
that as its cellular penetration rates increase, the increase in new subscriber
revenue will exceed the loss of revenue attributable to increases in the
cellular churn rate.
In recent years, the Company, and other cellular companies, have increased
the use of discounts on phone equipment and free phone promotions, as
competition between service providers has intensified. As a result, the Company
has incurred, and expects to continue to incur, losses on cellular equipment
sales, which have resulted in increased marketing and selling costs per gross
additional cellular subscriber. While the Company expects to continue these
discounts and promotions, the Company believes that related losses on equipment
sales will be mitigated by increased revenue from increases in the number of
cellular subscribers.
The size and scope of the Company's wireless operations increased
substantially upon consummation of the acquisitions in 1997 (Maryland 2, Western
Maryland Properties and Arizona 5) and another in January 1998 (Texas 16) and
will increase further upon consummation of any of the proposed acquisitions
(including California 4, Santa Cruz, California 7 and Texas 7). Although the
Company expects its earnings before interest, taxes, depreciation and
amortization (EBITDA) will increase as a result of acquisitions, the increased
amortization and interest expense associated with the Senior Notes and
additional bank borrowings resulted in increased losses in 1997, which are
expected to continue in 1998 and thereafter until the Company expands the
acquired systems and increases the subscriber base.
WIRELINE OPERATIONS
The Company has provided local exchange services since 1936, and currently
owns and operates nine contiguous exchanges in western Oklahoma and three
contiguous exchanges adjacent to and east of the Oklahoma City metropolitan
area. The Company's local exchange revenues consist of (i) end user revenue,
which includes charges for local service and enhanced services such as call
waiting and call forwarding; (ii) access revenue, which is paid by interexchange
carriers ("IXCs") for providing access from the IXC's point of presence to the
end user who makes or receives a long distance call; and (iii) support revenue,
which is paid by federal and state agencies to companies, such as the Company,
which operate in areas where, due to factors such as geographic conditions or
subscriber density, the cost to provide service is higher than normal. Support
revenue, which consists of high cost funds ("HCF") from state agencies and
universal service funds ("USF") from federal agencies, accounted for
approximately 36% of the Company's revenue from its wireline operations, or $5.5
million, for the year ended December 31, 1997.
The 1996 Act potentially impacts the Company's sources of support revenue.
Under previous regulation, access charges contained implicit support for high
cost areas. Regulations adopted pursuant to the 1996 Act would remove implicit
support from access revenues and place more emphasis for such support on
HCF/USF. In May 1997, the FCC adopted changes that may, over time, reduce or
eliminate subsidies to telephone companies in areas where the cost of connecting
and maintaining phone lines is demonstrated to be above the industry or area
norm. The Company will continue to pursue its strategy to lessen the impact of
any future regulatory changes by reducing its operating costs through
consolidation of operational functions at the Company level in order to achieve
economies of scale.
The Company began reselling local, long distance and wireless services in
October 1997 and currently operates in three markets, including Oklahoma City
and Tulsa, Oklahoma and Amarillo, Texas. The Company uses its own switch and
leases local exchange lines in the Oklahoma markets. In the Amarillo, Texas
market, the Company leases both switch services and local exchange lines. The
Company expects to commence offering these services in other metropolitan areas
in the region based on market demand. The
30
<PAGE>
Company has entered into an agreement with SWBT and GTE, pursuant to which the
Company may resell local exchange and other services in all markets served by
SWBT and GTE in Oklahoma. The Company has also established an agreement with
SWBT for the markets served by SWBT in Texas and is currently awaiting approval
by the Texas Public Utility Commission on the agreement with GTE for the markets
served by GTE in Texas. The Company incurred losses and negative cash flows in
its resale business in 1997, which are expected to continue in 1998 and until it
develops and expands its subscriber base, primarily as a result of marketing and
advertising costs.
The Company's revenues from its fiber business are generated from three
different sources: (1) wholesale long-haul transport services as a "carrier's
carrier," (2) transport services to private businesses and government agencies
requiring network services, and (3) long-haul transport services for the
Company's subsidiaries. For the year ended December 31, 1997, approximately 41%
of the Company's gross fiber revenue was attributable to NTS and approximately
27% of its gross fiber revenue was attributable to the Company's subsidiaries.
During 1997, the Company's operating income and EBITDA declined as a percentage
of gross fiber revenue primarily as a result of increases in sales and
administrative staff and additional allocations of corporate overhead.
Although the Company currently has excess capacity and does not currently
plan to add more fiber optic lines, the Company will seek to expand its network
through interconnect agreements to access other major population centers
(including routes which may be attractive to major carriers).
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
OPERATING REVENUE. For the year ended December 31, 1997, total operating
revenue increased $42.0 million, or 97.2%, to $85.2 million from $43.2 million
in 1996. Total wireless revenue, local exchange revenue, fiber revenue and
resale revenue represented 77.6%, 16.4%, 4.0% and .1% of total operating
revenue, respectively, in 1997 and 60.4%, 31.2%, 5.4% and 0% of total operating
revenue, respectively, in 1996.
The following table sets forth the components of the Company's wireless and
wireline revenue for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Wireless revenue:
Cellular service...................................................... $ 38,410 $ 17,593
Cellular roaming...................................................... 26,263 7,852
Cellular equipment.................................................... 1,455 662
--------- ---------
66,128 26,107
Wireline revenue:
Local exchange........................................................ 13,993 13,472
Fiber................................................................. 3,439 2,313
CLEC.................................................................. 102 --
Other................................................................. 921 501
--------- ---------
18,455 16,286
Other................................................................... 586 832
--------- ---------
Total............................................................... $ 85,169 $ 43,225
--------- ---------
--------- ---------
</TABLE>
CELLULAR. The Company's operating revenue from its cellular operations
(service, roaming and equipment) increased $40.0 million, or 153.3%, to $66.1
million for the year ended December 31, 1997 from $26.1 million in 1996.
Cellular service revenue increased $20.8 million, or 118.3%, to $38.4 million
for the year ended December 31, 1997 from $17.6 million in 1996. Of the
increase, $15.0 million was attributable to the acquisition of the
Maryland/Pennsylvania Cluster and Arizona 5 in 1997 and the
31
<PAGE>
inclusion of the operations of the Kansas/Missouri Cluster, which was acquired
March 19, 1996, for all of 1997. The remaining increase was primarily
attributable to increased penetration and usage in the Oklahoma/Texas Cluster
and Kansas/Missouri Cluster. The Company's cellular subscriber base increased
194.8% to 100,093 at December 31, 1997 from 33,955 at December 31, 1996. 42,608
subscribers were added as a result of the acquisition of the
Maryland/Pennsylvania Cluster. The Company's average monthly cellular service
revenue per subscriber decreased 15.0% to $41.05 for the year ended December 31,
1997 from $48.31 for 1996 due to the addition of new lower rate subscribers in
the Maryland/Pennsylvania Cluster and competitive market pressures.
Cellular roaming revenue increased $18.4 million, or 234.4%, to $26.3
million for the year ended December 31, 1997 from $7.9 million in 1996. Of the
increase, $16.4 million was attributable to the acquisition of the
Maryland/Pennsylvania Cluster and Arizona 5 in 1997 and the inclusion of the
operations of the Kansas/Missouri Cluster for all of 1997. The remaining
increase was primarily attributable to increased roaming minutes in the
Oklahoma/Texas Cluster and Kansas/Missouri Cluster due to expanded coverage
areas in these markets and an increase in cellular minutes of use. Cellular
equipment sales of $1.5 million in 1997 represented an increase of $.8 million,
or 119.8%, from $.7 million in 1996, as the Company sold more equipment in 1997.
LOCAL EXCHANGE. Local exchange revenue increased $.5 million, or 3.9%, to
$14.0 million for the year ended December 31, 1997 compared to $13.5 million for
1996 due primarily to an increase in toll charges and an increase in the number
of access lines from 11,959 as of December 31, 1996 to 12,633 as of December 31,
1997.
FIBER. The Company's revenue from its fiber operations increased $1.1
million, or 48.7%, to $3.4 million in 1997 from $2.3 million in 1996 due
primarily to an increase in the number of fiber lines, bringing the total lines
leased to an equivalent of 53 DS3s at December 31, 1997 compared to 46 at
December 31, 1996.
CLEC. The Company launched its CLEC operations in October 1997, generating
$.1 million of service revenue primarily related to equipment, local and long
distance sales.
COST OF SERVICE AND EQUIPMENT SALES. For the year ended December 31, 1997,
the total cost of service and equipment sales increased $12.3 million, or
135.2%, to $21.3 million from $9.1 million in 1996.
The following table sets forth the components of the Company's wireless cost
of service and equipment sales and wireline cost of service and equipment sales
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Wireless cost of service and equipment sales:
Cellular service....................................................... $ 14,709 $ 4,503
Cellular equipment..................................................... 4,046 2,571
--------- ---------
18,755 7,074
Wireline cost of service and equipment sales:
Local exchange service................................................. 1,868 1,877
Fiber service.......................................................... 309 125
CLEC service........................................................... 365 --
CLEC equipment......................................................... 47 --
--------- ---------
2,589 2,002
--------- ---------
Total................................................................ $ 21,344 $ 9,076
--------- ---------
--------- ---------
</TABLE>
CELLULAR. Cost of cellular service increased $10.2 million, or 226.7%, to
$14.7 million during the year ended December 31, 1997 from $4.5 million in 1996.
Of the increase, $8.4 million was attributable to the acquisition of the
Maryland/Pennsylvania Cluster and Arizona 5 in 1997 and the inclusion of the
operations of the Kansas/Missouri Cluster for all of 1997. The remaining
increase was primarily attributable to
32
<PAGE>
increased subscribers and minutes of use in the Oklahoma/Texas Cluster and
Kansas/Missouri Cluster and expanded use of rerating agreements with cellular
providers adjacent to the Company's markets. As a percentage of cellular service
and roaming revenue, cost of cellular service increased to 22.7% in 1997 from
17.7% in 1996. This is primarily due to the expanded use of rerating agreements
noted above, as well as additional facility lease costs relating to the Maryland
2 Acquisition. Cost of cellular equipment increased $1.5 million, or 57.4%, to
$4.1 million in 1997 from $2.6 million in 1996, primarily from increases in the
volume of equipment sold due to the growth in subscribers.
LOCAL EXCHANGE. Cost of wireline telephone service remained consistent at
$1.9 million for both 1997 and 1996. As a percentage of wireline telephone
service revenue, cost of wireline telephone service decreased slightly from
13.9% in 1996 to 13.3% in 1997.
FIBER. Cost of fiber service increased $.2 million, or 147.6%, to $.3
million in 1997 from $.1 million in 1996. The increase was the result of
increased DS3 equivalents.
CLEC. Cost of CLEC service and equipment associated with the Company's
October 1997 launch of its resale operations totaled $.4 million.
MARKETING AND SELLING COSTS. Marketing and selling costs increased $6.9
million, or 139.7%, to $11.8 million in 1997 from $4.9 million in 1996. The
increase was primarily due to the higher level of cellular subscribers added
period to period. Gross cellular subscribers added in 1997 was 33,354 with
subscribers added in the Maryland/Pennsylvania Cluster and Arizona 5 since their
acquisition making up 16,469 and 1,307, respectively, of the gross cellular
subscribers added. The number of gross cellular subscribers added in 1996 was
11,970. Additionally, the Company incurred $.9 million of marketing costs in
1997 associated with the October 1997 launch of its resale operations. As a
percentage of total operating revenue, marketing and selling costs increased to
13.8% in 1997 from 11.4% in 1996.
GENERAL AND ADMINISTRATIVE COSTS. For the year ended December 31, 1997,
general and administrative costs increased $7.8 million, or 64.5%, to $19.9
million from $12.1 million for the same period of 1996. The increase was
primarily due to increased billing costs as a result of the growth in cellular
subscribers, the acquisition of the Maryland/Pennsylvania Cluster and Arizona 5,
the inclusion of the Kansas/Missouri Cluster for all of 1997, and increased
salary costs resulting from additional personnel in the Company's cellular,
fiber and resale operations. As a percentage of total operating revenue, general
and administrative costs decreased to 23.3% in 1997 from 28.0% in 1996. The
decrease is a result of economies of scale realized as the Company integrated
its new cellular operations into its existing management structure.
DEPRECIATION AND AMORTIZATION EXPENSE. For the year ended December 31,
1997, depreciation and amortization expense increased $12.0 million, or 123.5%,
to $21.7 million from $9.7 million in 1996. Approximately $12.1 million of the
increase was the result of the amortization of assets acquired in the
Maryland/Pennsylvania and Kansas/Missouri Clusters and Arizona 5. The remaining
decrease relates to assets in the Oklahoma/Texas Cluster and local exchange
operations becoming fully depreciated.
OTHER EXPENSE. For the year ended December 31, 1997, total other expense
(consisting of interest income, interest expense, and other income/expense)
increased $19.2 million, or 237.6%, to $27.2 million from $8.1 million in 1996.
Interest income of $2.8 million for 1997 was a result of interest earned on
securities purchased which were pledged to secure payment of the first four
semi-annual interest payments on the Senior Notes. For the year ended December
31, 1997, interest expense increased $23.6 million to $30.1 million from $6.5
million in 1996. The increase was primarily the result of increased borrowings
during 1997 to finance the Maryland/Pennsylvania Cluster and Arizona 5
acquisitions. For the year ended December 31, 1997, other expense decreased $1.4
million to $.2 million from $1.6 million in 1996. This is primarily the result
of a $2.0 million loss relating to a sale of assets recognized during 1996
offset by the Company's share of income related to investments in unconsolidated
subsidiaries.
EXTRAORDINARY EXPENSE. In 1997 and 1996, the Company incurred an
extraordinary pretax loss of approximately $2.5 million and $.9 million,
respectively, as a result of writing off previously capitalized
33
<PAGE>
financing costs associated with a revolving credit facility that was refinanced
in February 1997 and March 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OPERATING REVENUE. For the year ended December 31, 1996, total operating
revenue increased $8.8 million, or 25.5%, to $43.2 million from $34.4 million in
1995. Total cellular revenue, wireline revenue and fiber revenue represented
60.4%, 31.2% and 5.4% of total operating revenue, respectively, in 1996 and
55.1%, 37.2% and 4.1% of total operating revenue, respectively, in 1995.
The following table sets forth the components of the Company's wireless
revenue and wireline revenue for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Wireless revenue:
Cellular service...................................................... $ 17,593 $ 13,949
Cellular roaming...................................................... 7,852 4,369
Cellular equipment.................................................... 662 672
--------- ---------
26,107 18,990
Wireline revenue:
Local exchange........................................................ 13,472 12,807
Fiber................................................................. 2,313 1,415
Other................................................................. 501 544
--------- ---------
16,286 14,766
Other................................................................... 832 693
--------- ---------
Total............................................................... $ 43,225 $ 34,449
--------- ---------
--------- ---------
</TABLE>
CELLULAR. The Company's operating revenue from its cellular operations
increased $7.1 million, or 37.5%, in 1996 to $26.1 million from $19.0 million in
1995. Cellular service revenue increased $3.6 million, or 26.1%, to $17.6
million in 1996 from $14.0 million in 1995. Of the $3.6 million increase, $2.5
million was attributable to increased penetration and usage in the
Oklahoma/Texas Cluster and $1.1 million was attributable to the acquisition of
the Kansas/Missouri Cluster in March 1996. The Company's cellular subscriber
base increased 27.6% to 33,955 at December 31, 1996, from 26,614 at December 31,
1995, of which 58.6% (4,301 subscribers) of the increase was attributable to
increased penetration in the Oklahoma/ Texas Cluster. However, the Company's
average monthly cellular service revenue per subscriber decreased 3.4% to $48.31
for the year ended December 31, 1996 from $50.00 for the year ended December 31,
1995 due to competitive market pressures and the addition of new lower usage
subscribers. Cellular equipment sales of $.7 million in 1996 represented a
slight decrease over 1995. Although the Company sold more equipment during the
year ended December 31, 1996, the Company increased its use of discounted
equipment and free phone promotions with the signing of one-year service
contracts. Cellular roaming revenue increased $3.5 million, or 79.7%, to $7.9
million in 1996 from $4.4 million in 1995. Of the $3.5 million increase, $1.9
million, or 54.3%, was the result of the inclusion of the Kansas/Missouri
Cluster with roaming minutes of use totaling 1.3 million from the acquisition
date in March 1996 to December 31, 1996. The remaining $1.6 million of the
increase, or 45.7%, resulted from a 44.9% increase in roaming minutes of use in
1996 for the Oklahoma/Texas Cluster due to improved coverage areas and an
increase in cellular minutes of use.
LOCAL EXCHANGE. Telco service revenue increased $.7 million, or 5.2%, to
$13.5 million for the year ended December 31, 1996 from $12.8 million in 1995
due to a 1.3% increase in the number of access lines.
34
<PAGE>
FIBER. The Company's revenue from its fiber operations increased $.9
million, or 63.5%, to $2.3 million in 1996 from $1.4 million in 1995 primarily
as a result of an increase in the number of fiber lines leased by an equivalent
of 26 DS3 lines, bringing the total lines leased to an equivalent of 46 DS3s at
December 31, 1996, partially offset by a decline in leased line charges.
COST OF SERVICE AND EQUIPMENT SALES. For the year ended December 31, 1996,
the total cost of service and equipment sales increased $2.1 million, or 30.0%,
to $9.1 million from $7.0 million in 1995.
The following table sets forth the components of the Company's wireless cost
of service and equipment sales and wireline cost of service for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Wireless cost of service and equipment sales:
Cellular service...................................................... $ 4,503 $ 3,155
Cellular equipment.................................................... 2,571 2,013
--------- ---------
7,074 5,168
Wireline cost of service and equipment sales:
Local exchange service................................................ 1,877 1,730
Fiber service......................................................... 125 116
--------- ---------
2,002 1,846
--------- ---------
Total............................................................... $ 9,076 $ 7,014
--------- ---------
--------- ---------
</TABLE>
CELLULAR. Cost of cellular services increased $1.3 million, or 42.7%, to
$4.5 million during 1996 from $3.2 million in 1995. Cost of cellular services
includes costs incurred for access to local exchange company facilities,
rerating, roaming validation (provided by a third party clearinghouse) and long
distance toll services. Of the increase, 58.7% was attributable to the inclusion
of the Kansas/Missouri Cluster from March 1996. The remaining increase primarily
was the result of roaming agreements entered into by the Company in 1995 with
eleven other carriers in Texas and Oklahoma to expand its home rate coverage.
Cost of cellular service increased as a percentage of cellular service and
roaming revenue to 17.7% for the year ended December 31, 1996 from 17.2% for
1995. Cost of cellular equipment increased $.6 million, or 27.8%, to $2.6
million in 1996 from $2.0 million in 1995. The increase resulted primarily from
increases in the volume of equipment sales due to the growth in subscribers
during 1996, partially offset by a decrease in equipment costs.
LOCAL EXCHANGE. Cost of wireline telephone service increased $.2 million,
or 8.5%, to $1.9 million in 1996 from $1.7 million in 1995. Cost of wireline
telephone service in 1996 increased as a percentage of wireline telephone
service revenues to 13.9% from 13.5% in 1995 as a result of increased
maintenance costs of wireline plant and costs associated with continued
subscriber growth.
FIBER. Cost of fiber service remained constant at $.1 million for the years
ended December 31, 1996 and 1995.
MARKETING AND SELLING COSTS. Marketing and selling costs increased $1.7
million, or 55.5%, to $4.9 million in 1996 from $3.2 million in 1995. The
increase was primarily due to the higher level of cellular subscribers added
period to period. Gross cellular subscribers added for the year ended December
31, 1996 was 11,970 with the Kansas/Missouri Cluster making up 1,511 of the
gross cellular subscribers added. The gross number of cellular subscribers added
in 1995 was 9,653. As a percentage of total operating revenue, marketing and
selling costs increased to 11.4% in 1996 from 9.2% in 1995.
35
<PAGE>
GENERAL AND ADMINISTRATIVE COSTS. For the year ended December 31, 1996,
general and administrative costs increased $2.0 million, or 19.2%, to $12.1
million from $10.1 million for 1995. The increase was primarily due to increased
billing costs as a result of the growth in cellular subscribers, the inclusion
of the Kansas/Missouri Cluster from March 1996 and increased salary costs
resulting from additional personnel in its cellular and fiber operations.
General and administrative costs decreased as a percentage of the Company's
total revenues to 28.0% in 1996 from 29.4% in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. For 1996, depreciation and
amortization expense increased $3.1 million to $9.7 million from $6.6 million in
1995. Approximately $1.2 million of the increase was the result of the
amortization of the licenses acquired in the Kansas/Missouri Cluster, with the
remainder due primarily to the increase in equipment in the Company's cellular,
wireline and fiber businesses.
INTEREST EXPENSE, NET. For 1996, interest expense, net increased $2.7
million to $6.5 million from $3.8 million in 1995. The increase was primarily a
result of increased borrowings to finance the Kansas/ Missouri Cluster
acquisition and the acquisition of fiber equipment.
OTHER INCOME (EXPENSE), NET. For 1996, other expense increased $1.1 million
to $1.6 million from $.5 million in 1995 primarily as a result of a $1.7 million
pretax loss on the disposal of two mobile telecommunications switching offices
and related equipment sold during 1996 in connection with the technology upgrade
of the Company's systems in the Oklahoma/Texas Cluster.
EXTRAORDINARY EXPENSE. For the year ended December 31, 1996, the Company
incurred a pretax loss of approximately $.9 million as a result of writing off
previously capitalized financing costs associated with a revolving credit
facility that was refinanced in March 1996.
IMPACT OF YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer programming being written
using two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of key suppliers and customers, that have
date sensitive logic may interpret a date using "00" as the year 1900 rather
than 2000. This may result in inaccurate processing or possible system failure
causing potential disruption of operations including among other things a
temporary inability to process transactions, send invoices, supply services or
engage in similar normal business activities.
The Company recognizes the Year 2000 Issue stems from the information
systems currently used or that may come into use by the Company, its suppliers
and customers. However, the Company believes that the issue is a business
continuation issue not just an information technology problem. In 1997, the
Company initiated and participated in communications with various customers,
suppliers and regulatory agencies regarding the Year 2000 Issue. In early 1998,
the Company established a multi-disciplined team to perform an impact assessment
for the corporation. The team consists of representatives from each of the lines
of business, as well as representative from key corporate departments. The team
is currently headed by the Chief Information Officer. This in-house team will be
assisted by an outside firm which will provide Year 2000 assessment methodology
and will bring a structured approach to the assessment and management reporting
process.
The specific objectives of the impact assessment team include:
- Identification of key risk areas by line of business
- Identification and prioritization of specific compliance activities by
risk area and line of business
- Identification of costs and schedule for required compliance activities
The scope of the impact assessment includes:
- Systems used internally (licensed and internally developed)
36
<PAGE>
- Service providers such as billing service bureaus
- Key supplier relationships
- Key customer contact points
- Embedded systems
From an information systems standpoint, the Company has historically relied
on outsourcing relationships for many of its business and operational
applications, including billing and customer service. Those applications which
have not been outsourced have been deployed using packaged software from outside
vendors. As a result, the amount of internally developed software that needs to
be analyzed and potentially remediated is believed to be relatively less
compared to other companies in this industry. As such, the key focus of the
impact assessment team will be on the service providers and the vendors whose
software the company is using. Core business applications including the general
ledger, fixed assets, procurement and accounts payable have been recently
replaced (January 1998) using new software which is certified by the vendor to
be year 2000 compliant. In addition, the Company has recently undertaken a
project to replace the human resources and payroll applications using the same
software and hardware platform. This project is scheduled for completion in
calendar 1998.
While the primary focus of the impact assessment team involves looking into
risk areas that exist and identifying remediation activities to change existing
conditions, the team will also be developing recommendations and standards for
future activities of the Company that are aimed at preventing the introduction
of new risk between now and the year 2000.
The Company recognizes that future acquisitions in any part of the business
may introduce new Year 2000 risk into the Company. As a result the company has
included Year 2000 impact assessment analysis and reporting into the due
diligence process for acquisitions beginning in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Wireless Operations require substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company historically has financed its Wireless Operations
through bank debt and proceeds from the sale of debt and equity. While the
Company's Wireline Operations have historically been financed through government
loans, other sources of financing will be required for the ATI acquisition.
Wireline Operations include the Company's subsidiary, Dobson Wireline Company
and its subsidiaries which own the Company's local exchange, fiber and CLEC
operations.
At December 31, 1997, the Company had working capital of $16.3 million (a
ratio of current assets to current liabilities of 1.6:1) and a cash balance of
$3.0 million, which compares to working capital of $11.0 million (a ratio of
current assets to current liabilities of 2.2:1) and $6.9 million (a ratio of
current assets to current liabilities of 2.0:1) and a cash balance of $1.6
million and $1.1 million at December 31, 1996 and 1995, respectively.
The Company's net cash provided by operating activities totaled $12.3
million for 1997 compared to $11.6 million for 1996 and $8.6 million for 1995.
The increase of $.7 million from 1996 to 1997 was primarily due to net changes
in current assets and liabilities, depreciation and amortization and deferred
income taxes and investment tax credits, offset by the Company's net loss for
the period. The increase of $3.0 million from 1995 to 1996 was primarily due to
depreciation and amortization and a loss on the disposition of assets offset by
the Company's net loss for the period.
Net cash used in investing activities, which totaled $221.1 million, $49.4
million and $11.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively, principally related to the acquisition of the
Maryland/Pennsylvania Cluster and Arizona 5 cellular systems in 1997, the
Kansas/Missouri Cluster in
37
<PAGE>
1996, and deposits made in 1995 related to the Maryland/Pennsylvania Cluster and
PCS license acquisitions, as well as capital expenditures in all periods.
Acquisitions accounted for $190.7 million and $30.0 million in 1997 and 1996 and
capital expenditures were $23.2 million, $17.4 million and $3.9 million in 1997,
1996 and 1995, respectively.
The Company's capital expenditures (excluding the purchase price and related
costs incurred to consummate acquisitions) were $23.2 million for the year ended
December 31, 1997, and the Company expects its capital expenditures (excluding
the purchase price and related costs incurred to consummate acquisitions) to
total approximately $41.2 million for 1998 (including $5.0 million associated
with the proposed California 4 and Santa Cruz Acquisitions). Of the capital
expenditures expected to be made in 1998, $26.0 million is expected to be made
in the Company's Wireless Operations and $13.8 million is expected to be made in
its Wireline Operations. The Company has not budgeted any amounts to be expended
in 1998 with respect to the systems which may be acquired in future wireless
acquisitions (including, but not limited to, California 7, Texas 7 and Arkansas
11), the Pending Wireline Acquisitions or the Company's PCS systems. The amount
and timing of capital expenditures may vary depending on the rate at which the
Company expands and develops its cellular systems, whether the Company
consummates additional acquisitions, whether the Company expands its fiber optic
network or local exchange operations and the adoption of new regulations
relating to support revenue.
In January 1998, the Company entered into an agreement with Lucent
Technologies Inc. ("Lucent") to purchase, over a four-year period, 300 cell
sites, two switches and certain related hardware and software. The agreement
also requires the Company to pay an annual software maintenance fee and to make
certain additional payments based on the number of subscribers added in the
areas serviced by the cell sites. The aggregate net cost to the Company under
this agreement is estimated to be $81 million, of which $8.2 million has been
budgeted for 1998.
In April 1997, the Company was granted PCS licenses in nine markets in
Oklahoma, Kansas and Missouri. The aggregate bid for these licenses was $5.1
million after an FCC authorized discount of 15% by reason of the Company's
status as a "small business." The Company has financed $4.1 million of the
purchase price with government loans secured by liens on the PCS licenses at an
annual interest rate of 6.25%, amortizing quarterly over eight years beginning
in 1999. The Company is required to build out systems covering 25% of the
population covered by each of the PCS licenses by 2002. The Company currently
anticipates that the cost to build out the minimum PCS system will be $10.0
million to $30.0 million. The actual amount of the expenditures will depend on
the PCS technology selected by the Company, the extent of the Company's
buildout, the costs at the time of buildout and the extent the Company must bear
the expense of relocating incumbent microwave licensees, as mandated by FCC
rules. The Company has not budgeted any amounts for capital expenditures in 1998
with respect to the buildout of a PCS system.
Net cash provided by financing activities was $210.2 million for 1997
compared to $38.3 million for 1996 and $1.8 million for 1995. Financing
activities for the year ended December 31, 1997 consisted primarily of $343.5
million of proceeds from long-term debt, including the issuance of $160.0
million principal amount of Senior Notes and borrowings under the Bank Facility.
Proceeds from long-term debt exceeded repayment thereof by $254.7 million, $39.8
million and $2.7 million in 1997, 1996, and 1995 respectively.
In March 1998, the Company's subsidiary, Dobson Cellular Operations Company
("DCOC"), established a $200.0 million senior secured credit facility (the "DCOC
Credit Facility"). DCOC's obligations under the DCOC Credit Facility are secured
by all current and future assets of DCOC, including the Texas 16 assets and
assets acquired in any of future wireless acquisitions, and are guaranteed by
DCOC's subsidiaries. The Company's subsidiary, Dobson Operating Company ("DOC"),
established a $250.0 million senior secured credit facility (the "Amended Bank
Facility") to replace the existing Bank Facility. The Amended Bank Facility
continues to be secured by all of DOC's stock and the stock or partnership
38
<PAGE>
interests of its restricted subsidiaries and all assets of DOC and its
restricted subsidiaries. The Company and DOC's subsidiaries other than DCOC,
DCOC's subsidiaries, the Arizona 5 Partnership and the Wireline Operations have
guaranteed DOC's obligations under the Amended Bank Facility. The DCOC Credit
Facility and the Amended Bank Facility require the Company to maintain certain
financial ratios. The failure to maintain such ratios would constitute an event
of default, notwithstanding the Company's ability to meet its debt service
obligations.
In March 1998, the Company entered into a definitive agreement to purchase
the stock of ATI for approximately $130.0 million. At the time of the agreement,
the Company placed $5.0 million into an escrow account pending closing. The
Company has obtained a commitment letter for a $155.0 million bridge facility
("Bridge Notes") to be established at Dobson Wireline Company. The Bridge Notes
will be used to finance the ATI acquisition, to fund the Zenex purchase, and to
provide additional operating capital. The facility will bear interest at 13%,
increasing by 1% after six months from the issuance date and increasing by an
additional .5% at the end of each subsequent three-month period. Interest is
payable quarterly in arrears and the Bridge Notes mature one year from the date
of issuance. The Bridge Notes are secured by substantially all of the assets of
the Dobson Wireline Company, including the Pending Wireline Acquisitions. The
Bridge Notes are expected to be extinguished with proceeds from either a private
debt offering to be completed during 1998 or through the issuance of senior
rollover notes (the "Rollover Notes"). The Rollover Notes would be used in their
entirety to redeem 100% of the outstanding principal amount of the Bridge Notes.
The Rollover Notes would bear interest at a variable rate and mature ten years
after the date of issuance. The Rollover Notes would be secured with the same
assets secured under the Bridge Notes.
In April 1997, the Company entered into an interest rate hedge agreement to
hedge the Company's interest expense on its indebtedness under the Bank
Facility. The agreement provides for a rate cap of 8.0% plus a factor, based on
the Company's leverage ratio (cap at December 31, 1997 was 10.5%), terminating
on the earlier of April 24, 2000 or the date an option to enter into an interest
rate swap transaction is exercised by the counterparty. Under the swap
agreement, the interest rate would be fixed at 6.13% plus the same factor used
to determine the rate cap or a floating LIBOR rate, terminating on April 24,
2002. The Company accounts for this as a hedge.
The minority partners in the Company's partnerships that own certain of its
cellular operations receive distributions equal to their share of the profit
multiplied by estimated income tax rates. In 1997, 1996 and 1995, the minority
partners received distributions of $.5 million, $.1 million and $.9 million,
respectively. Under the Company's bank credit agreements, the Company's minority
partners are not entitled to receive any cash distributions in excess of amounts
required to meet income tax obligations until all indebtedness of their
respective partnerships is paid or extinguished.
The Company has paid dividends in amounts sufficient to fund the interest
and principal payments owed by certain of its beneficial owners of its stock
with respect to debt incurred in November 1994 to purchase common stock. In 1997
and 1996, the Company paid aggregate dividends on its common stock of $7.6
million and $.6 million, respectively. Of the amount paid in 1997, $6.0 million
was used to repay such debt and $.5 million was used to pay indebtedness to the
Company. The Company does not expect to pay dividends on its common stock in the
foreseeable future.
The Company's Wireline Operations have been designated as Unrestricted
Subsidiaries and, therefore, will not be subject to the covenants in the
Indenture for the Senior Notes, the Certificate of Designation for the Senior
Preferred Stock or the Amended Bank Facility. Accordingly, there is no limit on
the amount of debt the Wireline Operations would be able to incur or on its
ability to create liens.
The Amended Bank Facility and DCOC Credit Facility each amortize quarterly
beginning June 30, 2000 and terminate on June 30, 2006. The Company's government
loans have scheduled maturities until 2028 and the Senior Notes mature in
February 2007. Such indebtedness may need to be refinanced at their respective
maturities. The Company's ability to do so will depend upon, among other things,
its financial
39
<PAGE>
condition at the time, the restrictions on its indebtedness and other factors,
including market conditions, beyond the control of the Company.
Although there can be no assurance, management believes the proceeds from
the sale of the Senior Preferred Stock, together with borrowings under the
Amended Bank Facility, the DCOC Credit Facility, the Bridge Notes, cash on hand,
and cash flow from operations will be sufficient to fund the California 4, Santa
Cruz, California 7, Texas 7 and Arkansas 11 Acquisitions, the Pending Wireline
Acquisitions, the Company's capital expenditures and its working capital and
debt service requirements. The Company will require additional financing to
pursue other future acquisitions and to meet the required PCS buildout. Sources
of additional capital may include public or private debt or equity financings,
vendor financing and a potential $75 million future increase in commitment
contemplated by the DCOC Credit Facility. There can be no assurance that any
additional financing will be available to the Company or, if available, that it
can be obtained on terms acceptable to the Company and within the limitations
contained in the Company's financing arrangements. The successful implementation
of the Company's strategy, including the further development of its cellular
systems and significant and sustained growth in the Company's cash flows, is
necessary for the Company to meet its debt service and dividend requirements,
including its obligations on the Senior Preferred Stock.
FORWARD-LOOKING STATEMENTS
The description of the Company's plans set forth herein, including planned
capital expenditures and acquisitions, are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These plans involve a number of risks and uncertainties.
Important factors that could cause actual capital expenditures, acquisition
activity or the Company's performance to differ materially from the plans
include, without limitation, the Company's ability to satisfy the financial
covenants of its outstanding debt and preferred stock instruments and to raise
additional capital; the Company's ability to manage its rapid growth
successfully and to compete effectively in its cellular, fiber and resale
businesses against competitors with greater financial, technical, marketing and
other resources; changes in end-user requirements and preferences; the
development of other technologies and products that may gain more commercial
acceptance than those of the Company; and adverse regulatory changes. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation to
update or revise these forward-looking statements to reflect events or
circumstances after the date hereof including, without limitation, changes in
the Company's business strategy or planned capital expenditures, or to reflect
the occurrence of unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements:
Report of independent public accountants................................................................. 42
Consolidated balance sheets as of December 31, 1997 and 1996............................................. 43
Consolidated statements of operations for the years ended December 31, 1997, 1996 and 1995............... 45
Consolidated statements of stockholders' deficit for the years ended December 31, 1997, 1996 and 1995.... 46
Consolidated statements of cash flows for the years ended December 31, 1997, 1996 and 1995............... 47
Notes to consolidated financial statements............................................................... 49
</TABLE>
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Dobson Communications Corporation:
We have audited the accompanying consolidated balance sheets of Dobson
Communications Corporation (an Oklahoma corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dobson
Communications Corporation and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
March 26, 1998
42
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 3,006,668 $ 1,609,221
Accounts receivable-
Due from customers, net of allowance for doubtful accounts of $648,919 and
$339,144 in 1997 and 1996, respectively.................................... 15,795,919 6,584,103
Affiliates................................................................... 633,146 1,704,033
Restricted cash and investments................................................ 17,561,231 --
Inventory...................................................................... 1,470,207 1,012,589
Deposits....................................................................... -- 6,350,000
RTFC subordinated capital certificates......................................... -- 1,051,057
Income taxes receivable........................................................ 845,000 1,133,063
Prepaid expenses and other..................................................... 2,264,191 121,836
Deferred income taxes.......................................................... 214,000 390,553
-------------- --------------
Total current assets....................................................... 41,790,362 19,956,455
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net............................................... 88,350,278 61,929,904
-------------- --------------
OTHER ASSETS:
Receivables--Affiliates........................................................ 529,107 228,041
Notes receivable--Affiliates................................................... 5,852,282 3,266,765
Restricted investments......................................................... 9,216,202 --
Cellular license acquisition costs, net of accumulated amortization of
$13,814,229 and $3,286,104 in 1997 and 1996, respectively.................... 206,694,474 23,465,128
Deferred costs, net of accumulated amortization of $2,850,109 and $1,948,443 in
1997 and 1996, respectively.................................................. 11,012,755 3,952,155
Excess of cost over original cost of assets acquired, net of accumulated
amortization of $1,130,769 and $1,035,529 in 1997 and 1996, respectively..... 2,676,203 2,771,443
Other intangibles, net of accumulated amortization of $851,107................. 9,328,031 --
Investments in unconsolidated subsidiaries and other........................... 7,764,566 1,378,134
-------------- --------------
Total other assets......................................................... 253,073,620 35,061,666
-------------- --------------
Total assets............................................................... $ 383,214,260 $ 116,948,025
-------------- --------------
-------------- --------------
</TABLE>
43
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable............................................................... $ 12,839,605 $ 4,718,124
Accrued expenses............................................................... 7,845,401 1,633,834
Deferred revenue............................................................... 1,720,024 499,982
Customer deposits.............................................................. 326,932 148,530
Current portion of long-term debt.............................................. 1,140,824 1,190,924
Accrued dividends payable...................................................... 1,595,238 732,391
-------------- --------------
Total current liabilities.................................................... 25,468,024 8,923,785
-------------- --------------
LONG-TERM DEBT, net of current portion........................................... 363,068,594 104,303,802
DEFERRED CREDITS:
Income taxes................................................................... 2,739,000 916,252
Investment tax credits and other............................................... 133,817 161,612
-------------- --------------
Total deferred credits....................................................... 2,872,817 1,077,864
-------------- --------------
MINORITY INTERESTS............................................................... 16,954,165 2,444,176
COMMITMENTS (Note 13)
CLASS B CONVERTIBLE PREFERRED STOCK.............................................. 10,000,000 10,000,000
CLASS C PREFERRED STOCK.......................................................... 1,623,329 --
STOCKHOLDERS' DEFICIT:
Class A preferred stock........................................................ 100,000 --
Class A common stock, $1 par value, 1,000,000 shares authorized and 473,152
issued and outstanding in 1997 and 1996...................................... 473,152 473,152
Paid-in capital................................................................ 5,508,285 5,508,285
Retained deficit............................................................... (30,841,106) (3,870,039)
-------------- --------------
(24,759,669) 2,111,398
Less--
Class A Common Stock held in treasury, at cost................................. (11,913,000) (11,913,000)
Class A Preferred Stock owned by Dobson Telephone.............................. (100,000) --
-------------- --------------
Total stockholders' deficit.................................................. (36,772,669) (9,801,602)
-------------- --------------
Total liabilities and stockholders' deficit.................................. $ 383,214,260 $ 116,948,025
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
44
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUE:
Wireless revenue..................................................... $ 66,127,721 $ 26,107,481 $ 18,989,791
Wireline revenue..................................................... 18,455,210 16,286,190 14,765,620
Other................................................................ 586,206 831,802 693,411
------------- ------------ ------------
Total operating revenue............................................ 85,169,137 43,225,473 34,448,822
------------- ------------ ------------
OPERATING EXPENSES:
Wireless cost of service............................................. 18,754,603 7,074,207 5,167,817
Wireline cost of service............................................. 2,588,797 2,001,764 1,846,460
Marketing and selling................................................ 11,762,279 4,908,050 3,156,620
General and administrative........................................... 19,877,030 12,086,509 10,138,379
Depreciation and amortization........................................ 21,729,095 9,720,379 6,652,792
------------- ------------ ------------
Total operating expenses........................................... 74,711,804 35,790,909 26,962,068
------------- ------------ ------------
OPERATING INCOME....................................................... 10,457,333 7,434,564 7,486,754
------------- ------------ ------------
OTHER INCOME (EXPENSES):
Equity in income (losses) of unconsolidated partnerships............. 222,348 21,576 (98,288)
Interest income...................................................... 2,840,533 1,075 9,884
Interest expense..................................................... (30,098,327) (6,477,651) (3,833,189)
Other................................................................ (183,193) (1,608,538) (388,591)
------------- ------------ ------------
Total other expenses............................................... (27,218,639) (8,063,538) (4,310,184)
------------- ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES,
INCOME TAXES AND EXTRAORDINARY ITEMS................................. (16,761,306) (628,974) 3,176,570
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES........................... $ (1,693,372) $ (675,098) $ (1,334,155)
------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.............. (18,454,678) (1,304,072) 1,842,415
INCOME TAX (PROVISION) BENEFIT......................................... 3,287,740 410,795 (738,235)
------------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS............................... (15,166,938) (893,277) 1,104,180
EXTRAORDINARY EXPENSE, net of income tax expense of $960,508 in 1997
and $323,205 in 1996 (Note 4)........................................ (1,567,147) (527,334) --
------------- ------------ ------------
NET INCOME (LOSS)...................................................... (16,734,085) (1,420,611) 1,104,180
DIVIDENDS ON PREFERRED STOCK........................................... (2,603,362) (849,137) (591,300)
------------- ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS.................... $ (19,337,447) $ (2,269,748) $ 512,880
------------- ------------ ------------
------------- ------------ ------------
BASIC NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE
Before extraordinary expense......................................... (37.56) (3.68) 1.08
Extraordinary expense................................................ (3.31) (1.12) --
------------- ------------ ------------
BASIC NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE................................................................ $ (40.87) $ (4.80) $ 1.08
------------- ------------ ------------
------------- ------------ ------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....................... 473,152 473,152 473,152
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 1997, 1996 AND 1995
<TABLE>
<CAPTION>
STOCK
OWNED
CLASS A CLASS A CLASS B BY
PREFERRED STOCK COMMON STOCK COMMON STOCK SUBSIDIARY
-------------------- -------------------- -------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994................................. -- $ -- 300 $ 1,000 1,000 $ 1,000 1,000
Net income...................................... -- -- -- -- -- -- --
Cash dividends declared on preferred stock...... -- -- -- -- -- -- --
Cash dividends declared on common stock......... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1995................................. -- -- 300 1,000 1,000 1,000 1,000
Net loss........................................ -- -- -- -- -- -- --
Recapitalization (Note 6)....................... -- -- 472,852 472,152 (1,000) (1,000) (1,000)
Cash dividends declared on preferred stock...... -- -- -- -- -- -- --
Cash dividends declared on common stock......... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1996................................. -- -- 473,152 473,152 -- -- --
Net loss........................................ -- -- -- -- -- -- --
Cash dividends declared on preferred stock...... -- -- -- -- -- -- --
Cash dividends declared on common stock......... -- -- -- -- -- -- --
Preferred stock dividend........................ -- -- -- -- -- -- --
Issuance of preferred stock..................... 100,000 100,000 -- -- -- -- 100,000
--------- --------- --------- --------- --------- --------- ---------
DECEMBER 31, 1997................................. 100,000 $ 100,000 473,152 $ 473,152 -- $ -- 100,000
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
TREASURY RETAINED
PAID-IN STOCK, AT EARNINGS
AMOUNT CAPITAL COST (DEFICIT)
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994................................. $ (1,000) $5,980,437 $(11,913,000) $ (892,022)
Net income...................................... -- -- -- 1,104,180
Cash dividends declared on preferred stock...... -- -- -- (591,300)
Cash dividends declared on common stock......... -- -- -- (660,858)
--------- --------- ----------- -----------
DECEMBER 31, 1995................................. (1,000) 5,980,437 (11,913,000) (1,040,000)
Net loss........................................ -- -- -- (1,420,611)
Recapitalization (Note 6)....................... 1,000 (472,152) -- --
Cash dividends declared on preferred stock...... -- -- -- (849,137)
Cash dividends declared on common stock......... -- -- -- (560,291)
--------- --------- ----------- -----------
DECEMBER 31, 1996................................. -- 5,508,285 (11,913,000) (3,870,039)
Net loss........................................ -- -- -- (16,734,085)
Cash dividends declared on preferred stock...... -- -- -- (980,033)
Cash dividends declared on common stock......... -- -- -- (7,633,620)
Preferred stock dividend........................ -- -- -- (1,623,329)
Issuance of preferred stock..................... (100,000) -- -- --
--------- --------- ----------- -----------
DECEMBER 31, 1997................................. $(100,000) $5,508,285 $(11,913,000) $(30,841,106)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $ (16,734,085) $ (1,420,611) $ 1,104,180
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization............................... 21,729,095 9,720,379 6,652,792
Amortization of bond premium and financing cost............. 1,663,818 -- --
Deferred income taxes and investment tax credits, net....... (4,072,494) (361,003) 276,432
Loss on disposition of assets, net.......................... 205,694 1,799,570 --
Extraordinary loss on financing cost........................ 2,527,655 850,539 --
Minority interests in income of subsidiaries................ 1,693,372 675,098 1,334,155
Equity in losses (income) of unconsolidated partnerships.... (222,348) (21,576) 98,288
Changes in current assets and liabilities--
Accounts receivable......................................... (7,017,005) (360,480) (1,814,510)
Inventory................................................... (267,292) (540,295) 88,862
Income taxes receivable..................................... 288,063 (1,133,063) 274,207
Prepaid expenses and other.................................. (2,070,762) 90,684 257,904
Accounts payable............................................ 8,121,481 1,904,193 (132,794)
Accrued expenses............................................ 5,616,066 283,650 403,132
Deferred revenue............................................ 636,135 79,166 74,426
Customer deposits........................................... 178,402 21,030 16,291
--------------- -------------- --------------
Net cash provided by operating activities................. 12,275,795 11,587,281 8,633,365
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... $ (23,215,535) $ (17,437,774) $ (3,924,961)
Purchase of cellular license and properties................... (190,719,765) (30,000,000) --
Proceeds from sale of property, plant and equipment........... 332,331 377,178 23,500
Proceeds from sale of investment in unconsolidated
subsidiary.................................................. -- 967,000 --
(Increase) decrease in deposits............................... 1,583,706 (1,350,000) (5,000,000)
(Increase) decrease in receivable--affiliate.................. 769,821 (468,054) (340,606)
Increase in notes receivable.................................. (2,585,517) (1,004,435) (1,164,290)
Deferred start-up costs....................................... (1,101,322) -- --
Investment in unconsolidated partnerships and other, net...... (6,164,084) (463,668) (663,122)
--------------- -------------- --------------
Net cash used in investing activities..................... (221,100,365) (49,379,753) (11,069,479)
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
47
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..................................... $ -- $ 100,000 $ 700,000
Repayments of notes payable..................................... -- (800,000) --
Proceeds from long-term debt.................................... 343,500,000 75,750,000 7,373,499
Repayments of long-term debt.................................... (88,841,512) (35,910,470) (4,723,198)
Dividend distributions--
Preferred stock............................................... (117,186) (176,748) (591,300)
Common stock.................................................. (7,633,620) (549,564) (660,858)
Distributions to partners....................................... (458,378) (145,005) (877,122)
Issuance of preferred stock..................................... -- 10,000,000 --
Purchase of treasury stock...................................... -- (5,913,000) --
Purchase of restricted investments.............................. (38,389,299) -- --
Proceeds from restricted investments............................ 10,836,243 -- --
Redemption of RTFC subordinated capital certificates............ 1,051,057 57,632 866,283
Deferred financing costs........................................ (9,725,288) (4,127,925) (297,087)
-------------- -------------- -------------
Net cash provided by financing activities................... 210,222,017 38,284,920 1,790,217
-------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH.......................... 1,397,447 492,448 (645,897)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year...................... 1,609,221 1,116,773 1,762,670
-------------- -------------- -------------
CASH AND CASH EQUIVALENTS, end of year............................ $ 3,006,668 $ 1,609,221 $ 1,116,773
-------------- -------------- -------------
-------------- -------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest (net of amounts capitalized)......................... $ 22,679,047 $ 6,784,154 $ 3,415,088
Income taxes.................................................. $ -- $ 838,100 $ 303,031
SUPPLEMENTAL DISCLOSURE OF NONCASH AND FINANCING ACTIVITIES:
1997
----
Purchase of PCS Licenses with debt issuance................... $ 4,056,204
Allocation of noncash purchase price to license cost.......... $ 3,747,000
Stock dividend paid through the issuance of preferred stock... $ 1,623,329
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Dobson Communications Corporation ("DCC" or the "Company") was incorporated
as an Oklahoma corporation in February 1997, under an Agreement and Plan of
Reorganization effective February 28, 1997. Under this plan, DCC acquired all of
the outstanding Class A Common Stock, Class C Common Stock and Class B
Convertible Preferred Stock of Dobson Operating Company ("DOC"). In exchange,
the holders of the Class A Common Stock and Class B Convertible Preferred Stock
of DOC received equivalent shares of stock of DCC. The holders of Class C Common
Stock received 100,000 shares of Class A Preferred Stock of DCC. In addition,
DCC assumed all DOC outstanding stock options, substituting shares of DCC Class
B Common Stock for the DOC stock subject to options. As a result of the
reorganization, DCC is the parent company of DOC.
As part of the reorganization, the stock of certain subsidiaries of DOC was
distributed to DCC. DOC continues to be the holding company for the Company's
cellular, local exchange and wholly-owned fiber subsidiaries. See Note 16 for
discussion of the Company's reorganization subsequent to December 31, 1997.
CAPITAL RESOURCES AND GROWTH
The Company's total indebtedness and debt service requirements will
substantially increase as a result of the transactions described in Notes 7 and
16 and the Company will be subject to significant financial restrictions and
limitations. If the Company is unable to satisfy any of the covenants under the
credit facilities described in Note 16, including financial covenants, the
Company will be unable to borrow under the credit facilities during such time
period to fund planned capital expenditures, its ongoing operations or other
permissible uses.
The Company's ability to manage future growth will depend upon its ability
to monitor operations, control costs, maintain effective quality controls and
significantly expand the Company's internal management, technical and accounting
systems, all of which will result in higher operating expenses. Any failure to
expand these areas and to implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the growth of the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations.
WIRELESS TELECOMMUNICATIONS
The Wireless Telecommunications segment is comprised of the cellular
entities of DCC listed below, which operate cellular telephone systems servicing
areas in Oklahoma, Texas, Kansas, Missouri, Maryland, Pennsylvania and Arizona.
The name of the entity/partnership, metropolitan statistical area ("MSA")/rural
service area ("RSA") and the Company's percentage of ownership are as follows:
<TABLE>
<CAPTION>
PERCENT
ENTITY/PARTNERSHIP MSA/RSA SERVED OWNERSHIP
- ------------------------------------------------ ---------------------------------------------------- -----------
<S> <C> <C>
Dobson Cellular of Enid, Inc. Oklahoma MSA 2 100
Dobson Cellular of Woodward, Inc. Oklahoma RSA 2 100
Texas RSA 2 Limited Partnership Texas RSA 2 61
Oklahoma Independent RSA 5 Partnership Oklahoma RSA 5 64.35
Oklahoma Independent RSA 7 Partnership Oklahoma RSA 7 64.35
Oklahoma RSA 3 Limited Partnership Oklahoma RSA 3 5
Dobson Cellular of Kansas/Missouri, Inc. Kansas RSA 5, Missouri RSAs 1 and 4, and the Linn 100
County portion of Missouri RSA 5
Dobson Cellular of Maryland, Inc. Maryland RSA 2; Cumberland, MD MSA; Hagerstown, MD 100
MSA; Maryland RSA 3; Bedford County portion of
Pennsylvania 10 West RSA
Gila River Cellular General Partnership Arizona RSA 5 75
</TABLE>
49
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION: (CONTINUED)
The Company is responsible for managing and providing administrative
services to the Oklahoma Independent RSA 5 and 7 Partnerships, Texas RSA 2
Limited Partnership ("Texas Partnership") and the Gila River Cellular General
Partnership. The Company is accountable to the partners for the execution and
compliance with contracts and agreements and for filing of instruments required
by law which are made on behalf of these partnerships. The books and records of
these partnerships are also maintained by the Company.
WIRELINE TELECOMMUNICATIONS
LOCAL EXCHANGE
The Company, through Dobson Telephone Company, Inc. ("Dobson Telephone"),
provides wireline telephone service to nine contiguous exchanges in western
Oklahoma and three contiguous counties adjacent to and east of the Oklahoma City
metropolitan area. Dobson Telephone operates under the authority of the Federal
Communications Commission ("FCC"). Rates charged by Dobson Telephone are
regulated by the FCC and the Oklahoma Corporation Commission. Dobson Telephone,
like other wireline companies that operate in rural areas where the cost to
provide service is higher than normal, receives high cost support funds from
state jurisdictions and the federal universal service funds. Approximately 36%
of the Company's revenue from its wireline local exchange operations for the
year ended December 31, 1997, was from these two sources.
FIBER OPTIC TELECOMMUNICATIONS
The Company provides fiber optic telecommunications service between Oklahoma
City, Oklahoma and Amarillo, Texas through Dobson Fiber Company, Inc. ("Dobson
Fiber"). In addition, the Company has a 20% interest in the Forte of Colorado
Partnership which provides fiber optic telecommunication service between
Springfield, Colorado and Colorado Springs, Colorado.
COMPETITIVE LOCAL EXCHANGE CARRIER ("CLEC")
The Company commenced its CLEC operations in October 1997 through Logix
Communications Corporation ("Logix"). Logix provides and resells integrated
services including local exchange, long distance, wireless, paging and internet
in Oklahoma City, Oklahoma and Tulsa, Oklahoma. On March 26, 1997, the Company
and Logix entered into a definitive agreement to purchase substantially all of
the assets of American Telco, Inc. ("ATI") for approximately $130 million as
discussed in Note 16.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
all majority owned subsidiaries. For financial reporting purposes, the Company
reports 100% of revenues and expenses for the markets for which it provides
wireless telecommunications service. However, in several of its markets, the
Company holds less than 100% of the equity ownership. The minority stockholders'
and partners' shares of income or losses in those markets are reflected in the
consolidated statements of operations as "minority interests in income of
subsidiaries." For financial reporting purposes, the Company consolidates each
subsidiary and partnership in which it has a controlling interest (greater than
50%). Significant intercompany accounts and transactions have been eliminated.
Investments in unconsolidated partnerships where the Company does not have a
controlling interest are accounted for under the equity method.
50
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents on the accompanying consolidated balance sheets
includes cash and short-term investments with original maturities of three
months or less.
INVENTORY
The Company values its inventory at the lower of cost or market on the
first-in, first-out method of accounting.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses potential impairments of long-lived assets, certain
identifiable intangibles and goodwill when there is evidence that events or
changes in circumstances indicate that an asset's carrying value may not be
recoverable. An impairment loss is recognized when the sum of the expected
future net cash flows is less than the carrying amount of the asset. The amount
of any recognized impairment would be based on the estimated fair value of the
asset subject to impairment compared to the carrying amount of such asset. No
such losses have been identified by the Company.
CELLULAR LICENSE ACQUISITION COSTS
Cellular license acquisition costs consist of amounts paid to acquire FCC
licenses to provide cellular services. Cellular license acquisition costs are
being amortized on a straight-line basis over ten to fifteen years. Amortization
expense of $10,528,125, $1,596,794 and $413,486 was recorded in 1997, 1996 and
1995, respectively.
The ongoing value and remaining useful lives of intangible and other
long-term assets are subject to periodic evaluation and the Company currently
expects the carrying amounts to be fully recoverable. When events and
circumstances indicate that intangible and other long-term assets might be
impaired, an undiscounted cash flow methodology would be used to determine
whether an impairment loss would be recognized.
DEFERRED COSTS
Deferred costs consist primarily of fees incurred to secure long-term debt,
start-up costs and organizational costs. Deferred start-up costs are amortized
on a straight-line basis over three years. Deferred financing costs are being
amortized on a straight-line basis over the term of the debt of eight years.
Amortization expense related to these costs of $1,238,355, $405,493 and $412,384
was recorded in 1997, 1996 and 1995, respectively.
EXCESS OF COST OVER ORIGINAL COST OF ASSETS ACQUIRED
The excess of cost over the original cost of assets acquired relates to
Dobson Telephone's acquisition of McLoud Telephone Company in 1985 and is being
amortized using the straight-line method over 40 years. Amortization expense of
$95,240 was recorded in 1997, 1996 and 1995.
51
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OTHER INTANGIBLES
Other intangibles consist of amounts paid to acquire FCC licenses to provide
PCS service and amounts paid to acquire cellular customer lists in 1997. PCS
license acquisition costs are not being amortized until the Company's PCS
service becomes operational. Customer list acquisition costs are being amortized
on a straight-line basis over five years. Amortization expense of $851,107 was
recorded in 1997.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included as marketing and
selling expenses in the accompanying consolidated statements of operations.
INCOME TAXES
The Company files a consolidated income tax return. Income taxes are
allocated among the various entities included in the consolidated tax return, as
agreed, based on the ratio of each entity's taxable income (loss) to
consolidated taxable income (loss). Deferred income taxes reflect the estimated
future tax effects of differences between financial statement and tax bases of
assets and liabilities at year end.
REVENUE RECOGNITION
The Company records service revenues over the period they are earned. The
cost of providing service is recognized as incurred.
Airtime and toll revenue is billed in arrears. The Company accrued estimated
unbilled revenues for services provided of approximately $1,209,000 and $858,000
as of December 31, 1997 and 1996, respectively, which are included in accounts
receivable in the accompanying consolidated balance sheets. Monthly access
charges are billed in advance and is reflected as deferred revenue on the
accompanying consolidated balance sheets. Cellular equipment sales are
recognized when the cellular equipment is delivered to the customer. Subscriber
acquisition costs (primarily commissions and loss on equipment sales) are
expensed as incurred.
EARNINGS PER SHARE
Basic income (loss) per common share is computed by the weighted average
number of shares of common stock outstanding during the year. Primary loss per
common share for 1996 was determined on the assumption that shares of Class B
convertible preferred stock were common stock from the date of their issuance as
each share of Class B convertible preferred stock is entitled to participate in
common stock dividends on a basis equivalent to shares of common stock, in
addition to the stated preferred stock dividend. In 1997, the Company adopted
SFAS No. 128, "Earnings Per Share." As a result, the Company's reported net
income (loss) per common share for 1996 and 1995 were restated.
Diluted net loss per common share has been omitted because the impact of
stock options and convertible preferred stock on the Company's net loss per
common share is anti-dilutive.
USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts
52
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
SIGNIFICANT CONCENTRATIONS
In connection with providing cellular services to customers of other
cellular carriers, the Company has contractual agreements with those carriers
which provide for agreed-upon billing rates between the parties. Approximately
45% of the Company's cellular roaming revenue was earned from three cellular
carriers during the year ended December 31, 1997, while 56% and 54% of the
Company's cellular roaming revenue was earned from two cellular carriers during
the years ended December 31, 1996 and 1995, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning
after December 15, 1997. Management of the Company plans to adopt this
accounting standard as of January 1, 1998. SFAS No. 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income (loss), consisting of both net income (loss) and those
items that bypass the statement of operations and are reported as a separate
component of stockholders' deficit, be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
does not believe that its comprehensive income (loss) through December 31, 1997,
will differ materially from net income (loss).
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which requires a new basis of determining reportable
segments (i.e., the management approach). This approach (as contrasted with the
prior requirement which utilized a specified classification system for
determining segments) designates the Company's internal organization as used by
management for making operating decisions and assessing performance as the
source of business segments. DCC and its subsidiaries are organized into two
business segments to facilitate the delivery of service to customers: Wireless
Telecommunications and Wireline Telecommunications. Segment results are
presented on this new basis in Note 12 at December 31, 1997, 1996 and 1995.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously presented 1996
and 1995 balances to conform them to the 1997 presentation.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Newly constructed
cellular systems, telephone systems and fiber optic cable systems are added to
property, plant and equipment at cost which includes contracted services, direct
labor, materials overhead and capitalized interest. For the years ended December
31, 1997, 1996 and 1995, interest capitalized was not material. Existing
property, plant and equipment purchased through acquisitions is recorded at its
fair value at the date of the purchase. Repairs, minor replacements and
maintenance are charged to operations as incurred. The provisions for
depreciation are provided using the straight-line method based on the estimated
useful lives of the various classes of depreciable property.
53
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT: (CONTINUED)
Listed below are the major classes of property, plant and equipment and
their estimated useful lives, in years, as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
USEFUL
LIFE 1997 1996
---------- -------------- -------------
<S> <C> <C> <C>
Wireless systems and equipment........................................ 2-10 $ 42,279,323 $ 21,441,766
Wireline systems and equipment........................................ 5-40 62,071,415 58,302,894
Buildings and improvements............................................ 5-40 13,767,179 8,631,772
Vehicles, aircraft and other work equipment........................... 3-10 4,670,379 4,106,869
Furniture and office equipment........................................ 5-10 5,883,602 2,848,049
Plant under construction.............................................. 4,518,490 2,147,321
Land.................................................................. 429,386 201,494
-------------- -------------
Property, plant and equipment....................................... 133,619,774 97,680,165
Accumulated depreciation.............................................. 45,269,496 35,750,261
-------------- -------------
Property, plant and equipment, net.................................. $ 88,350,278 $ 61,929,904
-------------- -------------
-------------- -------------
</TABLE>
During 1996, the Company disposed of two mobile telecommunications switching
offices and related equipment for which it recognized a pretax loss of
$1,725,396. The loss is included in other income (expenses) in the accompanying
consolidated statements of operations.
4. LONG-TERM DEBT:
The Company's long-term debt as of December 31, 1997 and 1996, consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Revolving credit facility.............................................. $ 171,513,855 $ 75,750,000
Senior notes........................................................... 160,000,000 --
Mortgage notes payable................................................. 28,639,359 29,744,726
Other notes payable.................................................... 4,056,204 --
-------------- --------------
Total debt........................................................... 364,209,418 105,494,726
Less--Current maturities............................................... 1,140,824 1,190,924
-------------- --------------
Total long-term debt................................................. $ 363,068,594 $ 104,303,802
-------------- --------------
-------------- --------------
</TABLE>
REVOLVING CREDIT FACILITY
On February 28, 1997, the Company's bank credit agreement was amended and
restated to provide the Company with a $200 million revolving credit facility
maturing in 2005. Interest on borrowings under the new credit agreement accrues
at variable rates (weighted average rate of 8.43% at December 31, 1997). Initial
proceeds were used to refinance existing indebtedness, finance the
Maryland/Pennsylvania Acquisition described in Note 7 and for general corporate
purposes, including $7.5 million to pay a dividend to holders of its Class A
Common stock. In connection with the closing of the revolving credit facility,
the
54
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
Company extinguished its then existing credit facility, and recognized a pretax
loss of approximately $2.5 million as a result of writing off previously
capitalized financing costs associated with the old revolving credit facility.
This loss has been reflected as an extraordinary item, net of tax, in the
Company's consolidated statement of operations for the year ended December 31,
1997.
On March 19, 1996, the Company amended and restated the old revolving credit
agreement. In connection with this amendment, the Company recorded a pretax loss
of approximately $.8 million as a result of writing off previously capitalized
financing costs. This loss has been reflected as an extraordinary item, net of
tax, in the accompanying consolidated statement of operations for the year ended
December 31, 1996.
In April 1997, the Company entered into an interest rate hedge agreement to
hedge the Company's interest expense on its indebtedness under the revolving
credit facility. The agreement provides for a rate cap of 8% plus a factor,
based on the Company's leverage ratio (cap at December 31, 1997, was 10.5%),
terminating on the earlier of April 24, 2000, or the date an option to enter
into an interest rate swap transaction is exercised by the counterparty. Under
the swap agreement, the interest rate would be fixed at 6.13% plus the factor
used to determine the rate cap or a floating LIBOR rate, terminating on April
24, 2002. The Company accounts for this instrument as a hedge.
SENIOR NOTES
On February 25, 1997, the Company issued $160 million principal amount of
11.75% senior notes maturing in 2007. The net proceeds were used to finance the
Maryland/Pennsylvania Acquisition described in Note 7 and to purchase securities
pledged to secure payment of the first four semi-annual interest payments on the
notes, which began on October 15, 1997. The pledged securities are reflected as
"restricted investments" in the Company's consolidated balance sheet. The senior
notes are redeemable at the option of the Company in whole or in part, on or
after April 15, 2002, initially at 105.875%. Prior to April 15, 2000, the
Company may redeem up to 35% of the principal amount of the senior notes at
111.750% with proceeds from sales of stock, provided that after any such
redemption at least $104 million remains outstanding.
MORTGAGE NOTES
The mortgage notes payable to the United States of America, through the
Rural Utilities Service ("RUS") and the Rural Telephone Bank ("RTB") with
interest rates ranging from 2% to 10.75% due in quarterly or monthly
installments maturing at various dates from 1998 to 2028. The mortgage notes are
secured by substantially all the assets of Dobson Telephone and contain, among
other things, restrictions on the payment of dividends and redemption of capital
stock, as defined. Under the long-term debt agreements, Dobson Telephone is
restricted, without RUS approval, from making any loans to, or in any manner
extending its credit to various affiliates. The agreements also prohibit payment
of dividends or distributions or new investments in affiliated companies unless
after such action Dobson Telephone's current assets exceed its current
liabilities and its adjusted net worth (as defined in the agreement) is at least
40% of (i) its adjusted assets (as defined in the agreement), or, (ii) if
smaller, the sum of 10% of its adjusted assets, plus 30% of the excess of its
adjusted net worth over 10% of its adjusted assets, if any, plus 30% of the
amount of any reduction of its adjusted net worth resulting from the declaration
or payment of dividends or other distributions.
55
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
OTHER NOTES PAYABLE
Other notes payable represents the amount financed with United States
Government for nine PCS licenses as discussed in Note 7.
Minimum future payments of long-term debt for years subsequent to December
31, 1997, are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 1,140,824
1999.................................................. 1,370,385
2000.................................................. 20,921,231
2001.................................................. 29,973,554
2002.................................................. 32,189,678
2003 and thereafter................................... 278,613,746
-----------
$364,209,418
-----------
-----------
</TABLE>
5. RESTRICTED CASH AND INVESTMENTS:
Restricted cash and investments consist of an interest pledge deposit of
approximately $26.8 million which includes an initial deposit of $38.4 million
(as discussed in Note 4), net of interest earned and payments issued to
bondholders. Amortization expense of $322,850 was recorded in 1997 for bond
premiums recorded with the purchase of the restricted investments. At December
31, 1997, the carrying value of these investments exceeded the market value by
approximately $404,000.
6. STOCKHOLDERS' DEFICIT:
Effective February 28, 1997, the stockholders of DCC and Dobson Holdings
Corporation ("Dobson Holdings"), a new corporation, entered into an agreement
and plan of reorganization. Under the reorganization, Dobson Holdings acquired
all of the outstanding Class A common stock, Class C common stock and Class B
Preferred of DCC. In exchange, the holders of the Class A common stock and Class
B Preferred of DCC received equivalent shares of stock of Dobson Holdings. The
holders of the Class C common stock received 100,000 shares of Class A preferred
stock of Dobson Holdings. In addition, Dobson Holdings assumed all DCC
outstanding stock options, substituting shares of Dobson Holdings Class B common
stock for the stock subject to options. As a result, Dobson Holdings is the
parent company of DCC.
As part of the reorganization, the stock of certain subsidiaries was
distributed to Dobson Holdings so that DCC is the holding company for the
wireline and wireless subsidiaries. Additionally, DCC changed its corporate name
to DOC and Dobson Holdings changed its corporate name to DCC.
On March 19, 1996, the Company redeemed all of the shares of the Class A
Preferred for $5,913,000, which is reflected in the accompanying consolidated
statement of cash flows for the year ended December 31, 1996.
In conjunction with the execution of the amended and restated revolving
credit facility on March 19, 1996, as described in Note 4, the Company canceled
its then outstanding Class A and Class B common stock and authorized the capital
structure of the Company to consist of 1,000,000 shares of Class A voting
56
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' DEFICIT: (CONTINUED)
common stock, $1 par value per share, 31,000 shares of Class B common stock, $1
par value per share, 59,130 shares of 10% cumulative, compounded, convertible,
redeemable Class A preferred stock, $100 par value per share, and 100,000 shares
of Class B convertible preferred stock ("Class B Preferred"), $1 par value per
share, 8% dividend that accrues on a daily basis. On the same date, the Company
issued 100,000 shares of Class B Preferred. The net proceeds from the issuance
of the Class B Preferred was approximately $9,400,000. In addition, the Company
issued 473,152 shares of Class A voting common stock to the holders of the
original Class A common stock. On November 15, 1996, the Company amended its
certificate of incorporation to eliminate Class A Preferred from its authorized
capital stock.
As part of this recapitalization of the Company, Dobson Telephone was
entitled to receive shares of Class C common stock in exchange for its shares of
Class B common stock. In 1997, the Company issued these shares of Class C Common
Stock to Dobson Telephone.
Holders of Class B Preferred are entitled to cumulative dividends as and
when declared by the board of directors of the Company and a liquidation
preference over the other classes of capital stock. The Class B Preferred
stockholders are also entitled to a dividend equal to the amount they would have
received had the Preferred Stock been converted into Class A common stock. Each
share of Class B Preferred is convertible into Class A common stock initially at
a ratio of one to one. Each share of Class B Preferred has voting rights
equivalent to Class A common stock, at a rate equal to the number of Class A
common shares into which the share of Class B Preferred is convertible at the
record date of such vote. In addition, the Class B Preferred shareholders have
the right, as a class, to elect two members of the board of directors of the
Company.
Holders of Class B Preferred have the right to sell up to 50% and 100% of
their stock to the Company after March 19, 2001 and 2002, respectively, or upon
the occurrence of certain events, at the then fair market value. After March 19,
2003, the Company has the right to call all of the outstanding shares of Class B
Preferred at the then fair market value.
In February 1997, a $7.5 million dividend was paid on the Class A Common
Stock. As a result of the $7.5 million dividend, holders of Class B Preferred
were entitled to a "Make-Whole Dividend" of approximately $1.6 million. In lieu
of such Make-Whole Dividend, the holders of Class B Preferred received 100,000
shares of Class C Preferred Stock having a liquidation preference of $1,623,329.
Holders of Class C Preferred are entitled to 8% cumulative dividends as and
when declared by the board of directors of the Company and a liquidation
preference over the other classes of common stock and equity securities. The
Class C Preferred is not convertible and has no voting rights.
The Company may redeem, by vote of the board of directors, the Class C
Preferred at any time and from time to time, in whole or in part. Upon the
earlier of the occurrence of certain events or February 28, 2002, the Company
must redeem all the outstanding shares of Class C Preferred at the liquidation
value thereof plus accrued dividends.
7. ACQUISITIONS:
RECENT WIRELESS ACQUISITIONS
On February 28, 1997, the Company purchased the FCC cellular licenses for,
and certain assets relating to, two MSAs and two RSAs located in Maryland and
Pennsylvania for $77.6 million. The properties are located immediately outside
the Washington/Baltimore metropolitan area.
57
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITIONS: (CONTINUED)
On March 3, 1997, the Company purchased the FCC cellular license for, and
certain assets relating to, Maryland RSA 2 for $75.8 million. The property is
located to the east of the Washington/Baltimore metropolitan area. This
acquisition and the one completed on February 28, 1997, are referred to together
as the "Maryland/Pennsylvania Acquisition."
On October 1, 1997, the Company purchased a 75% interest in the Gila River
Cellular General Partnership (the "Arizona 5 Partnership"), which owns the
cellular license for Arizona RSA 5 as well as the associated tangible operating
assets, and Gila River Telecommunications Subsidiary, Inc. ("GRTSI") purchased a
25% interest in the Arizona 5 Partnership. As part of this transaction, the
Company purchased the stock of Associated Telecommunications and Technologies,
Inc. ("ATTI"), which owned 49% of one of the partners of the Arizona 5
Partnership (with a 41.95% interest). Of the $14.2 million purchase price for
ATTI, $9.5 million was paid to a director and the chief executive officer and
the chairman of the board of the Company, who together owned two-thirds of the
ATTI stock. Contemporaneously, the Company received the following payments on
outstanding loans from affiliates: $1.9 million from the chairman of the board
of directors, president and chief executive officer of the Company, $446,000
from a director and $1.9 million from an affiliate. Upon completion of these
transactions, the Company paid a net purchase price of $39.8 million for its 75%
interest in the Arizona 5 Partnership. In addition, the Company financed
approximately $5.2 million of the $13.3 million purchase price paid by GRTSI for
its 25% interest in the Arizona 5 Partnership. The $5.2 million note receivable
bears interest at the Company's available rate under its revolving credit
facility. Principal and interest will be paid from 60% of partnership
distributions beginning after September 30, 1998. Any unpaid amounts of
principal and interest are due on December 31, 2013.
The acquisition transactions were accounted for as purchases and,
accordingly, their results of operations have been included in the accompanying
consolidated statements of operations from the respective dates of acquisition.
The unaudited pro forma information set forth below includes all acquisitions
for for the years ended 1997 and 1996, respectively, as if the purchases
occurred at the beginning of 1996. The unaudited pro forma information is
presented for informational purposes only and is not necessarily indicative of
the results of operations that actually would have been achieved had the
acquisitions been consummated at that time:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Operating revenue....................................................... $ 97,868,743 $ 80,121,663
Loss before extraordinary items......................................... (13,337,341) (19,130,988)
Net loss applicable to common stockholders.............................. (17,507,850) (20,507,459)
Basic net loss applicable to common stockholders per common share....... (37.00) (43.34)
</TABLE>
On March 19, 1996, the Company purchased the FCC cellular licenses for, and
certain assets relating to, one RSA located in Kansas and three RSAs and a
portion of another RSA located in Missouri for $30 million. The properties (the
"Kansas/Missouri Cluster") are located in northeastern Kansas and northwestern
Missouri near Kansas City.
58
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACQUISITIONS: (CONTINUED)
SUBSEQUENT WIRELESS ACQUISITIONS
On January 26, 1998, the Company purchased the FCC cellular license for and
certain assets relating to the Texas RSA 16 for $56.6 million, subject to
adjustment. The property is located in south central Texas between Houston, San
Antonio and Austin. As of December 31, 1997, the Company had placed $2.7 million
into escrow pending closing the acquisition and is included in investments in
unconsolidated subsidiaries and other in the accompanying balance sheet.
PROPOSED WIRELESS ACQUISITIONS
On November 17, 1997, the Company entered into a definitive agreement to
purchase the stock of a corporation which owns a 75% interest in a partnership
("the California 4 partnership"), and on March 19, 1998, it entered into a
definitive agreement to purchase the corporation owning the remaining 25%
interest in the California 4 partnership for a combined purchase price of
approximately $87 million, subject to adjustment. The California 4 partnership
owns the FCC cellular license and system for, and certain assets relating to,
California RSA 4. California RSA 4 is located in northern California
approximately 50 miles inland from California's central coast in an area between
Fresno and Modesto.
Upon the execution of the definitive agreement, the Company placed $2.5
million into escrow pending closing the acquisition and is included in
investments in unconsolidated subsidiaries and other in the accompanying balance
sheet at December 31, 1997.
On March 25, 1998, the Company entered into a definitive agreement to
purchase 70% of the outstanding stock of a corporation that owns the FCC
cellular license for, and the assets relating to, the Santa Cruz MSA for a
purchase price of approximately $25.2 million, subject to adjustment. The
Company is currently negotiating to acquire the remaining 30% of the outstanding
stock of such corporation. The property is adjacent to California RSA 4 and is
located southwest of San Jose and north of the Monterey Peninsula on
California's coastline.
PCS LICENSES
In the second quarter of 1997, the Company was granted PCS licenses in the
FCC "F" Block auction for nine markets adjacent to or overlapping the Company's
existing cellular footprint in Oklahoma, Kansas and Missouri. The aggregate bid
for these licenses was $5.1 million after a 15% discount. The Company financed
approximately $4.1 million of the purchase price in July 1997 by notes payable
to the United States Government at an annual interest rate of 6.25% (see Note
4). This represented a noncash financing activity, and accordingly is not
reflected in the accompanying consolidated statement of cash flows. Interest
payments are due quarterly beginning no earlier than April 30, 1998. The
obligations will be amortized quarterly over an eight-year period beginning in
1999.
8. EMPLOYEE BENEFIT PLANS:
401(K) PLAN
The Company maintains a 401(k) plan (the "Plan") in which substantially all
employees of the Company are eligible to participate. The Plan requires the
Company to match 100% of employees' contributions up to 4% of their salary.
Contributions to the Plan charged to the Company's operations
59
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
were approximately $225,000, $149,000 and $149,000 during the years ended
December 31, 1997, 1996 and 1995, respectively.
STOCK OPTION PLAN
The Company has adopted a stock option plan, the 1996 Stock Option Plan
("1996 Plan"). The Company accounts for this plan under APB Opinion 25, under
which no compensation cost is recognized in the accompanying financial
statements if the option price is equal to or greater than the fair market value
of the stock at the time the option is granted.
Under the Company's 1996 Plan, the Board of Directors may grant both
incentive and non-incentive stock options for employees, officers and directors
to acquire Class B Common Stock. Since the 1996 Plan's adoption, stock options
have been issued at the market price on the date of grant with an expiration of
ten years from the grant date. Options granted to one employee during 1997
representing 42.9% of total options granted in 1997 vest as follows: options to
purchase 12% of such shares first become exercisable on each of the first five
anniversaries of the grant date; options to purchase an additional 8% of such
shares first become exercisable on the same dates if annual performance
objectives are achieved. The remaining options issued in 1997 and all of the
options issued in 1996 vest at a rate of 20% per year. The Company has reserved
30,166 shares of authorized but unissued Class B Common Stock for issuance under
the 1996 Plan.
Stock options outstanding under the 1996 Plan are presented for the periods
indicated.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES RANGE
----------- -------------
<S> <C> <C>
Outstanding December 31, 1995.......................................................... -- --
----------- -------------
Granted.............................................................................. 8,374 $100
Exercised............................................................................ -- --
Canceled............................................................................... -- --
----------- -------------
Outstanding December 31, 1996.......................................................... 8,374 $100
----------- -------------
Granted.............................................................................. 14,059 $100-$150
Exercised............................................................................ -- --
Canceled............................................................................. -- --
----------- -------------
Outstanding December 31, 1997.......................................................... 22,433 $100-$150
----------- -------------
----------- -------------
Exercisable at December 31, 1997....................................................... 1,675 $100
----------- -------------
----------- -------------
</TABLE>
The following schedule shows the Company's net loss and net loss per share
for each of the years ended December 31, had compensation expense been
determined consistent with SFAS No. 123. The pro
60
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS: (CONTINUED)
forma information presented below is based on several assumptions and should not
be viewed as indicative of the Company in future periods.
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
($ IN THOUSANDS,
EXCEPT FOR PER SHARE
AMOUNTS)
Net loss applicable to common stockholders:
As reported............................................................................... $ (19,337) $ (2,270)
Pro forma................................................................................. $ (19,540) $ (2,309)
Basic net loss applicable to common stockholders per common share:
As reported............................................................................... $ (40.87) $ (4.80)
Pro forma................................................................................. $ (41.30) $ (4.88)
</TABLE>
Diluted net loss per common share has been omitted because the impact of
common stock equivalents is anti-dilutive.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
(AMOUNTS EXPRESSED IN
PERCENTAGES)
Interest rate...................................................................... 6.60% 6.98%
Dividend yield..................................................................... -- --
Expected volatility................................................................ 40.27% 39.88%
</TABLE>
The weighted average fair value of options granted using the Black-Scholes
option pricing model was $71.42 for 1997 and $64.84 for 1996.
9. TAXES:
Provision (benefit) for income taxes for the years ended December 31, 1997,
1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
Federal income taxes--
Current....................................................... $ -- $ (45,000) $ 394,000
Deferred...................................................... (2,730,000) (280,000) 245,000
Deferred investment tax credits amortized..................... (39,000) (48,000) (48,000)
State income taxes (current and deferred)....................... (519,000) (38,000) 147,000
------------- ----------- ----------
Total income tax provision (benefit)........................ $ (3,288,000) $ (411,000) $ 738,000
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
61
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. TAXES: (CONTINUED)
The provisions for income taxes for the years ended December 31, 1997, 1996
and 1995, differ from amounts computed at the statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
Income taxes at statutory rate (34%)............................ $ (6,241,000) $ (444,000) $ 625,000
Deferred investment credits amortized........................... (39,000) (48,000) (48,000)
Amortization of excess of cost over original cost of assets
acquired...................................................... 32,000 32,000 32,000
State income taxes, net of Federal income tax effect............ (734,000) (52,000) 71,000
Loss on redemption of executive life insurance policy........... -- -- 48,000
Purchase price adjustment....................................... 3,747,000 -- --
Other, net...................................................... (53,000) 101,000 10,000
------------- ----------- ----------
$ (3,288,000) $ (411,000) $ 738,000
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current deferred income taxes:
Allowance for doubtful accounts receivable.............................. $ 152,000 $ 92,000
Accrued liabilities..................................................... 45,000 --
Deferred expenses....................................................... 17,000 298,000
------------- -------------
Net current deferred income tax asset................................. 214,000 390,000
------------- -------------
Noncurrent deferred income taxes:
Fixed assets............................................................ (3,266,000) (1,710,000)
Intangible assets....................................................... (9,859,000) --
Tax credits and carryforwards........................................... 10,386,000 794,000
------------- -------------
Net noncurrent deferred income tax asset (liability).................. (2,739,000) (916,000)
------------- -------------
Total deferred income taxes........................................... $ (2,525,000) $ (526,000)
------------- -------------
------------- -------------
</TABLE>
The investment tax credits previously recorded by the Company for book
purposes have been deferred and are being amortized over the average lives of
the property giving rise to the credits. The investment tax credit amortization
used to offset income tax expense was $39,000 in 1997 and $48,000 for each of
the years ended December 31, 1996 and 1995, respectively.
At December 31, 1997, the Company had investment tax credit carryforwards
for tax purposes of $134,000, which may be utilized to reduce future Federal
income taxes payable. Unless utilized, the remaining investment tax credit
carryforwards will expire in 1999.
At December 31, 1997, the Company had alternative minimum tax credit
carryforwards of $659,000 that may be utilized to reduce future regular Federal
income taxes payable.
At December 31, 1997, the Company had NOL carryforwards of $23,600,000,
which may be utilized to reduce future Federal income taxes payable.
62
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS:
At December 31, 1997 and 1996, the Company had notes and interest receivable
of $5,888,054 and $3,308,438, respectively, of which $5,852,282 and $3,266,765
was due from related parties, including $295,612 and $2,253,892 at December 31,
1997 and 1996, respectively, from the Company's directors and officers. The
notes bear interest at various interest rates ranging from 4% to 14.5% at
December 31, 1997.
The Company leases its corporate office space from a related party, as
discussed in Note 13.
During 1995, the Company purchased 75,000 shares of common stock of Zenex
Communications, Inc. ("Zenex") a long distance carrier serving customers
primarily in Oklahoma, for $75,000 and purchased 400,000 shares of Zenex Class B
preferred stock for $400,000. In 1996, the Company purchased an additional
275,000 shares of Zenex Class B preferred stock for $275,000.
On October 28, 1996, the Company sold its 675,000 shares of Zenex Class B
preferred stock and 30,000 of its shares of Zenex common stock for approximately
$817,000. In addition, the Company sold its option to purchase additional stock
for $150,000. The Company recognized a $262,000 gain on these transactions.
In July 1997, the Company purchased 30,000 shares of Zenex common stock for
$150,000 and resold the shares in November 1997 to the Company's chairman of the
board of directors, president and chief executive officer at a price equal to
the Company's cost.
In September 1997, the Company purchased a loan for $263,882 made by a bank
to Zenex and resold such loan to the Company's chairman of the board of
directors, president and chief executive officer in November 1997 at a price
equal to the Company's cost.
11. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Interest.......................................................... $ 6,006,257 $ 179,682
Property tax...................................................... 55,660 472,914
Vacation, wages and other......................................... 1,783,484 981,238
------------ ------------
Total accrued expenses.......................................... $ 7,845,401 $ 1,633,834
------------ ------------
------------ ------------
</TABLE>
12. REPORT OF BUSINESS SEGMENTS:
The Company operates in two reportable segments: Wireless Telecommunications
and Wireline Telecommunications. These segments are strategic business units
that offer different products and services. They are managed separately because
each business requires different technology and marketing strategies. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in Note 2. The Company evaluates and
measures performance of each segment based on operating cash flow (2). The
Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices. The Company
allocates corporate overhead, income taxes and amortization of deferred
financing cost to each segment. Not all segments
63
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
have significant noncash items other than depreciation and amortization in
reported profit or loss. A summary of the Company's operations by segment is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- --------------
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
Wireless Telecommunications
External............................................................... $ 66,127,721 $ 26,107,481 $ 18,989,791
Wireline Telecommunications
External............................................................... 18,455,210 16,286,190 14,765,620
Intersegment........................................................... 1,721,500 1,609,901 1,499,023
Other(1)
External............................................................... 586,206 831,802 693,411
Intersegment........................................................... 4,189,815 7,547,421 4,061,098
Intersegment revenue..................................................... (5,911,315) (9,157,322) (5,560,121)
---------------- --------------- --------------
Total operating revenue................................................ 85,169,137 43,225,473 34,448,822
---------------- --------------- --------------
OPERATING INFORMATION:
Operating income--
Wireless Telecommunications.............................................. $ 5,395,846 $ 1,947,026 $ 3,045,258
Wireline Telecommunications.............................................. 3,242,129 2,790,850 3,137,466
Other.................................................................... 1,819,358 2,696,688 1,304,030
---------------- --------------- --------------
Total operating income................................................. 10,457,333 7,434,564 7,486,754
---------------- --------------- --------------
Operating cash flow--(2)
Wireless Telecommunications.............................................. 21,976,600 7,005,374 5,438,764
Wireline Telecommunications.............................................. 8,173,444 7,269,783 7,261,512
Other.................................................................... 2,036,384 2,879,786 1,439,270
---------------- --------------- --------------
Total operating cash flow.............................................. 32,186,428 17,154,943 14,139,546
---------------- --------------- --------------
Interest, net--(3)
Wireless Telecommunications.............................................. 21,065,157 3,743,736 1,229,821
Wireline Telecommunications.............................................. 2,443,914 2,194,170 1,975,071
Other.................................................................... 3,748,723 538,670 618,413
---------------- --------------- --------------
Total interest, net.................................................... 27,257,794 6,476,576 3,823,305
---------------- --------------- --------------
Income (loss) before income taxes and extraordinary items
Wireless Telecommunications.............................................. (17,168,160) (3,908,951) 266,107
Wireline Telecommunications.............................................. 886,499 438,355 890,692
Other.................................................................... (2,173,017) 2,166,524 685,616
---------------- --------------- --------------
Total income (loss) before income taxes and extraordinary items........ (18,454,678) (1,304,072) 1,842,415
---------------- --------------- --------------
INVESTMENT INFORMATION:
Segment assets--
Wireless Telecommunications.............................................. 299,223,415 60,858,579 19,749,045
Wireline Telecommunications.............................................. 56,905,807 54,651,888 53,128,878
Other unallocated assets(4).............................................. 333,055,938 87,563,393 17,731,407
Intersegment receivables................................................. (305,970,900) (86,125,835) (17,119,231)
---------------- --------------- --------------
Total segment assets................................................... 383,214,260 116,948,025 73,490,099
---------------- --------------- --------------
</TABLE>
64
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- --------------
OTHER INFORMATION:
<S> <C> <C> <C>
Depreciation and amortization--
Wireless Telecommunications.............................................. 16,580,754 5,058,348 2,393,506
Wireline Telecommunications.............................................. 4,931,315 4,478,933 4,124,046
Other.................................................................... 217,026 183,098 135,240
---------------- --------------- --------------
Total depreciation and amortization.................................... 21,729,095 9,720,379 6,652,792
---------------- --------------- --------------
Capital expenditures--
Wireless Telecommunications.............................................. 16,231,189 12,619,701 1,412,033
Wireline Telecommunications.............................................. 5,463,631 3,544,133 2,357,483
Other.................................................................... 1,520,715 1,273,940 155,445
---------------- --------------- --------------
Total capital expenditures............................................. 23,215,535 17,437,774 3,924,961
---------------- --------------- --------------
Other significant noncash items(6)--
Wireless Telecommunications.............................................. 1,693,372 675,098 1,334,155
Wireline Telecommunications.............................................. -- -- --
Other.................................................................... -- -- --
</TABLE>
- --------------------------
(1) Revenue from segments below the quantitative thresholds are attributable to
two entities of the Company. Those entities include a small finance and
leasing company and a corporate holding company.
(2) Operating cash flow is operating income excluding the charge for
depreciation and amortization expense.
(3) Included in interest expense is amortization expense of deferred financing
cost discussed in (4) below. The amortization expense is allocated to the
wireless and wireline segments based on the segment's pro rata portion of
total debt on the date of debt issuance.
(4) Other unallocated assets primarily consist of corporate receivables from
subsidiaries, restricted cash and investments (see Note 5) and deferred
financing cost.
(5) The intersegment eliminations were included to reconcile reportable segment
activities to the Company's consolidated totals.
(6) Other significant noncash items consist of minority interest in income of
subsidiaries included in income (loss) before income taxes and extraordinary
items.
13. COMMITMENTS:
Effective December 6, 1995 (amended December 20, 1995 and June 24, 1997),
the Company entered into an equipment supply agreement in which the Company
agreed to purchase approximately $30 million of cell site and switching
equipment between June 24, 1997 and June 23, 2001, to update the cellular
systems for the newly acquired and existing MSAs and RSAs. Of the commitment,
approximately $13.8 million remained at December 31, 1997.
The Company entered into an additional equipment supply agreement with a
second vendor on January 13, 1998. The Company agreed to purchase approximately
$81 million of cell sites and switching equipment between January 13, 1998 and
January 12, 2002 to update the cellular systems for the newly acquired and
existing MSAs and RSAs.
65
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS: (CONTINUED)
Future minimum lease payments required under operating leases that have an
initial or remaining noncancellable lease term in excess of one year at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................... $2,108,059
1999.................................................... 1,951,368
2000.................................................... 1,784,527
2001.................................................... 1,601,699
2002.................................................... 1,320,225
2003 and thereafter..................................... 5,798,631
</TABLE>
Included in the annual lease commitments is approximately $277,000, payable
annually to an affiliated entity through July 2005. Lease expense under the
above leases was approximately $1,106,000, $425,000 and $300,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
14. LITIGATION SETTLEMENT:
On February 16, 1994, a judgment was entered against Dobson Cellular
Systems, Inc. ("Dobson Cellular") in a lawsuit initiated by a competitor for
violation of the Federal Communications Act in connection with pricing of
various services in the Texas RSA 2 market area in the amount of $742,318, and
post-judgment interest at a rate of 3.74% from the date of the judgment until
the amount was to be paid in full.
Management of the Texas Partnership agreed to reimburse Dobson Cellular for
any and all costs related to these actions. A provision of $150,000 was charged
to the Texas Partnership's operations in 1993, for anticipated costs of
appealing the judgment. During 1995, this case was settled at a total cost to
the Texas Partnership of approximately $430,000, net of insurance proceeds. A
provision for $280,000 was charged to the Texas Partnership's operations in
1995, and is included in other expenses in the accompanying consolidated
statement of operations for the year ended December 31, 1995.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Unless otherwise noted, the carrying value of the Company's financial
instruments approximates fair value. The Company estimates the fair value of its
long-term debt based on quoted market prices for publicly traded debt or on the
current rates available to the Company for debt with similar terms and remaining
maturation.
Indicated below are the carrying amounts and estimated fair values of the
Company's financial instruments as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revolving credit facility............... $ 171,513,855 $ 171,513,855 $ 75,750,000 $ 75,750,000
Senior notes............................ 160,000,000 169,200,000 -- --
Mortgage notes payable.................. 28,639,359 26,969,543 29,744,726 24,855,656
Other notes payable..................... 4,056,204 4,200,695 -- --
Interest rate hedge..................... -- (2,644,414) -- --
</TABLE>
66
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS:
PREFERRED STOCK
In January 1998, the Company issued 175,000 shares of 12.25% senior
exchangeable preferred stock mandatorily redeemable in 2008 for $1,000 per
share. Holders of the preferred stock are entitled to cumulative dividends from
the date of issuance and a liquidation preference over the other classes of
capital stock. Additionally, the preferred stock is redeemable at the option of
the Company on or after January 15, 2003. Holders of the preferred stock have no
voting rights. The preferred stock is not registered under the Securities Act of
1933 and may not be offered or sold in the United States without registration or
absent an applicable exemption from registration requirements. The Company must
make an offer to exchange substantially identical shares registered under the
Securities Act of 1933 for the shares outstanding within six months of the
issuance, or the stated dividend rate will increase by .5%.
REORGANIZATION
In conjunction with the issuance of the preferred stock discussed above, the
Company formed three new subsidiaries: Dobson Cellular Operating Company
("DCOC"), DOC Cellular Subsidiary Company ("DOC Cellular Subsidiary") and Dobson
Wireline Company ("DWC"). DCOC was created as the holding company for
subsidiaries formed to effect cellular acquisitions. DCOC has been designated an
unrestricted subsidiary under the senior note indenture which covers the senior
notes discussed in Note 4. DOC Cellular Subsidiary was created as the holding
company for the then existing cellular subsidiaries. DWC was created as the
holding company for the Company's wireline, fiber and resale operations. DWC was
designated an unrestricted subsidiary under the senior note indenture and the
certificate of designation establishing the preferred stock.
PENDING WIRELINE ACQUISITIONS
On March 26, 1998, a subsidiary of the Company entered into a definitive
agreement to purchase the stock of ATI for approximately $130 million, subject
to adjustment. ATI is based in Houston, Texas and provides resale services to
primarily commercial customers in five major Texas markets, including Houston,
Dallas, Ft. Worth, San Antonio and Austin. At the time of the agreement, the
Company placed $5 million into an escrow account pending closing. The Company
plans to finance the acquisition through the wireline bridge facility discussed
below.
On January 6, 1998, a subsidiary of the Company purchased from Zenex
contractual rights, information data and other rights with respect to certain of
Zenex's long distance customers located in areas served by Dobson Telephone for
$105,000. In addition, on January 6, 1998, the Company entered into a
non-binding letter of intent with Zenex to purchase contractual rights,
information data and other rights with respect to Zenex's commercial long
distance resale customers in Oklahoma for $5.8 million, subject to adjustment.
Even though the letter of intent with respect to the Zenex purchase has expired,
negotiations are continuing.
WIRELINE BRIDGE FACILITY
On March 24, 1998, DWC obtained a commitment letter for a $155 million
bridge facility ("Bridge Notes"). The Bridge Notes will be used to finance the
ATI acquisition, to fund the Zenex purchase, and to provide additional operating
capital. The facility will bear interest at 13%, increasing by 1% after six
months from the issuance date and increasing by an additional 0.5% at the end of
each subsequent three-
67
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS: (CONTINUED)
month period. Interest is payable quarterly in arrears and the Bridge Notes
mature one year from the date of issuance. In addition, DWC must pay a
commitment fee equal to 1.25% of the principal amount and a takedown fee of 1.5%
of the principal amount of the Bridge Notes. The Bridge Notes are secured by
substantially all of the assets of DWC, including the Pending Wireline
Acquisitions. The Bridge Notes are expected to be extinguished with proceeds
from either a private debt offering to be completed during 1998 or through the
issuance of senior rollover notes (the "Rollover Notes"). The Rollover Notes
would be used in their entirety to redeem 100% of the outstanding principal
amount of the Bridge Notes. The Rollover Notes would bear interest at a variable
rate and mature ten years after the date of issuance. The Rollover Notes would
be secured with the same assets secured under the Bridge Notes.
CREDIT FACILITY
In March 1998, the Company's subsidiary DCOC established a $200 million
senior secured credit facility (the "DCOC Credit Facility"). DCOC's obligations
under the DCOC Credit Facility are secured by all current and future assets of
DCOC, including the Texas 16 assets and assets acquired in future wireless
acquisitions. The Company's subsidiary DOC also established a $250 million
senior secured credit facility (the "Amended Bank Facility") to replace the
existing revolving credit facility discussed in Note 4. The Amended Bank
Facility continues to be secured by all of DOC's stock and the stock or
partnership interests of its restricted subsidiaries and all assets of DOC and
its restricted subsidiaries. The DCOC Credit Facility and the Amended Bank
Facility requires the Company to maintain certain financial ratios. The failure
to maintain such ratios would constitute an event of default, notwithstanding
the Company's ability to meet its debt service obligations. The credit
facilities will be used primarily to refinance existing indebtedness, finance
capital expenditures, consummate acquisitions, finance interest payments on the
Company's 11.75% senior notes, and fund general corporate operations. The
facilities will terminate in 2006.
In connection with the closing of the Amended Bank Facility, the Company
extinguished its then existing credit facility and recognized a pretax loss of
approximately $3.3 million as a result of writing off previously capitalized
financing costs associated with the revolving credit facility. Such amount is
included in deferred costs in the accompanying consolidated balance sheets at
December 31, 1997.
68
<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
The holders of the Company's voting securities have agreed that the Board
will consist of six directors, four designated by the principal holder of the
Company's Class A Common Stock, and two designated by holders of the Class B
Preferred Stock (the "Fleet Investors"). See Item 12. Security Ownership of
Certain Beneficial Owners and Management. An additional two directors may be
designated by Preferred Stock holders in the event certain voting rights
triggering events occur.
The Company's Board of Directors presently consists of five directors, with
one vacancy to be filled by an independent director designee of the principal
holder of the Class A Common Stock. Directors and executive officers of the
Company are elected to serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified.
Directors of the Company are elected for one-year terms at the annual meeting of
stockholders which is held in April of each year. Officers of the Company are
appointed at the Board's first meeting after each annual meeting of
stockholders.
The directors and executive officers of the Company are set forth below.
Certain of the officers and directors hold or have held positions in several of
the Company's subsidiaries. The ages of the persons set forth below are as of
December 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- --------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Everett R. Dobson(2)......................... 38 Chairman of the Board, President and Chief
Executive Officer and Director
G. Edward Evans.............................. 36 President and Chief Operating Officer of cellular
subsidiaries
Robert J. Mirabito........................... 43 President of fiber subsidiaries
William J. Hoffman, Jr....................... 35 Vice President and Chief Operating Officer of
resale subsidiaries
Bruce R. Knooihuizen......................... 41 Vice President and Chief Financial Officer
R. Thomas Morgan............................. 41 Vice President and Chief Information Officer
Stephen T. Dobson(2)......................... 34 Treasurer, Secretary and Director and President of
resale subsidiaries
Russell L. Dobson(2)......................... 62 Director
Justin L. Jaschke(3)......................... 39 Director
Thadeus J. Mocarski(3)....................... 35 Director
</TABLE>
- ------------------------
(1) Unless otherwise indicated, position is held with the Company.
(2) Everett R. Dobson and Stephen T. Dobson are sons of Russell L. Dobson.
(3) Director designee of holders of Class B Preferred Stock.
Dobson was incorporated in February 1997 in connection with a corporate
reorganization (the "Reorganization") pursuant to which Dobson became the
holding company parent of DOC. Information below with respect to positions held
by the Company's executive officers and directors refers to their positions with
DOC and, since February 1997, also with Dobson.
EVERETT R. DOBSON has served as a director and officer of the Company since
1982. From 1990 to 1996, he served as a director, President and Chief Operating
Officer of the Company and President of the Company's cellular subsidiaries. He
was elected Chairman of the Board and Chief Executive Officer of the Company in
April 1996. Mr. Dobson served on the board of the Cellular Telecommunications
Industry Association ("CTIA") in 1993 and 1994. He holds a B.A. in Economics
from Southwestern Oklahoma State University and currently sits on its Foundation
Board and chairs the investment committee.
69
<PAGE>
G. EDWARD EVANS joined the Company as President and Chief Operating Officer
of the cellular subsidiaries in January 1997. Mr. Evans was employed by
BellSouth Mobility, Inc. from 1993 to 1996, serving as General Manager-Kentucky,
Director of Field Operations at the company's corporate office in Atlanta and
Director of Marketing-Alabama. He was an Area Manager and a Market Manager of
United States Cellular, Inc. from 1990 to 1993 and was a Sales Manager of GTE
Mobilnet from 1989 to 1990. Mr. Evans serves on the board of CTIA. He has an
M.B.A. from Georgia State University.
ROBERT J. MIRABITO became President of the fiber subsidiaries in April 1996.
He served as Vice President of Dobson Fiber Company and Dobson Network
Management, Inc. from 1994 to 1996 and was Director of Strategic Planning for
the Company from 1991 to 1994. Prior to joining the Company, Mr. Mirabito was
employed by AT&T for eight years in various capacities, including Manager-State
Government Affairs and Senior Internal Auditor. Mr. Mirabito is active in the
CTIA and Oklahoma Telephone Association ("OTA") and has published numerous
articles in telecommunications and fiber optic trade journals. He serves on the
board of OK Five L.L.C., which is a network and wholesale internet service
provider for the State of Oklahoma. Mr. Mirabito holds a B.S. in civil
engineering from the University of Notre Dame and an M.B.A. from the University
of Kansas.
WILLIAM J. HOFFMAN, JR. joined the Company as Vice President and Chief
Operating Officer of the resale subsidiaries in October 1997. Prior to joining
the Company, Mr. Hoffman was employed by Intermedia Communications, Inc. as
Division Vice President--Florida Division from 1995 to 1997 and from 1987 to
1995 by Sprint Communications, serving as Branch Manager, Senior National
Account Manager, Product Marketing Manager and National Account Consultant. He
was a Captain in the U.S. Army in Europe working in military intelligence from
1983 to 1987. Mr. Hoffman holds a B.S. in electrical engineering from Auburn
University.
BRUCE R. KNOOIHUIZEN joined the Company as Vice President and Chief
Financial Officer in July 1996. From 1994 to 1996, Mr. Knooihuizen was Chief
Financial Officer and Secretary for The Westlink Co. in San Diego, a wireless
provider which was formerly an operating unit of U S WEST. Previously, he was
Treasurer and Controller of Ameritech Cellular from 1990 to 1994, Director,
Accounting Operations of Ameritech Applied Technologies from 1988 to 1990, and
Controller of Ameritech Properties in 1988, all located in Chicago. From 1980 to
1988 he held various financial and accounting positions with The Ohio Bell
Telephone Company. Mr. Knooihuizen received a B.S. in finance from Miami
University in Oxford, Ohio and an M.B.A. in finance from the University of
Cincinnati.
R. THOMAS MORGAN joined the Company as Vice President and Chief Information
Officer in December 1997. During 1996 and 1997, Mr. Morgan was Director of
Corporate Services in the Information Services Department of American Electric
Power in Columbus, Ohio, an electric utility serving 3 million customers in the
Midwest. Previously, he was Manager of Accounting and Human Resources Systems
from 1994 through 1995 and held various positions in the Information Services
Department of American Electric Power from 1985. Mr. Morgan was Manager of
Software Engineering for Access Corporation, a software development company, in
Cincinnati, Ohio from 1981 to 1985 and worked as a Senior Consultant with Arthur
Andersen & Co. in Columbus, Ohio from 1978 to 1981. Mr. Morgan holds a B.S. in
systems analysis from Miami University in Oxford, Ohio.
STEPHEN T. DOBSON has been a director of the Company since 1990. He has
served as Treasurer and Secretary of the Company since 1990 and General Manager
and Secretary of Telco since 1994 and 1990, respectively. He became President of
Dobson Wireless, Inc. in January 1997. Mr. Dobson is a member of the Western
Rural Cellular Association ("WRTA"), National Telephone Cooperative Association
and Telecommunications Resellers Association. He holds a B.S. in business
administration from the University of Central Oklahoma.
RUSSELL L. DOBSON has been a director of the Company since 1990 and was
Chairman of the Board and Chief Executive Officer from 1990 to 1996. Mr. Dobson
joined his father at Telco in 1956 and became the controlling owner and Chief
Executive Officer in 1975 when he purchased his father's interest. He has been
active in many industry-related groups, including the OTA, WRTA and Organization
for the Protection and Advancement of Small Telephone Companies.
70
<PAGE>
JUSTIN L. JASCHKE has been a director of the Company since October 1996. Mr.
Jaschke has been the Chief Executive Officer and a director of Verio Inc., a
privately held internet access provider based in Englewood, Colorado, since its
inception in March 1996. Prior to March 1996, he was Chief Operating Officer of
Nextel Communications, Inc. following its merger with OneComm Corporation in
1995. He served as OneComm's President and was a member of its Board of
Directors from 1993. From 1990 to 1993, he was President and Chief Executive
Officer of Bay Area Cellular Telephone Company in South San Francisco,
California. Mr. Jaschke is a director of Metricom, Inc., a wireless modem and
internet service provider in Los Gatos, California. Mr. Jaschke has a B.S. in
mathematics from the University of Puget Sound and an M.S. in management from
the Massachusetts Institute of Technology Sloan School of Management.
THADEUS J. MOCARSKI has been a director of the Company since April 1996. Mr.
Mocarski has been a managing director of Fleet Equity Partners, a private equity
fund located in Providence, Rhode Island, since 1994. Affiliates of Fleet Equity
Partners (the "Fleet Investors") own all of the outstanding Class B and Class C
Preferred Stock of the Company. From 1989 to 1994, Mr. Mocarski was employed by
the law firm Edwards & Angell in Providence, Rhode Island, where he represented
various private equity capital firms in their investment and acquisition
activities, including Fleet Equity Partners. Mr. Mocarski is a director of
Exodus Communications, Inc., an operator of internet data centers, headquartered
in Santa Clara, California. Mr. Mocarski received a B.A. from Colby College and
a J.D. from the Washington College of Law.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation during
1996 and 1997 earned by the Company's chief executive officer and its other four
most highly compensated executive officers as of December 31, 1997 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION
---------------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) (# OF SHARES) ($)(3)
- ------------------------------- --------- --------- --------- ----------- ------------- -------------
Everett R. Dobson ............. 1997 $ 300,000 -- $ 54,800(4) -- $ 9,500
Chairman of the Board, 1996 300,000 142,400 77,100(4) -- 6,000
President and Chief Executive
Officer
Bruce R. Knooihuizen .......... 1997 152,500 82,500 -- -- 1,400
Vice President and Chief 1996 65,900 37,500 57,600(5) 7,541 --
Financial Officer
Stephen T. Dobson ............. 1997 100,000 23,500(6) 13,800(7) -- 6,500
Treasurer and Secretary 1996 97,000 75,000 20,600(7) -- 3,900
G. Edward Evans ............... 1997 113,600 80,000(8) -- 6,033 --
President and Chief Operating 1996 -- -- -- -- --
Officer of cellular
subsidiaries
Robert J. Mirabito ............ 1997 85,000 -- -- 1,207 4,400
President of fiber 1996 80,000 25,000 -- -- 3,200
subsidiaries
</TABLE>
- ------------------------
(1) For 1996, represents the amount of bonus paid in 1997 with respect to
services performed in 1996, but does not include $205,000 and $69,000 paid
to Everett R. Dobson and Stephen T. Dobson, respectively, in 1996 with
respect to services performed in 1995. Bonus amounts for Everett R. Dobson,
Stephen T. Dobson and Robert J. Mirabito with respect to services performed
in 1997 have not yet been determined.
71
<PAGE>
(2) Represents the value of perquisites and other personal benefits in excess of
10% of annual salary and bonus.
(3) Includes the matching contributions made by the Company to the account of
the executive officer under the Company's 401(k) Profit Sharing Plan.
(4) Includes $36,600 and $62,900 for personal use of Company aircraft and
$18,200 and $12,500 for a Company-provided vehicle in 1997 and 1996,
respectively.
(5) Includes $5,600 for interim housing expenses, $24,300 for home mortgage
closing costs and $27,700 for tax reimbursements for such expenses and
costs.
(6) Represents an advance on bonus to be awarded.
(7) Includes $10,400 and $7,400 for personal use of Company aircraft and $3,400
and $6,500 for a Company-provided vehicle in 1997 and 1996, respectively.
(8) Includes $20,000 received upon commencement of employment.
The Named Executive Officers listed below were granted options to purchase
shares of the Company's Class B Common Stock in 1997. No stock options were
exercised by the Named Executive Officers in 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ANNUAL RATES
TOTAL OPTIONS OF STOCK APPRECIATION
NUMBER OF GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED 1997 ($/SHARE) DATE 5%($) 10%($)
- -------------------------- ----------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
G. Edward Evans........... 6,033(2) 42.9% $ 100 01/06/07 $ 379,412 $ 961,505
Robert J. Mirabito........ 1,207(3) 8.6 100 03/25/07 75,908 192,365
</TABLE>
- ------------------------
(1) The assumed annual rates of stock price appreciation of 5% and 10% are set
by the Securities and Exchange Commission and are not intended as a forecast
of possible future appreciation in stock prices.
(2) Options to purchase 12% of such shares first become exercisable on each of
the first five anniversaries of the grant date; options to purchase an
additional 8% of such shares first become exercisable on the same dates if
annual performance objectives are achieved.
(3) Options to purchase 20% of such shares first become exercisable on each of
the first five anniversaries of the grant date.
<TABLE>
<CAPTION>
1997 YEAR-END OPTION VALUES
<S> <C> <C>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/97(#) 12/31/97($) EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE (1)
- --------------------------- --------------------------- ---------------------------
Bruce R. Knooihuizen....... 1,508/6,033 $301,600/$1,206,600
G. Edward Evans............ -0-/6,033 -0-/1,206,600
Robert J. Mirabito......... -0-/1,207 -0-/241,400
</TABLE>
- ------------------------
(1) The value of unexercised in-the-money options at December 31, 1997 is
computed as the product of (i) stock value at December 31, 1997 less stock
option exercise price and (ii) number of underlying securities at December
31, 1997.
72
<PAGE>
EMPLOYMENT AGREEMENTS
In connection with the employment of Bruce R. Knooihuizen in 1996 and G.
Edward Evans in 1997, the Company agreed to provide them compensation in the
form of salary, bonus, stock options and other benefits. The terms of Mr.
Knooihuizen's employment are an initial annual salary of $150,000, an annual
bonus ranging from 30% to 50% of his annual salary, and a 10-year option to
purchase 7,541 shares of Class B Common Stock at $100 per share vesting at the
rate of 20% per year. The terms of Mr. Evans' employment are an initial annual
salary of $120,000, an annual bonus ranging from 30% to 50% of his annual
salary, a five-year home mortgage loan of $300,000 at an annual interest rate of
4%, and a ten-year option to purchase 6,033 shares of Class B Common Stock at
$100 per share, with 60% of the option vesting ratably over five years and 40%
vesting over five years based on the achievement of annual performance
objectives. The Company also agreed to a severance payment equal to one year's
salary in the event of termination of employment of Messrs. Knooihuizen or Evans
without cause. The options to purchase shares of Class B Common Stock held by
these officers become fully vested upon a change of control of the Company. The
Company employs Russell L. Dobson on an as-needed basis to assist the Company in
connection with the wireline and fiber operations for annual compensation not to
exceed $250,000, which is payable irrespective of the time required for Mr.
Dobson's services.
The Purchase Agreement executed in connection with the Fleet Investors'
purchase of Class B Preferred Stock imposes limitations on the amount of base
compensation that the Company may pay to each of Everett R., Stephen T. and
Russell L. Dobson and provides for performance criteria for bonus payments to
Everett R. Dobson. Other compensation paid to executive officers is subject to
prior approval of the Fleet Investors.
DIRECTOR COMPENSATION
The Company reimburses directors for out-of-pocket expenses incurred in
attending board meetings. Justin L. Jaschke, in connection with his election as
a director by the Fleet Investors in October 1996, was granted an option to
acquire 833 shares of Class B Common Stock at an exercise price of $100 per
share. Mr. Jaschke's option vests ratably over a five-year period and fully
vests upon a change of control of the Company. Directors who are officers or
consultants to the Company receive no additional compensation for services
rendered as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company
determines the compensation of the Company's executive officers. During fiscal
year 1997, the members of the Compensation Committee were Russell L. Dobson,
Justin L. Jaschke and Thadeus J. Mocarski, all of whom are members of the
Company's Board of Directors. Russell L. Dobson previously served as Chairman of
the Board and Chief Executive Officer from 1990 to 1996. For a description of
certain transactions between Mr. Dobson and the Company, see Item 13. Certain
Relationships and Related Transactions.
STOCK OPTION PLAN
In February 1997, Dobson adopted DOC's 1996 Stock Option Plan (the "Plan"),
substituting Dobson Class B Common Stock for the stock subject to the Plan. The
Class B Common Stock is non-voting. The purpose of the Plan is to encourage key
employees of the Company (including Dobson and any present or future parent or
subsidiary of Dobson) by providing opportunities to participate in the ownership
of Dobson and its future growth through the grant of incentive stock options and
nonqualified stock options. The Plan also permits the grant of options to
directors. The Plan is presently administered by the Board of Directors, but in
the future may be administered by a committee of the Board (whether the Board or
a committee, the "Committee").
The maximum number of shares of Class B Common Stock for which options may
be granted under the Plan is 30,166, subject to adjustment in the event of any
stock dividend, stock split, recapitalization,
73
<PAGE>
reorganization or certain defined change in control events. Shares subject to
previously expired or terminated options become available again for grants of
options. The shares to be issued under the Plan will be newly issued shares.
The number of shares and other terms of each grant are determined by the
Committee. The price payable upon the exercise of an incentive stock option may
not be less than 100% of the fair market value of the Class B Common Stock at
the time of grant, or in the case of an incentive stock option granted to an
employee owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (a "10% Shareholder"), 110% of the
fair market value on the date of grant. Incentive stock options may be granted
to an employee only to the extent that the aggregate exercise price of all such
options under all Company plans becoming exercisable for the first time by the
employee during any calendar year does not exceed $100,000. The price payable
upon the exercise of a nonqualified stock option must be at least the minimum
legal consideration required under the laws of Oklahoma.
Each option granted under the Plan will expire on the date specified by the
Committee, but not more than ten years from the date of grant or, in the case of
a 10% Shareholder, not more than five years from the date of grant. Unless
otherwise agreed, an incentive stock option will terminate not more than 90 days
(or twelve months in the event of death or disability) after the optionee's
termination of employment.
An optionee may exercise an option by giving notice to the Company,
accompanied by an instrument of accession providing that the optionee agrees to
be bound by the terms applicable to shareholders under the Shareholders'
Agreement and full payment of the purchase price in cash or, at the discretion
of the Committee, (i) Common Stock having a fair market value equal to the
exercise price, (ii) the optionee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
federal rate (as defined in Section 1274(d) of the Internal Revenue Code), (iii)
an assignment of proceeds from the sale of a portion of the stock subject to the
option being exercised, or (iv) a combination of the foregoing.
Outstanding options become nonforfeitable and exercisable in full
immediately prior to certain defined change of control events. Unless otherwise
determined by the Committee, outstanding options will terminate immediately
prior to the consummation of the dissolution or liquidation of Dobson.
The Plan may be terminated or amended by the Board of Directors at any time
subject, in the case of certain amendments, to shareholder approval. If not
earlier terminated, the Plan expires on June 1, 2006.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information, as of December 31, 1997,
concerning beneficial ownership of the Company's Class A Common Stock and Class
B Preferred Stock by (a) each person known by the Company to beneficially own
more than 5% of such stock, (b) each director and Named Executive Officer
74
<PAGE>
who beneficially owns any Class A Common Stock or Class B Preferred Stock, and
(c) all directors and executive officers as a group:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------ PERCENT OF
NAME AND ADDRESS NUMBER OF PERCENT OF NUMBER OF PERCENT OF TOTAL VOTING
OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS POWER(1)
- ------------------------------------------------ ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Everett R. Dobson .............................. 469,998(2) 99.3% 40,000(3) 40.0% 89.0%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson .............................. 3,154 * -- -- *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Thadeus J. Mocarski ............................ -- -- 100,000(4) 100.0 17.4
50 Kennedy Plaza
Providence, RI 02903
Fleet Venture Resources, Inc. .................. -- -- 69,446 69.4 12.1
50 Kennedy Plaza
Providence, RI 02903
Fleet Equity Partners VI, L.P. ................. -- -- 29,762 29.8 5.2
50 Kennedy Plaza
Providence, RI 02903
All directors and executive officers as a group
(10 persons).................................. 473,152 100.0 100,000 00.0 100.0
</TABLE>
- ------------------------
* Less than 1%.
(1) In calculating the percent of total voting power, the voting power of shares
of Class A Common Stock (one vote per share) and Class B Preferred Stock
(presently equivalent to one vote per share) is aggregated.
(2) All such shares are held by Dobson CC Limited Partnership. As the president
and sole director and shareholder of RLD, Inc., the general partner of the
partnership, Everett R. Dobson has voting and investment power with respect
to such shares.
(3) Includes an option, presently exercisable, to purchase 27,778 shares from
Fleet Venture Resources, Inc. ("FVR"), an indirect subsidiary of Fleet
Financial Group, 11,905 shares from Fleet Equity Partners VI, L.P. ("FEP6")
and 317 shares from Kennedy Plaza Partners ("KPP").
(4) Includes 69,446 shares held by FVR, 29,762 shares held by FEP6 and 792
shares held by KPP. Mr. Mocarski has shared voting and investment power with
respect to such shares in his capacity as Senior Vice President of FVR, as
Senior Vice President of Fleet Growth Resources II, Inc., an indirect
subsidiary of Fleet Financial Group and a general partner of FEP6, and as a
general partner of KPP. Mr. Mocarski disclaims beneficial ownership of all
such shares, except to the extent of his pecuniary interest therein.
Bruce R. Knooihuizen and Justin L. Jaschke also hold presently exercisable
options to purchase 1,508 and 166 shares, respectively, of the Company's Class B
Common Stock. No executive officer or director of the Company, other than those
listed in the table above and Messrs. Knooihuizen and Jaschke, owns any of the
Company's equity securities, including the right to acquire such securities
presently or within 60 days after March 15, 1998.
75
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy requiring that any material transaction
between the Company and persons or entities affiliated with officers, directors
or principal stockholders of the Company be on terms no less favorable to the
Company than reasonably could have been obtained in an arms' length transaction
with independent third parties. Any other matters involving potential conflicts
of interests are to be resolved on a case-by-case basis.
In the Reorganization in February 1997, the shareholders of DOC exchanged
their DOC stock for the following stock of Dobson: Dobson CC Limited
Partnership, 469,998 shares of Class A Common Stock; Russell L. Dobson, 3,154
shares of Class A Common Stock; Telco, 100,000 shares of Class A Preferred
Stock; Fleet Venture Resources, Inc., 69,446 shares of Class B Preferred Stock;
Fleet Equity Partners VI, L.P., 29,762 shares of Class B Preferred Stock; and
Kennedy Plaza Partners, 792 shares of Class B Preferred Stock. In addition,
Dobson assumed outstanding DOC stock options, substituting shares of Dobson's
Class B Common Stock for the DOC stock subject to options held by the following
optionees: Justin L. Jaschke, 833 shares; G. Edward Evans, 6,033 shares; Bruce
R. Knooihuizen, 7,541 shares. Also, in February 1997, Dobson issued 100,000
shares of its Class C Preferred Stock to the Fleet Investors (each holding the
same number of shares as it holds of Class B Preferred Stock).
Transactions with the Company described below refer to DOC if they occurred
prior to February 1997.
In March 1996, the Fleet Investors purchased 100,000 shares of Class B
Preferred Stock from the Company for $10.0 million. In connection with this
transaction, the Company and its shareholders entered into a Shareholders'
Agreement providing for, among other matters, registration rights, restrictions
on the transfer of Company stock, put and call rights with respect to the Class
B Preferred Stock, and the issuance of additional stock upon the happening of
certain events. The Fleet Investors also granted the Company a stock option. In
connection with the Reorganization, Dobson and its shareholders entered into a
new Shareholders' Agreement having substantially the same terms and conditions.
The Everett R. Dobson Irrevocable Family Trust, Steven T. Dobson Irrevocable
Family Trust and Robbin L. Dobson Irrevocable Family Trust (collectively, the
"Dobson Trusts") were co-borrowers with the Company and certain of its
subsidiaries under a prior bank facility, which was first entered into in 1994.
The Dobson Trusts are the limited partners of Dobson CC Limited Partnership,
which holds more than 99% of Dobson's Class A Common Stock and, prior to the
Reorganization, held more than 99% of DOC's Class A Common Stock. See Item 12.
Security Ownership of Certain Beneficial Owners and Management. The Company and
its borrower subsidiaries guaranteed, and the Company pledged the equity
securities of certain of its subsidiaries as security for, the obligations of
the Dobson Trusts under a $6.0 million promissory note maturing in 2004 (the
"Trust Loan"), and Dobson CC Limited Partnership guaranteed the loan obligations
of the Company and its subsidiaries under the prior bank facility. All
borrowings were secured by the Class A Common Stock. In accordance with the
terms of the Fleet Investors Purchase Agreement and the prior bank facility, the
Company paid dividends on the Class A Common Stock in amounts sufficient to
permit the Dobson Trusts to service the Trust Loan. The Dobson Trusts incurred
legal fees totaling approximately $.5 million in connection with the negotiation
and closing of the credit agreement for the prior bank facility in 1994 and an
amendment effected in 1996. Such fees were paid by the Company. In connection
with the Reorganization, the Company used $7.5 million of borrowings under the
Bank Facility to pay a dividend to holders of its Class A Common Stock, of which
$6.0 million was used to fully pay the Trust Loan and $.5 million was used to
pay indebtedness owed to the Company by the Dobson Trusts with respect to the
legal fees described above.
Everett R. Dobson and Russell L. Dobson beneficially owned 67% of the
capital stock of ATTI. In December 1996, the Company consolidated $263,000 of
ATTI's outstanding indebtedness to the Company in an unsecured promissory note
which provided for interest at an annual rate of 10%. The consolidation
refinanced earlier loans made prior to 1994. At September 30, 1997, National
Telecommunications Technologies, Inc. ("Natelco"), a wholly-owned subsidiary of
ATTI, was indebted to the Company in the aggregate principal amount of $307,000,
representing funds advanced by the Company during 1992, 1993
76
<PAGE>
and 1995. The indebtedness was evidenced by an unsecured promissory note which
provided for interest at an annual rate of 10%. The ATTI and Natelco loans
(combined principal amount of $570,000) were paid in full on October 1, 1997 in
connection with the closing of the Arizona 5 Acquisition. The Company loaned
another subsidiary of ATTI $21,000 in 1994 and $32,000 in 1995, at annual
interest rates of 12% and 14%, respectively. These loans were paid in full in
October 1995 and January 1996.
Through September 30, 1997, the Company performed certain management
services for ATTI and its subsidiaries, including accounting, plant and central
office management and engineering. Billings for the services were based on the
time spent by, and hourly rates of, Company personnel and expenses incurred.
During 1995, 1996 and the nine months ended September 30, 1997, the aggregate
amounts billed for management fees and expenses to ATTI and its subsidiaries
were approximately $210,000, $333,000 and $110,000, respectively. The amounts
owed by these entities to the Company for management fees at December 31, 1995
and 1996 and September 30, 1997 were $1.0 million, $1.2 million and $1.3
million, respectively. All amounts owed by ATTI and its subsidiaries for
management services rendered prior to September 30, 1997 were paid in October
1997 in connection with the closing of the Arizona 5 Acquisition. In connection
with the Arizona 5 Acquisition, ATTI became a wholly owned subsidiary of the
Company, and a new company NATELCO, LLC (an affiliate of Everett R. Dobson and
Russell L. Dobson) was created. For the three months ended December 31, 1997 the
amount billed for management fees and expenses to NATELCO, LLC was approximately
$21,000. The amount owed by NATELCO, LLC to the Company for management fees at
December 31, 1997 was $8,900.
ATTI beneficially owned a 20.55% partnership interest in the Arizona 5
Partnership. In connection with the Arizona 5 Acquisition, the Company purchased
all of the outstanding capital stock of ATTI for $14.2 million, of which Everett
R. Dobson and Russell L. Dobson, together, received $9.5 million. The purchase
price for the ATTI stock was based on ATTI's beneficial ownership in the Arizona
5 Partnership and negotiations between the Company and the other partner of the
Arizona 5 Partnership.
In March 1996, the Company made a $1.4 million unsecured loan to Everett R.
Dobson. The loan was repaid on October 1, 1997 in connection with the Arizona 5
Acquisition. Interest on the amount borrowed was payable quarterly at the same
annual rate as that payable under the Company's prior bank facility. The loan
consolidated amounts borrowed prior to 1994, together with accrued interest.
In June 1997, Everett R. Dobson executed a promissory note in favor of the
Company in the amount of approximately $354,000, which refinanced loans made to
him by the Company during 1996, together with accrued interest. The loan was
repaid on October 1, 1997 in connection with the Arizona 5 Acquisition. The loan
bore interest at 8% per annum. In December 1996, the Company made a one-year
loan in the amount of $12,900 to Russell L. Dobson which bore interest at 9% per
annum. In June 1997, the Company made an additional loan to Russell L. Dobson in
the principal amount of $423,000, of which $304,000 consolidated amounts owed to
the Company since prior to 1994, and $119,000 refinanced a loan made to him in
November 1996, in each case together with accrued interest. This loan bore
interest at an annual rate of 9.07%. Both loans to Russell L. Dobson were paid
in full on October 1, 1997 in connection with the Arizona 5 Acquisition. The
interest rate charged on the loan to Everett R. Dobson represented the Company's
costs of borrowed funds. The interest rate on the loans to Russell L. Dobson
approximated the prevailing market rates at the time the loans were first made.
In 1993, Steven T. Dobson was indebted to the Company in the principal amount of
$7,500, which loan was paid in full in March 1995.
The Company leases its headquarters from WillRuss Limited Liability Company
("WillRuss") pursuant to a 10-year lease expiring in 2005. WillRuss is owned by
Russell L. Dobson and his wife. Monthly rent under the lease is approximately
$23,000, or $.93 per square foot. The Company believes that the terms of this
lease are no less favorable to the Company than could be obtained in a lease
from an unrelated party. In August 1995, the Company loaned WillRuss $60,000,
which was paid in full in September 1995, together with interest at an annual
rate of 10%.
The Company made a $300,000 home mortgage loan to G. Edward Evans in
February 1997 in connection with his employment. See "Employment Agreements" in
Item 11. Executive Compensation.
77
<PAGE>
The loan is payable in 60 monthly installments of $1,400, including interest at
the annual rate of 4%, with the balance due at maturity in February 2002.
In 1995, the Company bought 75,000 shares of common shares of Zenex for
$75,000 and 400,000 shares of Zenex preferred stock for $400,000, and received
an option to purchase additional shares of Zenex common stock. In early 1996,
the Company purchased an additional 275,000 shares of Zenex preferred stock for
$275,000. In October 1996, Zenex redeemed all shares of Zenex preferred stock
held by the Company and purchased the Company's option for an aggregate of
$825,000. At the same time, the Company sold 30,000 shares of Zenex common stock
to an unrelated party for $142,000. In July 1997, the Company purchased 30,000
shares of Zenex common stock for $150,000 and resold the shares in November 1997
to Everett R. Dobson at a price equal to the Company's cost. In September 1997,
the Company purchased a loan for $263,882 made by a bank to Zenex and resold
such loan to Everett R. Dobson in November 1997 at a price equal to the
Company's cost plus accrued interest. Everett R. Dobson, an executive officer,
director and principal shareholder of the Company, was a director of Zenex from
August 1995 to September 1997.
In January 1998, a subsidiary of the Company purchased contractual rights,
information data and other rights with respect to certain of Zenex's long
distance customers located in areas served by Telco for $105,000. In addition,
in January 1998, the Company entered into a non-binding letter of intent with
Zenex to purchase contractual rights, information data and other rights with
respect to its commercial long distance resale customers in Oklahoma for $5.8
million, subject to adjustment. Even though the letter of intent with respect to
the Zenex purchase has expired, negotiations are continuing. Under the Zenex
letter of intent, the Company will pay $225,000 of the purchase price by
transferring to Zenex all 45,000 shares of Zenex common stock held by the
Company. As part of the Zenex transaction, Zenex will purchase all shares of
Zenex stock held by Everett R. Dobson for $150,000 and will pay the balance
(approximately $264,000 plus accrued interest) of the Zenex bank loan held by
Everett R. Dobson. The purchase of assets from Zenex and the related
transactions are subject to the negotiation and execution of a definitive
agreement and other customary closing conditions.
78
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of Dobson Communications
Corporation are included in Item 8:
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended December
31, 1997, 1996, and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995.
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996, and 1995.
Notes to Consolidated Financial Statements.
(2) Allowance for losses
All other schedules have been omitted since the required information is not
present, or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or notes thereto.
79
<PAGE>
SCHEDULE II
DOBSON COMMUNICATIONS CORPORATION
SCHEDULE OF VALUATION ALLOWANCE ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
1997.................................................. 339,144 1,577,310 1,267,535 648,919
1996.................................................. 41,425 700,178 402,459 339,144
1995.................................................. 33,203 266,081 257,859 41,425
</TABLE>
Allowance for doubtful accounts are deducted from accounts receivable in the
balance sheet.
80
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Dobson Communications Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Dobson Communications Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon dated
March 26, 1998. Our audits were made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed on Page 79, Item 14(a)2
is the responsibility of the Company's management and is presented for purposes
of complying the the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated statements taken as a whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
March 26, 1998
81
<PAGE>
(3) Exhibits.
<TABLE>
<C> <S>
2.1 Asset Purchase Agreement dated as of November 19, 1996 as amended by
Amendment No. 1 thereto effective as of January 17, 1997 and Amendment
No. 2 thereto dated February 6, 1997, among Horizon Cellular Telephone
Company of Hagerstown L.P., Cumberland Cellular Partnership and Dobson
Cellular of Maryland, Inc., and Dobson Operating Company. (1) [10.5.1]
2.2 Asset Purchase Agreement dated September 25, 1996 among Maryland
Wireless Communications L.P., Wendy C. Coleman, Dobson Cellular of
Maryland, Inc. and Dobson Operating Company. (1) [10.5.2]
2.3 Purchase Agreement dated February 28, 1997 among Aztel, Inc. Gila River
Telecommunications, Inc., US West New Vector Group, Inc., Tohono
O'odham Utility Authority and Dobson Cellular of Arizona, Inc. (1)
[10.5.3]
2.3.1 First Amendment to Purchase Agreement dated August 29, 1997. (4)
[2.1.1]
2.4 Stock Purchase Agreement dated September 30, 1997 among Dobson
Operating Company, Associated TTI Limited Partnership and Hinton CATV
relating to the Company's purchase of the ATTI stock. (4) [2.2]
2.5 Asset Purchase Agreement dated October 9, 1997 between Texas 16
Cellular Telephone Company and Dobson Cellular of Texas, Inc. (5) [2.1]
2.6.1 Stock Purchase Agreement dated November 17, 1997 as amended by
Amendment No. 1 thereto effective as of March 18, 1998 between Cellular
2000 Telephone Co. and its shareholders listed therein and Dobson
Cellular of California, Inc.
2.6.2 Stock Purchase Agreement dated March 19, 1998 between RSA 339, Inc. and
AT&T Wireless Services, Inc. and Dobson Cellular of California, Inc.
2.7 Stock Purchase Agreement dated March 24, 1998 between Santa Cruz
Cellular Telephone, Inc. and its shareholders and optionholders listed
therein and Dobson Cellular of California, Inc.
2.8 Reserved
3.1 Registrant's Amended and Restated Certificate of Incorporation.
3.2 Registrant's Bylaws. (1) [3.2]
4.1 Reserved
4.2 Reserved
4.3 Reserved
4.4 Reserved
4.5 Telephone Loan Contract dated as of November 7, 1958 between Dobson
Telephone Company, Inc. and United States of America.(1) [4.2]
4.6 Telephone Loan Contract dated as of March 19, 1956 between McLoud
Telephone Company and United States of America. (1) [4.3]
4.7 Telephone Loan Contract dated as of January 15, 1993 between Dobson
Telephone Company, Inc., Rural Telephone Bank and United States of
America. (1) [4.4]
4.8 Restated Mortgage, Security Agreement and Financing Statement dated as
of May 15, 1993 between Dobson Telephone Company and United States of
America. (1) [4.5]
4.9 Indenture dated as of February 28, 1997 between the Registrant, as
Issuer, and United States Trust Company of New York, as Trustee. (1)
[4.6]
</TABLE>
82
<PAGE>
<TABLE>
<C> <S>
4.10 Escrow and Security Agreement dated February 28, 1997 among the
Registrant as Pledgor, and Morgan Stanley & Co. Incorporated, Alex.
Brown & Sons Incorporated, First Union Capital Markets, and NationsBanc
Capital Markets, Inc., as Placement Agents, and United States Trust
Company of New York, as Trustee. (1) [4.9]
4.11 Registration Rights Agreement dated January 16, 1998 between the
Registrant and Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery
Securities LLC.
4.12 Agreement to furnish unfiled debt instruments.
4.13 Securities Purchase Agreement dated as of March 19, 1996, as amended by
Amendment No. 1 thereto dated as of February 25, 1997, among
Registrant, Dobson Operating Company, Fleet Equity Partners VI, L.P.,
Fleet Venture Resources, Inc., and Kennedy Plaza Partners. (1) [10.6.1
and 10.6.2]
4.14 Shareholders' Agreement dated as of February 26, 1997 between the
Registrant and its shareholders. (1) [10.6.3]
4.15 Option Agreement dated as of March 19, 1996 among Dobson Operating
Company, Kennedy Plaza Partners, Fleet Venture Resources, Inc. and
Fleet Equity Partners VI, L.P. (1) [10.6.4]
10.1* Registrant's 1996 Stock Option Plan. (1) [10.1]
10.2.1 Promissory Note dated February 10, 1997 of G. Edward Evans in the
amount of $300,000 in favor of Western Financial Services Corp. (1)
10.2.2 Lease Agreement dated July 17, 1995 between WillRuss Limited Liability
Company and Western Financial Services Corp. (1) [10.2.7]
10.2.3 Stock Purchase Agreement dated September 30, 1997 among Dobson
Operating Company, Associated TTI Limited Partnership and Hinton CATV
Company, Inc. Filed herewith as Exhibit 2.4.
10.3.1* Letter dated December 26, 1996 from Registrant to G. Edward Evans
describing employment arrangement. (1) [10.3.1]
10.3.2* Letter dated June 3, 1996 from Registrant to Bruce R. Knooihuizen
describing employment arrangement. (1) [10.3.2]
10.3.3* Letter dated October 15, 1996 from Fleet Equity Partners to Justin L.
Jaschke regarding director compensation. (1) [10.3.3]
10.3.4* Letter dated September 16, 1997 from Registrant to William J. Hoffman,
Jr. describing employment arrangement.
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas Morgan
describing employment arrangement.
10.4.1 Agreement for DS-3 service dated December 16, 1993 between Dobson Fiber
Company and NTS Communications, Inc. and Addendum thereto dated June 1,
1994. (1) [10.4.1]
10.4.2 North American Cellular Network Services Agreement dated August 26,
1992 between North American Cellular Network, Inc. and Dobson Cellular,
Inc. (1) [10.4.2]
10.4.3 Trademark Sublicense Agreement dated February 28, 1997 between WMC
Partners L.P. and Dobson Cellular of Arizona, Inc. (1) [10.4.3]
10.4.4 Affiliation Agreement dated February 28, 1997 among Registrant, Dobson
Cellular of Arizona, Inc. and WMC Partners, L.P. (1) [10.4.4]
</TABLE>
83
<PAGE>
<TABLE>
<C> <S>
10.4.5 Form of Cellular One License Agreements dated February 25, 1997 between
Cellular One Group and Dobson Cellular of Enid, Inc., Dobson Cellular
of Woodward, Inc. and Dobson Cellular of Kansas/Missouri, Inc. (1)
[10.4.5]
10.4.6 Services Agreement dated September 25, 1996 among Dobson Cellular of
Maryland, Inc., Maryland Wireless Communications Limited Partnership,
Wendy Coleman and Washington/Baltimore Cellular One Limited
Partnership.
10.4.7 General Purchase Agreement dated January 13, 1998 between Lucent
Technologies, Inc. and Dobson Cellular Systems.
10.4.8 Second Amended General Purchase Agreement dated June 24, 1997 between
Northern Telecom and Dobson Communications Corporation.
10.4.9 Term Sheet Operating Agreement dated December 4, 1997 between AT&T
Wireless Services, Inc. and Registrant.
10.5 Non-Recourse Term Loan Agreement dated September 30, 1997 between the
Company and Gila River Telecommunications Subsidiary, Inc., as
borrower, with respect to $6.1 million loan. (4) [10.7]
10.6 Second Amended and Restated Partnership Agreement of Gila River
Cellular General Partnership dated September 30, 1997. (4) [10.8]
11 Statement regarding computation of earnings per share.
12 Statement regarding computation of ratios.
21 Subsidiaries
27.1 Financial Data Schedule--Fiscal year end 1997
27.2 Financial Data Schedule--Fiscal year end 1996 (Restated)
27.3 Financial Data Schedule--First, Second and Third Quarters of 1997
(Restated)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
(1) Filed as an exhibit to the Company's Registration Statement of Form S-4
(Registration No. 333-23769), as the exhibit number indicated in brackets
and incorporated by reference herein.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 as the exhibit number indicated in
brackets and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 as the exhibit number indicated in
brackets and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Current Report on Form 8-K filed on
October 15, 1997 and amended on November 6, 1997, as the exhibit number
indicated in brackets and incorporated by reference herein.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K filed on
February 10, 1998, as the exhibit number indicated in brackets and
incorporated by reference herein.
(b) The Company filed a Current Report on Form 8-K and an Amended Form 8-K
during the quarter ended December 31, 1997, which reported the acquisition of a
75% interest in the Arizona 5 Partnership under "Item 2. Acquisition of Assets"
and included certain financial information under "Item 7. Financial Statements
and Exhibits". The dates of the reports were October 15, 1997 and November 6,
1997, respectively.
84
<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>
DOBSON COMMUNICATIONS CORPORATION
By /s/ EVERETT R. DOBSON
-----------------------------------------
Everett R. Dobson
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
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 capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ EVERETT R. DOBSON President and Chief
- ------------------------------ Executive Officer March 31, 1998
Everett R. Dobson (principal executive
officer)
Vice President and Chief
/s/ BRUCE R. KNOOIHUIZEN Financial Officer
- ------------------------------ (principal financial March 31, 1998
Bruce R. Knooihuizen officer)
/s/ TRENTON W. LEFORCE Corporate Controller
- ------------------------------ (principal accounting March 31, 1998
Trenton W. LeForce officer)
/s/ STEPHEN T. DOBSON
- ------------------------------ Secretary/Treasurer, March 31, 1998
Stephen T. Dobson Director
/s/ RUSSELL L. DOBSON
- ------------------------------ Director March 31, 1998
Russell L. Dobson
/s/ JUSTIN L. JASCHKE
- ------------------------------ Director March 31, 1998
Justin L. Jaschke
/s/ THADEUS J. MOCARSKI
- ------------------------------ Director March 31, 1998
Thadeus J. Mocarski
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act
The Company has not sent, and does not intend to send, an annual report to
security holders covering its last fiscal year, nor has the Company sent a proxy
statement, form of proxy or other proxy soliciting material to its security
holders with respect to any annual meeting of security holders.
85
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Asset Purchase Agreement dated as of November 19, 1996 as amended by Amendment No.
1 thereto effective as of January 17, 1997 and Amendment No. 2 thereto dated
February 6, 1997, among Horizon Cellular Telephone Company of Hagerstown L.P.,
Cumberland Cellular Partnership and Dobson Cellular of Maryland, Inc., and Dobson
Operating Company. (1) [10.5.1]
2.2 Asset Purchase Agreement dated September 25, 1996 among Maryland Wireless
Communications L.P., Wendy C. Coleman, Dobson Cellular of Maryland, Inc. and
Dobson Operating Company. (1) [10.5.2]
2.3 Purchase Agreement dated February 28, 1997 among Aztel, Inc. Gila River
Telecommunications, Inc., US West New Vector Group, Inc., Tohono O'odham Utility
Authority and Dobson Cellular of Arizona, Inc. (1) [10.5.3]
2.3.1 First Amendment to Purchase Agreement dated August 29, 1997. (4) [2.1.1]
2.4 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating Company,
Associated TTI Limited Partnership and Hinton CATV relating to the Company's
purchase of the ATTI stock. (4) [2.2]
2.5 Asset Purchase Agreement dated October 9, 1997 between Texas 16 Cellular Telephone
Company and Dobson Cellular of Texas, Inc. (5) [2.1]
2.6.1 Stock Purchase Agreement dated November 17, 1997 as amended by Amendment No. 1
thereto effective as of March 18, 1998 between Cellular 2000 Telephone Co. and
its shareholders listed therein and Dobson Cellular of California, Inc.
2.6.2 Stock Purchase Agreement dated March 19, 1998 between RSA 339, Inc. and AT&T
Wireless Services, Inc. and Dobson Cellular of California, Inc.
2.7 Stock Purchase Agreement dated March 25, 1998 between Santa Cruz Cellular
Telephone, Inc. and its shareholders and optionholders listed therein and Dobson
Cellular of California, Inc.
2.8 Reserved
3.1 Registrant's Amended and Restated Certificate of Incorporation.
3.2 Registrant's Bylaws. (1) [3.2]
4.1 Reserved
4.2 Reserved
4.3 Reserved
4.4 Reserved
4.5 Telephone Loan Contract dated as of November 7, 1958 between Dobson Telephone
Company, Inc. and United States of America.(1) [4.2]
4.6 Telephone Loan Contract dated as of March 19, 1956 between McLoud Telephone Company
and United States of America. (1) [4.3]
4.7 Telephone Loan Contract dated as of January 15, 1993 between Dobson Telephone
Company, Inc., Rural Telephone Bank and United States of America. (1) [4.4]
4.8 Restated Mortgage, Security Agreement and Financing Statement dated as of May 15,
1993 between Dobson Telephone Company and United States of America. (1) [4.5]
4.9 Indenture dated as of February 28, 1997 between the Registrant, as Issuer, and
United States Trust Company of New York, as Trustee. (1) [4.6]
</TABLE>
86
<PAGE>
<TABLE>
<C> <S>
4.10 Escrow and Security Agreement dated February 28, 1997 among the Registrant as
Pledgor, and Morgan Stanley & Co. Incorporated, Alex. Brown & Sons Incorporated,
First Union Capital Markets, and NationsBanc Capital Markets, Inc., as Placement
Agents, and United States Trust Company of New York, as Trustee. (1) [4.9]
4.11 Registration Rights Agreement dated January 16, 1998 between the Registrant and
Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and NationsBanc Montgomery Securities LLC.
4.12 Agreement to furnish unfiled debt instruments.
4.13 Securities Purchase Agreement dated as of March 19, 1996, as amended by Amendment
No. 1 thereto dated as of February 25, 1997, among Registrant, Dobson Operating
Company, Fleet Equity Partners VI, L.P., Fleet Venture Resources, Inc., and
Kennedy Plaza Partners. (1) [10.6.1 and 10.6.2]
4.14 Shareholders' Agreement dated as of February 26, 1997 between the Registrant and
its shareholders. (1) [10.6.3]
4.15 Option Agreement dated as of March 19, 1996 among Dobson Operating Company, Kennedy
Plaza Partners, Fleet Venture Resources, Inc. and Fleet Equity Partners VI, L.P.
(1) [10.6.4]
10.1* Registrant's 1996 Stock Option Plan. (1) [10.1]
10.2.1 Promissory Note dated February 10, 1997 of G. Edward Evans in the amount of
$300,000 in favor of Western Financial Services Corp. (1) [10.2.1]
10.2.2 Lease Agreement dated July 17, 1995 between WillRuss Limited Liability Company and
Western Financial Services Corp. (1) [10.2.7]
10.2.3 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating Company,
Associated TTI Limited Partnership and Hinton CATV Company, Inc. Filed herewith
as Exhibit 2.4.
10.3.1* Letter dated December 26, 1996 from Registrant to G. Edward Evans describing
employment arrangement. (1) [10.3.1]
10.3.2* Letter dated June 3, 1996 from Registrant to Bruce R. Knooihuizen describing
employment arrangement. (1) [10.3.2]
10.3.3* Letter dated October 15, 1996 from Fleet Equity Partners to Justin L. Jaschke
regarding director compensation. (1) [10.3.3]
10.3.4* Letter dated September 16, 1997 from Registrant to William J. Hoffman, Jr.
describing employment arrangement.
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas Morgan describing
employment arrangement.
10.4.1 Agreement for DS-3 service dated December 16, 1993 between Dobson Fiber Company and
NTS Communications, Inc. and Addendum thereto dated June 1, 1994. (1) [10.4.1]
10.4.2 North American Cellular Network Services Agreement dated August 26, 1992 between
North American Cellular Network, Inc. and Dobson Cellular, Inc. (1) [10.4.2]
10.4.3 Trademark Sublicense Agreement dated February 28, 1997 between WMC Partners L.P.
and Dobson Cellular of Arizona, Inc. (1) [10.4.3]
10.4.4 Affiliation Agreement dated February 28, 1997 among Registrant, Dobson Cellular of
Arizona, Inc. and WMC Partners, L.P. (1) [10.4.4]
10.4.5 Form of Cellular One License Agreements dated February 25, 1997 between Cellular
One Group and Dobson Cellular of Enid, Inc., Dobson Cellular of Woodward, Inc.
and Dobson Cellular of Kansas/Missouri, Inc. (1) [10.4.5]
</TABLE>
87
<PAGE>
<TABLE>
<C> <S>
10.4.6 Services Agreement dated September 25, 1996 among Dobson Cellular of Maryland,
Inc., Maryland Wireless Communications Limited Partnership, Wendy Coleman and
Washington/ Baltimore Cellular One Limited Partnership.
10.4.7 General Purchase Agreement dated January 13, 1998 between Lucent Technologies, Inc.
and Dobson Cellular Systems.
10.4.8 Second Amended General Purchase Agreement dated June 24, 1997 between Northern
Telecom and Dobson Communications Corporation.
10.4.9 Term Sheet Operating Agreement dated December 4, 1997 between AT&T Wireless
Services, Inc. and Registrant.
10.5 Non-Recourse Term Loan Agreement dated September 30, 1997 between the Company and
Gila River Telecommunications Subsidiary, Inc., as borrower, with respect to $6.1
million loan. (4) [10.7]
10.6 Second Amended and Restated Partnership Agreement of Gila River Cellular General
Partnership dated September 30, 1997. (4) [10.8]
11 Statement regarding computation of earnings per share.
12 Statement regarding computation of ratios.
21 Subsidiaries
27.1 Financial Data Schedule- Fiscal year end 1997
27.2 Financial Data Schedule- Fiscal year end 1996 (Restated)
27.3 Financial Data Schedule- First, Second and Third Quarters of 1997 (Restated)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
[1] Filed as an exhibit to the Company's Registration Statement of Form S-4
(Registration No. 333-23769), as the exhibit number indicated in brackets
and incorporated by reference herein.
[2] Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 as the exhibit number indicated in
brackets and incorporated by reference herein.
[3] Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 as the exhibit number indicated in
brackets and incorporated by reference herein.
[4] Filed as an exhibit to the Company's Current Report on Form 8-K filed on
October 15, 1997 and amended on November 6, 1997, as the exhibit number
indicated in brackets and incorporated by reference herein.
[5] Filed as an exhibit to the Company's Current Report on Form 8-K filed on
February 10, 1998, as the exhibit number indicated in brackets and
incorporated by reference herein.
88
<PAGE>
STOCK PURCHASE AGREEMENT
between
DOBSON CELLULAR OF CALIFORNIA, INC.
and
THE SHAREHOLDERS OF CELLULAR 2000 TELEPHONE CO.
DATED AS OF NOVEMBER 17, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . 1
Section 1.01 Transfer of Stock. . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.01 Purchase Price . . . . . . . . . . . . . . . . . . . . 2
Section 2.02 Deposit. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.03 Payment of Purchase Price. . . . . . . . . . . . . . . 2
Section 2.04 Purchase Price Adjustments . . . . . . . . . . . . . . 3
ARTICLE III CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SELLERS . . . . . . . . . . . . . . . . . . . 7
Section 4.01 Organization; Qualification. . . . . . . . . . . . . . 8
Section 4.02 Consents; Authorization; Execution and
Delivery of Agreement. . . . . . . . . . . . . . . . . 8
Section 4.03 Subsidiaries and Interests in Other Companies. . . . . 8
Section 4.04 Capital Stock; Interests . . . . . . . . . . . . . . . 8
Section 4.05 Ownership of Shares. . . . . . . . . . . . . . . . . . 9
Section 4.06 Real Property-Owned. . . . . . . . . . . . . . . . . . 9
Section 4.07 Real and Personal Property-Leased. . . . . . . . . . . 9
Section 4.08 Existing Contracts . . . . . . . . . . . . . . . . . .10
Section 4.09 Governmental Licenses. . . . . . . . . . . . . . . . .12
Section 4.10 Compliance with Law. . . . . . . . . . . . . . . . . .13
Section 4.11 No Violation of Existing Agreements. . . . . . . . . .13
Section 4.12 Litigation and Legal Proceedings . . . . . . . . . . .13
Section 4.13 Environmental Compliance . . . . . . . . . . . . . . .13
Section 4.14 Employees. . . . . . . . . . . . . . . . . . . . . . .14
Section 4.15 Employee Benefits. . . . . . . . . . . . . . . . . . .15
Section 4.16 Tax Matters. . . . . . . . . . . . . . . . . . . . . .16
Section 4.17 Financial Statements . . . . . . . . . . . . . . . . .17
Section 4.18 Subscribers; Agents. . . . . . . . . . . . . . . . . .19
Section 4.19 Insurance. . . . . . . . . . . . . . . . . . . . . . .19
Section 4.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.21 Undisclosed Liabilities; Guarantees. . . . . . . . . .20
Section 4.22 Pricing of Services. . . . . . . . . . . . . . . . . .20
Section 4.23 Proprietary Rights . . . . . . . . . . . . . . . . . .20
Section 4.24 Accounts Receivable and Bad Debts. . . . . . . . . . .21
Section 4.25 Product Information. . . . . . . . . . . . . . . . . .21
Section 4.26 Certain Business Relationships . . . . . . . . . . . .21
Section 4.27 Officers and Directors and Certain Authorized
Persons. . . . . . . . . . . . . . . . . . . . . . . .22
<PAGE>
Section 4.28 Disclosure . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE V PURCHASER'S REPRESENTATIONS . . . . . . . . . . . . . . . . .23
Section 5.01 Organization; Qualification. . . . . . . . . . . . . .23
Section 5.02 Consents; Authorization; Execution and Delivery of
Agreement. . . . . . . . . . . . . . . . . . . . . . .23
Section 5.03 Litigation and Legal Proceedings . . . . . . . . . . .23
Section 5.04 Brokers. . . . . . . . . . . . . . . . . . . . . . . .23
Section 5.05 No Distribution. . . . . . . . . . . . . . . . . . . .23
Section 5.06 Usury Rate . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE VI THE COMPANY'S, SELLERS' AND PURCHASER'S COVENANTS . . . . . .24
Section 6.01 Financial Statements and Cellular System
Information. . . . . . . . . . . . . . . . . . . . . .24
Section 6.02 Governmental Approvals . . . . . . . . . . . . . . . .24
Section 6.03 Third Party Consents; Closing Conditions . . . . . . .25
Section 6.04 Access . . . . . . . . . . . . . . . . . . . . . . . .25
Section 6.05 Conduct of Business. . . . . . . . . . . . . . . . . .26
Section 6.06 No Shopping. . . . . . . . . . . . . . . . . . . . . .29
Section 6.07 Employees. . . . . . . . . . . . . . . . . . . . . . .29
Section 6.08 Supplemental Disclosure. . . . . . . . . . . . . . . .29
Section 6.09 Section 338(h)(10) Elections . . . . . . . . . . . . .29
ARTICLE VII CONDITIONS PRECEDENT TO PURCHASER'S
OBLIGATION TO CLOSE . . . . . . . . . . . . . . . . . . . . .30
Section 7.01 Accuracy of Representations and Warranties;
Performance of this Agreement. . . . . . . . . . . . .30
Section 7.02 Directors' Resolutions . . . . . . . . . . . . . . . .31
Section 7.03 Incumbency Certificate . . . . . . . . . . . . . . . .31
Section 7.04 Third Party Consents; FCC; Hart-Scott Act. . . . . . .31
Section 7.05 Due Diligence. . . . . . . . . . . . . . . . . . . . .31
Section 7.06 No Material Adverse Change . . . . . . . . . . . . . .32
Section 7.07 Normal Course of Business. . . . . . . . . . . . . . .32
Section 7.08 Section 338(h)(10) Elections . . . . . . . . . . . . .32
Section 7.09 Opinion of Counsel to Sellers. . . . . . . . . . . . .32
Section 7.10 Opinion of FCC Counsel to the Partnership. . . . . . .32
Section 7.11 Subscribers. . . . . . . . . . . . . . . . . . . . . .32
Section 7.12 Title Insurance; Estoppel. . . . . . . . . . . . . . .33
Section 7.13 Resignations of Officers and Directors . . . . . . . .33
Section 7.14 Payment of Indebtedness. . . . . . . . . . . . . . . .33
-ii-
<PAGE>
ARTICLE VIII CONDITIONS PRECEDENT TO THE COMPANY'S
AND EACH SELLER'S OBLIGATION TO CLOSE . . . . . . . . . . . .33
Section 8.01 Accuracy of Representations and Warranties;
Performance of this Agreement. . . . . . . . . . . . .33
Section 8.02 Directors' Resolutions . . . . . . . . . . . . . . . .33
Section 8.03 Incumbency Certificate . . . . . . . . . . . . . . . .33
Section 8.04 FCC; Hart-Scott Act. . . . . . . . . . . . . . . . . .34
Section 8.05 Opinion of Counsel to Purchaser. . . . . . . . . . . .34
ARTICLE IX CASUALTY LOSSES . . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE X INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . .34
Section 10.01 Indemnification by Sellers . . . . . . . . . . . . . .34
Section 10.02 Indemnification by Purchaser . . . . . . . . . . . . .35
Section 10.03 Notice of Claims; Defense of Third Party Claims. . . .36
Section 10.04 Limitations. . . . . . . . . . . . . . . . . . . . . .37
ARTICLE XI CONFIDENTIALITY AND PRESS RELEASES. . . . . . . . . . . . . .38
Section 11.01 Confidentiality. . . . . . . . . . . . . . . . . . . .38
Section 11.02 Press Releases . . . . . . . . . . . . . . . . . . . .38
Section 11.03 Disclosures Required By Law. . . . . . . . . . . . . .38
ARTICLE XII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . .39
Section 12.01 Breaches and Defaults; Opportunity to Cure . . . . . .39
Section 12.02 Termination. . . . . . . . . . . . . . . . . . . . . .39
ARTICLE XIII BROKERS' FEES . . . . . . . . . . . . . . . . . . . . . . . .40
-iii-
<PAGE>
ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .40
Section 14.01 Additional Instruments of Transfer . . . . . . . . . .40
Section 14.02 Notices. . . . . . . . . . . . . . . . . . . . . . . .40
Section 14.03 Expenses . . . . . . . . . . . . . . . . . . . . . . .41
Section 14.04 Sellers' Representatives . . . . . . . . . . . . . . .42
Section 14.05 Specific Performance . . . . . . . . . . . . . . . . .43
Section 14.06 Governing Law. . . . . . . . . . . . . . . . . . . . .43
Section 14.07 Assignment . . . . . . . . . . . . . . . . . . . . . .43
Section 14.08 Successors and Assigns . . . . . . . . . . . . . . . .44
Section 14.09 Amendments; Waivers. . . . . . . . . . . . . . . . . .44
Section 14.10 Entire Agreement . . . . . . . . . . . . . . . . . . .44
Section 14.11 Counterparts . . . . . . . . . . . . . . . . . . . . .44
Section 14.12 Severability . . . . . . . . . . . . . . . . . . . . .44
Section 14.13 Section Headings . . . . . . . . . . . . . . . . . . .44
Section 14.14 Interpretation . . . . . . . . . . . . . . . . . . . .44
Section 14.15 Further Assurances . . . . . . . . . . . . . . . . . .44
Section 14.16 Third Parties. . . . . . . . . . . . . . . . . . . . .45
Section 14.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . .45
-iv-
<PAGE>
DEFINED TERMS
Term Section Cite
---- ------------
Adjustment Amount Section 2.04(h)
Adjustments Section 2.04(g)
Adjustment Pool Section 2.03
Agreed Adjustment Amount Section 2.04(h)
Asserting Party Section 10.03
AT&T Section 7.08
Audited Historical Financial Statements Section 4.17(a)
Authorizations Section 4.09(b)
Balance Sheet Date Section 4.17(a)
Base Price Section 2.01
Breaching Party Section 12.01
Budgets Section 4.17(a)
Business Recitals
Capital Expenditures Adjustment Section 2.04(d)
Cellular Area Recitals
Cellular System Recitals
Cellular Authorizations Article III
CERCLA Section 4.13
Claims Article IX
Closing Article III
Closing Certificate Section 2.04(h)
Closing Date Article III
Code Section 4.15
Common Stock Recitals
Company Authorizations Section 4.09(a)
Company Tax Liability Section 2.04(e)
Contract Interests Section 6.03
Controlled Group Member Section 4.15
CPUC Section 4.09
Current Assets Section 2.04(a)
Current Liabilities Section 2.04(a)
Debt Adjustment Section 2.04(f)
Defending Party Section 10.03
Deposit Section 2.02
Deposit Escrow Agent Section 2.02
Deposit Escrow Agreement Section 2.02
Disclosing Party Section 11.01
DOJ Section 7.04
Elections Section 6.10(a)
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Employee Benefit Plan Section 4.15
Encumbrances Section 1.01
Environmental Laws Section 4.13
ERISA Section 4.15
Existing Contracts Section 4.08(b)
FCC Authorizations Article III
Final Adjustment Amount Section 2.04(h)
Final Order Section 7.04
Fleet Debt Section 4.05(b)
Form 8023-A Section 6.10(b)
FTC Section 7.04
GAAP Section 2.04(a)
Hart-Scott Act Section 6.02(b)
Hazardous Substance Section 4.13
Indemnified Purchaser Parties Section 10.01
Independent Accountants Section 2.04(h)
Interim Financial Statements Section 6.01
Interests Section 4.04(b)
IRS Section 4.15
Liquidated Damages Amount Section 2.03
Loss Section 10.01
Material Adverse Effect Section 7.01
Material Loss Section 7.01
Microwave Authorizations Article III
Nine Month Income Statements Section 4.17(a)
Non-Breaching Party Section 12.01
Operating Budgets Section 6.01
Outside Date Section 12.02
Ownership Percentage Section 2.03
Partnership Recitals
Partnership Agreement Section 4.01(b)
Person Section 4.03
Phase I and II Assessments Section 6.04(b)
Purchase Orders Section 4.08(b)
Purchase Price Section 2.01
Purchaser's Estimate Section 2.04(g)
RCLA Section 4.13
RCRA Section 4.13
Recipient Party Section 11.01
Response Period Section 2.04(h)
Sellers' Estimate Section 2.04(f)
Sellers' Expense Reserve Section 14.04
Sellers' Representative Section 14.04
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September Balance Sheets Section 4.17(a)
Shares Recitals
Subordinated Note Amount Section 2.03
Subordinated Promissory Note Section 2.03
Subscriber Section 2.04(a)
Subscriber Adjustment Section 2.04(c)
Survival Period Section 10.05
Target Number of Subscribers Section 2.04(a)
Tentative Subscriber Section 2.04(a)
Third Party Claim Section 10.03
Unrelated and Tax Liabilities Adjustment Section 2.04(e)
Working Capital Adjustment Section 2.04(b)
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SCHEDULES
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1 Sellers
2.04(a) Promotional Plans
4.01(a) Charter of the Company
4.01(b) Partnership Agreement of the Partnership
4.04(a) Outstanding Shares of Company
4.04(b) Outstanding Partnership Interests
4.07(a) Real Property Leased by Partnership
4.07(b) Personal Property Leased by Partnership
4.08(a) Existing Contracts of Company
4.08(b) Existing Contracts of Partnership
4.09(a) Company Authorizations
4.09(b) Partnership Authorizations
4.10 Violation of Laws
4.11 Violation of Existing Contracts
4.12 Litigation
4.13 Environmental Noncompliance
4.14 Employees of Partnership
4.15 Employee Benefit Plans
4.16(a) Tax Noncompliance - The Company
4.16(b) Tax Noncompliance - The Partnership
4.17(a)(i) Audited Historical Financial Statements
4.17(a)(ii) Current Financial Statements
4.17(a)(iii) Budgets
4.17(c) Changes since Balance Sheet Date
4.18 Subscribers; Agents
4.21 Guarantees
4.22 Rate Plans
4.23 Proprietary Rights
4.24 Subscriber Receivables
4.25 Manufacturers of Handsets
4.26 Certain Business Relationships
4.27 Officers, Directors and Certain Authorized Persons
6.01 Operating Budgets
14.04 Certain Payments from Sellers' Expense Reserve
EXHIBITS
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A Deposit Escrow Agreement
B Form of Subordinated Note
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C Form 8023-A
D Opinion of Counsel for Sellers
E Opinion of FCC Counsel for the Partnership
F Opinion of Counsel for Purchaser
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of November 17, 1997 by and among DOBSON CELLULAR OF CALIFORNIA, INC., an
Oklahoma corporation ("Purchaser"), CELLULAR 2000 TELEPHONE CO., a Delaware
corporation (the "Company") and THE SHAREHOLDERS OF THE COMPANY, as set forth
on SCHEDULE 1 hereto (individually, a "Seller" and collectively the
"Sellers").
R E C I T A L S
WHEREAS, Cellular 2000 (A Partnership), a general partnership formed
under the laws of the State of Michigan (the "Partnership") owns all right,
title and interest in those certain licenses granted by the Federal
Communications Commission ("FCC") to provide cellular radio telephone service
in the FCC's rural service area ("RSA") #4 in the State of California (the
"Cellular Area") and owns and operates the non-wireline cellular telephone
system (the "Business") in the Cellular Area (the "Cellular System"); and
WHEREAS, the Company owns 75.018 percent of the outstanding partnership
interests of the Partnership and thereby owns a controlling interest in the
Partnership;
WHEREAS, the Company has a capitalization consisting of 100,000
authorized shares of Common Stock, $1.00 par value per share (the "Common
Stock") of which 76,522 shares are issued and outstanding (collectively, the
"Shares"), of which Shares at least 93% thereof are owned by the Sellers in
the respective amounts set forth opposite each Seller's name on SCHEDULE
4.04(a) hereto;
WHEREAS, Purchaser desires to purchase the Shares from Sellers, and
Sellers desire to sell the Shares to Purchaser, all subject to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein set forth and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
SECTION 1.01. TRANSFER OF STOCK. Except as otherwise provided and subject
to the terms and conditions set forth in this Agreement, Sellers agree to sell,
convey, assign, transfer and deliver to Purchaser, and Purchaser agrees to
purchase from Sellers at the Closing, all of Sellers' right, title and interest
in and to the Shares, free and clear of all options, pledges, obligations,
security interests, liens, charges, rights of third parties, community property
rights and other encumbrances (collectively, "Encumbrances").
ARTICLE II
PURCHASE PRICE
SECTION 2.01. PURCHASE PRICE. The total unadjusted purchase price for
the Shares shall be Sixty-Five Million Two Hundred Sixty-Five Thousand Five
Hundred Fifty Dollars ($65,265,550) (the "Base Price"), as adjusted in
accordance with the provisions of Section 2.04 hereof (as adjusted, the
"Purchase Price").
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SECTION 2.02. DEPOSIT. Simultaneously with the execution of this
Agreement, Purchaser is depositing as a good faith deposit $2.5 million (the
"Deposit") with CoreStates Bank, N.A. (the "Deposit Escrow Agent"), to be
held, invested and disbursed pursuant to the terms of the Deposit Escrow
Agreement substantially in the form of EXHIBIT A attached hereto (the
"Deposit Escrow Agreement"). If the Closing occurs, then the Deposit and all
earnings on the Deposit shall be paid to Sellers in accordance with each
Seller's Ownership Percentage (as defined herein) pursuant to the Deposit
Escrow Agreement and the full amount of the Deposit and the earnings thereon
shall be credited against and deducted from the Purchase Price to be paid at
the Closing by Purchaser for the Shares. If the Sellers terminate this
Agreement in accordance with the provisions of Section 12.02(d), and at the
time of such termination none of the Sellers nor the Company is then in
breach of any of its representations, warranties, covenants or agreements set
forth in this Agreement and the conditions set forth in Sections 7.04 and
7.06 shall have been satisfied, then Sellers shall be entitled to the Deposit
as liquidated damages (the "Liquidated Damages Amount"), which Liquidated
Damages Amount the parties agree is a fair and reasonable measure of the
damages that Sellers would sustain as a result of such termination.
Notwithstanding anything else set forth in this Section 2.02, Sellers' sole
and exclusive recourse in the event Sellers terminate this Agreement in
accordance with the provisions of Section 12.02(d), including as a result of
Purchaser's breach of its representations or obligations under this Agreement
prior to Closing, shall be to receive the Deposit. In any other case if the
Closing does not occur, then, pursuant to the Deposit Escrow Agreement, the
Deposit and all earnings thereon shall be paid to Purchaser. All payments by
the Deposit Escrow Agent shall be made in accordance with the procedures and
other provisions set forth in the Deposit Escrow Agreement.
SECTION 2.03. PAYMENT OF PURCHASE PRICE. On the Closing Date and
subject to the terms and conditions set forth in this Agreement, in reliance
on the representations, warranties, covenants and agreements of the parties
contained herein and in consideration of the sale, assignment, transfer and
delivery of the Shares, Purchaser shall pay to each Seller an amount equal to
the product of (a) the Purchase Price LESS (i) five percent of the Purchase
Price ("Adjustment Pool"), (ii) the Deposit and all earnings thereon which
are paid to Sellers at Closing, (iii) an amount equal to $4.5 million (the
"Subordinated Note Amount") and (iv) the Sellers' Expense Reserve provided
for in Section 14.04 and (b) the quotient determined by DIVIDING (i) the
number of Shares owned by such Seller by (ii) the number of outstanding
shares of Common Stock determined on a fully diluted basis (the "Ownership
Percentage"). In addition, the Purchaser shall deliver on the Closing Date
to Sellers' Representatives, as agents and trustees for Sellers as provided
in Section 14.04 hereof, a subordinated promissory note substantially in the
form attached as EXHIBIT B hereto (the "Subordinated Promissory Note") in the
principal amount of $4.5 million.
SECTION 2.04. PURCHASE PRICE ADJUSTMENTS.
(a) As used in this Section 2.04, the following terms shall have the
meaning set forth below:
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"CURRENT ASSETS" means the Partnership's (i) accounts receivable that
are current to less than 91 days past due, net of a reserve for bad debts,
which reserve shall equal the sum of the following amounts: zero percent (0%)
of such accounts receivable that are not past due or that are thirty (30) or
fewer days past due, ten percent (10%) of such accounts receivable that are
more than thirty (30) or fewer days past due, but less than sixty-one (61)
days past due and fifty percent (50%) of such accounts receivable that are
more than sixty (60) but less than ninety-one (91) days past due; (ii)
inventory of cellular telephone handsets and ancillary equipment held for
sale to subscribers and which is not obsolete and will reasonably be expected
based on past practices to be consumed in the normal course of business
within six months after the Closing (the "Inventory"); and (iii) prepaid
items which Purchaser will receive the benefit of after the Closing such as
prepaid rent, insurance, property taxes, utility charges, fees and deposits
paid, all determined as of 12:01 a.m. on the Closing Date in accordance with
GAAP. Refurbished cellular telephone handsets shall not be included in the
Inventory for purposes of calculating Current Assets.
"CURRENT LIABILITIES" means the Partnership's (i) subscriber deposits
received, (ii) deferred revenue, (iii) employee vacation and sick pay expense
(whether or not to be paid or time taken after the Closing), (iv) to the
extent not paid by the Partnership prior to Closing, salaries, bonuses,
fringe benefits and other remuneration payable to employees of the
Partnership, (v) all trade payables and accrued expenses including, without
limitation, taxes, utility charges, special assessments, commissions and
fees, all determined as of 12:01 a.m. on the Closing Date in accordance with
GAAP.
"GAAP" means generally accepted accounting principles consistently
applied.
"SUBSCRIBER" means a person or entity subscribing for cellular telephone
service on the Cellular System for at least the 30 consecutive day billing
cycle of the Cellular System ("Billing Cycle") ending on or prior to the
Closing Date who (i) pays for service under the Cellular System's normal rate
plan for that category of subscriber, (ii) has paid for at least one full
Billing Cycle's service and whose account is active within the normal
practices and procedures of the Cellular System and in no case is more than
90 days past due, (iii) was obtained as a subscriber in the normal course of
business of the Cellular System consistent with past practice and not as a
result of (A) marketing efforts that are not customary in the cellular
telephone industry generally or which were not utilized by the Partnership
during 1996 and 1997 on a regular basis or (B) any other plans for which the
Partnership failed to obtain Purchaser's prior written consent. SCHEDULE
2.04(a) attached hereto sets forth all marketing and promotional plans the
Partnership has used, is using or proposes to use, from September 30, 1996 to
the Closing to acquire subscribers; provided, however, that the Partnership
shall be free to alter, add to or delete any such plans, as it reasonably
determines may be appropriate to meet market conditions subject only to
Purchaser's approval, which approval shall not be unreasonably withheld or
delayed.
"TARGET NUMBER OF SUBSCRIBERS" means (i) on November 30, 1997, 14,600;
(ii) prior to November 30, 1997, 14,600 minus the product of (x) 170 and (y)
the number of 30-day periods that
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will elapse from the Closing Date to November 30, 1997 (pro rated for any
partial 30 day period; or (iii) 14,600 plus the product of (x) 170 and (y)
the number of 30-day periods elapsed from November 30, 1997 to the Closing
Date (pro rated for any partial periods of less than 30 days).
"TENTATIVE SUBSCRIBER" means a person or entity which as of the Closing
Date meets all of the requirements for being a "Subscriber" (as defined in
this Section 2.04(a)) except for the failure to have been a cellular
telephone service customer for the full Billing Cycle immediately prior to
the Closing Date.
(b) WORKING CAPITAL ADJUSTMENT. The Base Price shall be increased (or
decreased) by an amount equal to 75.018 percent of the amount by which
Current Assets exceeds (or is less than) Current Liabilities as of the
Closing Date (such increase or decrease in the Base Price being referred to
herein as the "Working Capital Adjustment").
(c) SUBSCRIBER ADJUSTMENT. The Base Price shall be decreased by 75.018
percent of the product of (i) $300.00 and (ii) the excess of the Target
Number of Subscribers over the number of Subscribers as of the Closing Date
(such decrease in the Base Price being referred to herein as the "Subscriber
Adjustment"); PROVIDED, HOWEVER, for purposes of determining the Subscriber
Adjustment, a Tentative Subscriber shall be counted as a Subscriber as of the
Closing Date if as of the end of the Partnership's normal Billing Cycle which
commences after the Closing Date such Tentative Subscriber is still an active
cellular telephone service customer of the Cellular System and has paid all
charges for service when due.
(d) CAPITAL EXPENDITURES ADJUSTMENT. If the Partnership has made the
capital expenditures reflected in the Partnership's 1997 Budget for the
period from January 1, 1997 to August 15, 1997 in amount of not less than
$4,814,000, then the Base Price shall be increased by 75.018 percent of the
dollar amount of capital expenditures incurred and paid for by the
Partnership during the period from August 29, 1997 to the Closing Date (such
increase in the Base Price being referred to herein as the "Capital
Expenditures Adjustment"); provided that Purchaser has given the Company its
prior written consent for the amount, type and purpose of each such capital
expenditure which consent shall not be withheld unreasonably, and shall
solely be for the purpose of determining the allowable amount of the Capital
Expenditure Adjustment.
(e) UNRELATED AND TAX LIABILITIES ADJUSTMENT. The Base Price shall be
decreased by 100 percent of the amount of any outstanding liabilities and
obligations of, and any claims against, the Company which are known by the
Company or the Sellers as of the Closing Date which (i) are not directly
related to the Company's ownership interest in the Partnership (the "Company
Unrelated Liabilities") or (ii) are for the payment of taxes, penalties and
interest with respect to the Company's or the Partnership's operations prior
to the Closing Date, including without limitation, liabilities resulting from
the Company's failure to qualify as an S corporation within the meaning of
Section 1361 of the Code for all periods prior to the Closing Date (the
"Company Tax Liabilities") (such decrease in the Base Price being referred to
herein as the "Unrelated and Tax Liabilities Adjustment").
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(f) DEBT ADJUSTMENT. The Base Price shall be decreased by (i) 100% of
the outstanding indebtedness of the Company for borrowed money (including
capitalized lease obligations and interest and prepayment premiums) as of the
Closing and (ii) 75.018 percent of the sum of (A) the amount of outstanding
indebtedness of the Partnership for borrowed money (including capitalized
lease obligations and interest and prepayment premiums) as of the Closing and
(B) the amount of accrued and unpaid management fees owed by the Partnership
as of the Closing (such decrease in the Base Price being referred to herein
as the "Debt Adjustment"); provided that prepayment premiums shall only be
treated as indebtedness for purposes of the Debt Adjustment to the extent
Purchaser pays same in connection with the payment at the Closing of
indebtedness of the Company and/or the Partnership.
(g) PURCHASER'S AND SELLERS' ESTIMATES. Sellers' Representative shall
prepare and submit to Purchaser, not later than 5 business days prior to the
Closing Date, a written good faith estimate of the amount of the Working
Capital Adjustment, Subscriber Adjustment, Capital Adjustment, Unrelated and
Tax Liabilities Adjustment and Debt Adjustment (collectively, the
"Adjustments") in accordance with this Section 2.04 and Sellers' estimate of
the Purchase Price resulting from the Adjustments ("Sellers' Estimate").
Sellers' Estimate shall be accompanied by detailed supporting documents, work
papers, subscriber records and other data supporting each Adjustment and
Sellers' Estimate. The Sellers' Estimate shall be based upon the books and
records of the Partnership and the Company. The Sellers' Estimate shall be
accompanied by a certificate signed by the Sellers' Representative certifying
that Sellers' Estimate was calculated in good faith and in accordance with
the provisions of this Section 2.04. After the delivery of Sellers' Estimate
and prior to the Closing, Purchaser and Sellers' Representative shall attempt
to resolve any disputes between Sellers' Representative and Purchaser with
respect to Sellers' Representative's proposed Adjustments. In connection
therewith, Purchaser shall have full access to all records of the Company and
the Partnership related to Sellers' Representative proposed Adjustments.
Prior to Closing, Purchaser shall advise Sellers' Representative in writing
as to any dispute Purchaser has with Sellers' Estimate and provide the
Sellers' Representative with Purchaser's calculation of the Adjustments and
the Purchase Price, accompanied by a certificate signed by the President or
Chief Financial Officer of Purchaser certifying that Purchaser's calculation
was made in good faith and shall be accompanied by supporting documents and
information, to the extent the same is available to Purchaser ("Purchaser's
Estimate"). In the event that (i) Purchaser's Estimate of the Purchase Price
is less than $25,000 less than Sellers' Estimate, the Closing shall proceed
with the Purchase Price based upon Sellers' Estimate; or (ii) the Purchaser's
Estimate of the Purchase Price is more than $25,000 less than Sellers'
Estimate, then the mid-point between Sellers' Estimate and Purchaser's
Estimate shall be used as the Purchase Price for purposes of the Closing.
(h) POST-CLOSING ADJUSTMENTS. Within 120 days after the Closing Date,
Purchaser shall deliver to the Sellers' Representative a certificate (the
"Closing Certificate") signed by the President or Chief Financial Officer of
Purchaser providing a compilation of the Adjustments to be made pursuant to
this Section 2.04, including any changes in the Adjustments used to determine
the Purchase Price at Closing, together with a statement of any additional
amount owing to either party
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(the "Adjustment Amount"), a copy of any supporting documents, work papers,
Subscriber records and other data relating to such Closing Certificate and
such other supporting evidence as the Sellers' Representative may reasonably
request either prior to or after delivery thereof. If the Sellers'
Representative shall conclude that the Closing Certificate does not
accurately reflect the Adjustments to be made to the Base Price in accordance
with this Section 2.04 and the Adjustment Amount, the Sellers' Representative
shall, within 30 days after his receipt of the Closing Certificate (such 30
day period being referred to as the "Response Period"), deliver to Purchaser
a written statement of any discrepancies believed to exist. If the Sellers'
Representative fails to so notify Purchaser of any discrepancies, then the
calculation of the Purchase Price set forth in the Purchaser's Closing
Certificate shall be controlling for all purposes hereof and, on or before
the fifth (5th) day following the expiration of the Response Period, (i) if
the Purchaser is obligated to pay the Sellers the Adjustment Amount, the
Purchaser shall pay each Seller the product of (x) the sum of (A) the
Adjustment Amount and (B) the Adjustment Pool; and (y) such Seller's
Ownership Percentage as determined on the Closing Date; (ii) if the Sellers
are obligated to pay the Purchaser the Adjustment Amount, and such Adjustment
Amount is less than the Adjustment Pool, the Purchaser shall pay each Seller
the product of (x) the difference between (A) the Adjustment Pool and (B) the
Adjustment Amount; and (y) such Seller's Ownership Percentage; (iii) if the
Sellers are obligated to pay the Purchaser the Adjustment Amount and such
Adjustment Amount is greater than the Adjustment Pool, then Sellers shall pay
the Purchaser the difference between the Adjustment Amount and the Adjustment
Pool and the Purchaser shall retain the Adjustment Pool. On or before the
fifth day following the earlier to occur of the expiration of the Response
Period and the date Purchaser receives Sellers' Representative's statement of
discrepancies, Purchaser or the Sellers, as the case may be, shall pay the
portion of the Adjustment Amount, if any, as to which there is no discrepancy
(the "Agreed Adjustment Amount") and in accordance with each Seller's
Ownership Percentage, if the Agreed Adjustment Amount is owing from the
Purchaser. Purchaser and the Sellers' Representative shall use good faith
efforts to jointly resolve their discrepancies within 15 days of Purchaser's
receipt of the Sellers' Representative's written statement of discrepancies,
which resolution, if achieved, shall be binding upon the Sellers and
Purchaser and not subject to further dispute or review. In the event
Purchaser and Sellers' Representative are unable to resolve their differences
within such fifteen (15) day period, then either party may request that the
matter be resolved by Price Waterhouse (the "Independent Accountants"). In
submitting a dispute to the Independent Accountants, each of the parties
shall furnish, at its own expense, the Independent Accountants and the other
party with such documents and information as the Independent Accountants may
reasonably request. Each party may also furnish to the Independent
Accountants such other information and documents as it deems relevant with
the appropriate copies and notification being given to the other party. The
Independent Accountants may conduct a conference concerning the disagreements
between Sellers' Representative and Purchaser at which conference each party
shall have the right to present additional documents, material and other
evidence and to have present its advisors, accountants and counsel. The
Independent Accountants shall promptly render a decision on the issues
presented and shall provide the Purchaser and the Sellers' Representative
with a statement of the amount owing (the "Final Adjustment Amount"), and
such decision shall be final and binding on the parties. The fees and
expenses of the Independent Accountants shall be divided equally between
Purchaser, on the one hand, and Sellers,
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on the other hand. Within 5 days of receipt of the Independent Accountants'
decision with respect to such dispute, (i) if Purchaser is determined to owe
the Final Adjustment Amount to the Sellers, Purchaser shall pay each Seller
the product of (x) the sum of the Final Adjustment Amount and the Adjustment
Pool and (y) such Seller's Ownership Percentage; (ii) if the Sellers are
determined to owe an amount to Purchaser, (x) Sellers shall pay the Final
Adjustment Amount less the Adjustment Pool to Purchaser if the Final
Adjustment Amount is greater than the Adjustment Pool and the Purchaser shall
retain the Adjustment Pool or (y) Purchaser shall pay to each Seller the
product of (A) the excess of the Adjustment Pool over the Final Adjustment
Amount if the Adjustment Pool is greater than the Final Adjustment Amount and
(B) such Seller's Ownership Percentage. All amounts owed by Purchaser or
Sellers to the other in accordance with this Section 2.04(h) shall be paid by
wire transfer of immediately available funds and shall not bear any interest.
Any amount due Purchaser from Sellers under this Section 2.04(h) and not
paid when due may also be offset from the payments due to Sellers (or
Sellers' Representative as their agent) under the Subordinated Promissory
Notes.
ARTICLE III
CLOSING
Subject to the terms and conditions hereof, the closing (the "Closing")
shall take place at the offices of Edwards & Angell, 2800 Hospital Trust
Tower, Providence, Rhode Island 02903, on the date (the "Closing Date") which
is the latest of (a) the tenth (10th) day after the date that (i) the FCC
consents to the transfer of control of the Partnership's licenses to
Purchaser, including the FCC licenses, consents, permits and authorizations
to operate a cellular telephone system in the Cellular Area (the "Cellular
Authorizations") and microwave paths used in connection with such cellular
operations (the "Microwave Authorizations" and together with the Cellular
Authorizations, the "FCC Authorizations") to the Purchaser becomes a a Final
Order (as defined in Section 7.04) or (ii) if applicable, Sellers'
Representative receives from Purchaser the Final Waiver Notice (as defined in
Section 7.04), or (b) the fifth (5th) day after the expiration or early
termination of the waiting period under the Hart-Scott Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally (severally and not jointly with
respect to Section 4.05(a) below), represent, warrant, covenant and agree
that:
SECTION 4.01. ORGANIZATION, QUALIFICATION. (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all necessary power and authority to
own and operate its properties and to carry on its business as now being
conducted or proposed to be conducted. The Company is duly qualified or
licensed to do business as a foreign corporation in good standing in the
jurisdictions in which the ownership of property or the conduct of its
business requires such qualification. Attached hereto as SCHEDULE 4.01(a) is
a true and complete copy of the Certificate of Incorporation, as amended to
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date, of the Company.
(b) The Partnership is a general partnership duly organized, validly
existing and in good standing under the laws of the State of Michigan and has
all necessary power and authority to own and operate its properties and to
carry on its business as now being conducted or proposed to be conducted.
The Partnership is duly qualified or licensed to do business as a foreign
partnership in good standing in the jurisdictions in which the ownership of
property or the conduct of its business requires such qualification.
Attached hereto as SCHEDULE 4.01(b) is a true and complete copy of the
Partnership Agreement (the "Partnership Agreement") of the Partnership.
SECTION 4.02. CONSENTS, AUTHORIZATION, EXECUTION AND DELIVERY OF
AGREEMENT. Each Seller has full power, authority and capacity, and the
Company has full corporate power, authority and capacity to execute and
deliver this Agreement and to carry out the transactions contemplated hereby.
The Board of Directors of the Company has duly approved and authorized the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and no other proceedings, corporate or
otherwise, on the part of Sellers or the Company are necessary to approve and
authorize the execution and delivery of this Agreement by Sellers and the
Company and the consummation by Sellers and the Company of the transactions
contemplated hereby, subject to the other governmental and third-party
consents referred to in Section 7.04. This Agreement constitutes a valid and
binding agreement of each Seller and the Company enforceable against Sellers
and the Company in accordance with its terms.
SECTION 4.03. SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES. (a)
Other than its interest in the Partnership, the Company has no subsidiaries,
and does not own or control any shares or other securities of, or have any
other proprietary interest in, any individual, corporation, partnership,
limited liability company, joint venture, business association or other
entity (a "Person").
(b) The Partnership has no subsidiaries and does not own or control any
shares or other securities of, or have any other proprietary interest in, any
Person.
SECTION 4.04. CAPITAL STOCK; INTERESTS. (a) The authorized capital
stock of the Company consists of 100,00 shares of Common Stock, of which
76,522 shares are issued and outstanding. SCHEDULE 4.04(a) accurately sets
forth the record and beneficial owners of the Company's outstanding shares of
Common Stock and the number of shares owned by each shareholder. Except as
set forth on SCHEDULE 4.04(a), there are no subscriptions, options, warrants,
calls, rights, tag-along rights, drag-along rights, rights of first refusal,
contracts, commitments, voting trusts, proxies, understandings, restrictions
or arrangements relating to the issuance, voting, sale or transfer by the
Sellers or the Company of any shares of such capital stock, including rights
of conversion or exchange under any outstanding securities or other
instruments. All outstanding shares of capital stock of the Company have
been duly authorized, validly issued and are fully
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paid, non-assessable and free of preemptive rights. There are no accrued
dividends or other amounts due and owing with respect to the Shares.
(b) SCHEDULE 4.04(b) accurately sets forth the record and beneficial
owners of the partnership interests (the "Interests") in the Partnership and
the percentage interest owned by each partner. All Interests have been duly
authorized, validly issued and are fully paid, nonassessable and free of
preemptive rights. With respect to the Interest held by the Company, the
Company has satisfied all capital calls, contribution requirements and
similar obligations to make contributions or investments. The Company is not
in default under the Partnership Agreement of the Partnership (the
"Partnership Agreement") or any other instrument setting forth the rights and
obligations of the Company as owner of an Interest in the Partnership.
Except as set forth on SCHEDULE 4.04(b), there are no subscriptions, options,
warrants, calls, rights, tag-along rights, drag-along rights, rights of first
refusal, contracts, commitments, voting trusts, proxies, understandings,
restrictions or arrangements relating to the Interests other than as set
forth in the Partnership Agreement, including without limitation, any
agreement or commitment of the Company to deliver or sell its Interest in the
Partnership.
(c) A true and correct copy of the Partnership Agreement together with
all amendments and supplements thereto is attached hereto as SCHEDULE 4.04(c).
SECTION 4.05. OWNERSHIP OF SHARES. (a) Each Seller is the record and
beneficial owner of the Shares set forth opposite its name on SCHEDULE
4.04(a). Each Seller has, and will convey to Purchaser at Closing, good and
marketable title to the Shares, free and clear of all Encumbrances of any
kind whatsoever.
(b) The Company is the record and beneficial owner of the Interest set
forth opposite its name on SCHEDULE 4.04(b), free and clear of all
Encumbrances of any kind whatsoever except for Encumbrances arising from the
Partnership's indebtedness to Fleet National Bank, a national banking
association ("Fleet Debt").
SECTION 4.06. REAL PROPERTY - OWNED. Neither the Company nor the
Partnership owns any real property. The real property leased by the
Partnership related to the Business has never been owned by the Company or
the Partnership.
SECTION 4.07. REAL AND PERSONAL PROPERTY - LEASED. The Company does
not own or lease any real or personal property. Set forth on SCHEDULE
4.07(a) (in the case of real property) and SCHEDULE 4.07(b) (in the case of
personal property), are true and accurate listings of all real and personal
property leases to which the Partnership is a party (other than personal
property leases with annual payments of less than $2,000 and which leases,
together with the other contracts and agreements not required to be disclosed
in the aggregate have annual payments of less than $25,000 or which are
terminable without penalty on one month or less notice) setting forth (i) the
name of the lessor and (ii) with respect to the real property leases, a
description of the property leased and its use. Except as set forth on
SCHEDULE 4.07(a) (in the case of leased real property)
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and SCHEDULE 4.07(b) (in the case of leased personal property), all of the
leases set forth are in full force and effect and are valid, binding and
enforceable in accordance with their respective terms, (ii) all accrued and
currently payable rents and other payments required by such leases have been
paid, (iii) the Partnership and each other party thereto have complied with
all respective covenants and provisions of such leases, (iv) neither the
Partnership nor any other party is in default in any respect under any such
leases, (v) no party has asserted any defense, set off, or counter claim
thereunder, (vi) no waiver, indulgence or postponement of any obligations
thereunder have been granted by any party, and (vii) the validity or
enforceability of any such lease will be in no way affected by the sale of
the Shares to Purchaser.
SECTION 4.08. EXISTING CONTRACTS. (a) Except as set forth on SCHEDULE
4.08(a) hereto, the Company is not a party to any contract, commitment or
agreement (written or oral).
(b) SCHEDULE 4.08(b) hereto sets forth (i) all contracts, commitments
and other agreements (other than standard subscriber agreements for cellular
service) in effect on the date hereof with the Partnership's subscribers, all
leases to which the Partnership is a party (other than leases described on
SCHEDULES 4.06(a) or 4.07(a), and (ii) all other contracts, credit
agreements, notes, debentures, instruments, mortgages, trusts, commitments
and agreements (other than leases described on SCHEDULES 4.06(a) or 4.07(a)
and agreements with annual payments of less than $2,000 and which agreements,
together with the other leases and contracts not required to be disclosed, in
the aggregate have annual payments of less than $25,000 or which are
terminable without penalty on one month or less notice) or commitments
(written or oral) to which the Partnership is a party which relate to the
ownership or the operation of the Business (the "Existing Contracts")
including, without limitation, the following:
(i) all purchase orders, agreements and commitments, other than the
purchase orders that are included in the Budgets ("Purchase Orders"), for
the purchase or sale of advertising, services, materials, products or
supplies which (x) involve aggregate payments by the Partnership of more
than $2,000 or (y) involve aggregate payments to the Partnership of more
than $25,000, or (z) which were entered into other than in the ordinary
course of business of the Partnership;
(ii) all written employment contracts with any officer, consultant,
director or employee of the Company or any partner, consultant or employee
of the Partnership and any such oral contracts which are not terminable at
will by the Partnership;
(iii) all written and oral plans, contracts or arrangements providing
for stock options or share purchases, bonuses, pensions, deferred or
incentive compensation, retirement or severance payments, profit-sharing,
insurance or other benefit plans or programs for any officer, consultant,
director, shareholder or employee of the Company or any partner, consultant
or employee of the Partnership;
(iv) all contracts for construction or for the purchase of real
estate, improvements, fixtures, equipment, machinery and other items which
under GAAP constitute capital expenditures and which individually or in the
aggregate for any related group of items involve expenditures of the
Partnership in excess of $2,000;
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(v) all contracts relating in any way to direct or indirect
indebtedness for borrowed money or evidenced by a bond, debenture, note or
other evidence of indebtedness (whether secured or unsecured) of or to the
Partnership, including but not limited to, indebtedness by way of lease or
installment purchase arrangement, guarantee, reimbursement obligations
pertaining to letters of credit, purchase price discount obligations,
undertakings on which others rely in extending credit, or otherwise, and
all mortgages, pledges, conditional sales contracts, chattel and
purchase-money mortgages and other security arrangements with respect to
any real estate, improvements, equipment, other personal property or
fixtures, used or owned by the Partnership, except in each case for
contracts individually involving less than $5,000 and in the aggregate
less than $25,000;
(vi) all agreements with agents, sales representatives, suppliers,
distributors, advertising agencies, insurance companies, manufacturers,
brokers and vendors involving the payment or receipt of more than $5,000
per year;
(vii) all licenses, sublicenses, franchises, and royalty, joint
venture, partnership, profit or expense sharing or similar agreements;
(viii) all agreements relating to the acquisition by the Partnership
of the assets, stock or business of another company including any
predecessor entity;
(ix) all material agreements related to the expansion of any current
product or service or the launch of any new product or service, including
those related to new markets;
(x) all material software license and servicing agreements relating
to the Partnership's data processing operations;
(xi) all contracts restricting the Partnership from engaging in any
line of business or competing with any Person or in any geographical area,
or from using or disclosing any information in its possession (other than
routine supplier and customer confidentiality agreements);
(xii) all contracts or commitments with any affiliate of the Company
or the Partnership and all contracts or commitments not made in the
ordinary course of its business;
(xiii) all commitments, contracts or agreements which are expected to
result in any loss upon completion of performance thereof in excess of
$5,000;
(xiv) all other contracts, except those which are (x) cancelable on
30 days' or less notice without any penalty or other financial obligation
or (y) if not so cancelable, involve annual aggregate payments by or to the
Partnership of $5,000 or less.
(c) The Sellers have heretofore delivered to Purchaser true and correct
copies of the Existing Contracts. Except as disclosed on SCHEDULE 4.08(b),
neither the Company nor any Seller has knowledge of any breach, anticipated
breach, or violation by the other parties to any Existing Contract. The
Existing Contracts are valid, binding, and in full force and effect and the
Partnership is in compliance with its obligations under such Existing
Contracts. Except for the Existing Contracts and the Purchase Orders, the
Partnership has not entered into any other
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contract, commitment or agreement (other than agreements with annual payments
of less than $2,000 and which agreements, together with the other leases and
contracts not required to be disclosed, in the aggregate have annual payments
of less than $25,000 or which are terminable without penalty on one month or
less notice) relating to the ownership of or the operation of the Business,
including, but not limited to, rights-of-way, rights of entry, licenses,
easements, leases, or guaranty agreements. There are no claims by third
parties that the Partnership is required to enter into other agreements to
enable it to continue to own and operate the Business as it is presently
being operated.
SECTION 4.09. GOVERNMENTAL LICENSES. (a) Except as set forth on SCHEDULE
4.09(a), the Company holds all necessary licenses, consents, permits, approvals
and authorizations of public and governmental bodies which are required in
connection with the ownership and operation of the Company's business
(collectively referred to as the "Company Authorizations"). All Company
Authorizations are in full force and effect. The Company has complied with the
terms of the Company Authorizations which it holds and there are no pending
modifications, amendments or revocations of the Company Authorizations which
would adversely affect the ownership or the operation of its business. All fees
due and payable from the Company to governmental authorities pursuant to the
Company Authorizations have been paid. All reports required of the Company to
be filed in connection with the Company Authorizations have been timely filed
and are accurate and complete. True and correct copies of the Company
Authorizations, and all amendments thereto to the date hereof, have been
delivered by Sellers to Purchaser and are identified on SCHEDULE 4.09(a) hereto.
(b) Except as set forth on SCHEDULE 4.09(b), the Partnership holds all
necessary licenses, consents, permits, approvals and authorizations of public
and governmental bodies including, without limitation, the FCC Authorizations,
authorizations from the California Public Utilities Commission (the "CPUC") and
other state, counties and municipalities served by the Business, which are
required in connection with the ownership and operation of the Business
(collectively referred to as the "Authorizations"). All Authorizations are in
full force and effect. The Partnership has complied with the terms of the
Authorizations which it holds and there are no pending modifications, amendments
or revocations of the Authorizations which would adversely affect the ownership
or the operation of the Business. All fees due and payable from the Partnership
to governmental authorities pursuant to the Authorizations have been paid. All
reports required of the Partnership to be filed in connection with the
Authorizations have been timely filed and are accurate and complete. True and
correct copies of the Authorizations, and all amendments thereto to the date
hereof, have been delivered by Sellers to Purchaser and are identified on
SCHEDULE 4.09(b) hereto. The ownership and the operation of the Business by the
Partnership are not subject to regulation or supervision by any applicable state
public utilities commission or other similar state governmental instrumentality
other than the CPUC.
SECTION 4.10. COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 4.10,
Sellers, the Company and the Partnership are currently complying with and have
so complied with, and are not in default under, in violation or contravention
of, any statute, law (including environmental
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or employment laws), ordinance, decree, order, rule, regulation of any
governmental body applicable to the business of the Company or the Business,
including, without limitation, the rules and regulations of the FCC and the
CPUC.
SECTION 4.11. NO VIOLATION OF EXISTING AGREEMENTS. Subject to the
consents for the Existing Contracts identified on SCHEDULE 4.11, the
execution, delivery and performance of this Agreement by the Sellers and the
Company and Sellers' transfer of the Shares to Purchaser (i) will not violate
any provisions of any law or any provision of the Company's certificate of
incorporation or by-laws (except with respect to the rights of first refusal
held by the Company and its shareholders, as set forth therein, which the
Company and Sellers hereby waive), or the Partnership Agreement, (ii) will
not, with or without the giving of notice or the passage of time, or both,
conflict with or result in any breach of any of the terms or conditions of,
or constitute a default under any Existing Contracts, and (iii) will not
result in the creation of any Encumbrance upon the assets of the Partnership.
SECTION 4.12. LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
SCHEDULE 4.12, there is no outstanding judgment against the Company, the
Partnership or any Seller or any director, officer or stockholder of the Company
or any officer or partner of the Partnership affecting the Business or the
Shares or which questions the validity of any action taken or to be taken
pursuant to or in connection with the provisions of this Agreement. Except as
set forth on SCHEDULE 4.12, there is no claim, litigation, proceeding or
investigation pending, or, to the Company's or any Seller's knowledge,
threatened, against the Company, the Partnership or any Seller or any director,
officer or stockholder of the Company or any officer or partner of the
Partnership affecting the Business or which questions the validity of any action
taken or to be taken pursuant to or in connection with the provisions of this
Agreement and there is no basis for any such claim, litigation, proceeding or
investigation. Except as set forth on SCHEDULE 4.12, there are no proceedings
pending to which the Company, the Partnership, any Seller or any director,
officer or stockholder of the Company or any officer or partner of the
Partnership is a party or, to the Company's or any Seller's knowledge,
threatened, nor any demands by any governmental agency, utility or other party,
to terminate, modify or adversely change the terms and conditions of the
Company's rights with respect to the Company Authorizations, the Partnership's
rights with respect to the Authorizations or Existing Contracts.
SECTION 4.13. ENVIRONMENTAL COMPLIANCE. (a) Except as set forth on
SCHEDULE 4.13 hereto, (i) none of the Sellers, the Company or the Partnership
has received any notice alleging any violation of any Environmental Law; (ii)
each of the Company and the Partnership is in compliance with all Environmental
Laws; (iii) each of the Company and the Partnership has obtained and complies
with all required governmental environmental permits with respect to its
business as presently conducted; (iv) neither the Company nor the Partnership
has generated, used, transported, treated, stored, released or disposed of, or
suffered or permitted anyone else to generate, use, transport, treat, store,
release or dispose of any Hazardous Substance (as hereinafter defined) with
respect to its business in violation of any Environmental Laws (as hereinafter
defined); (v) there has not been any generation, use, transportation, treatment,
storage,
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release or disposal of any Hazardous Substance in connection with
Partnership's ownership and conduct of the Business, the Company's ownership
and conduct of its business or on, in or under any property or facility used,
owned or leased by the Partnership or any adjacent properties or facilities,
which has created or might reasonably be expected to create any liability
under any Environmental Laws or which would require reporting to or
notification of any governmental entity; (vi) no friable asbestos or
polychlorinated biphenyl, and no underground storage tank, is contained in or
located on or under any property or facility owned, used or leased by the
Partnership or the Company; and (vii) any Hazardous Substance handled or
dealt with in any way with respect to the business of the Company or the
Partnership, or during the Partnership's or the Company's ownership of its
business, has been and is being handled or dealt with in compliance with all
Environmental Laws.
(b) For purposes of this Agreement, the term "Hazardous Substance"
shall mean any substance which, as of the date of this Agreement, is listed as
hazardous or toxic in the regulations implementing the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Response Compensation and Liability Act ("RCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), or listed as a
hazardous substance under any applicable state environmental laws, or any
substance which has been determined by regulation, ruling or otherwise by any
agency or court to be a hazardous or toxic substance regulated under federal or
state law, and shall include petroleum and petroleum products.
(c) For purposes of this Agreement, the term "Environmental Laws"
shall mean CERCLA, RCRA, RCLA and any applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans, authorizations,
concessions, franchises and similar items of all governmental authorities and
all applicable judicial, administrative and regulatory decrees, judgments and
orders, any of which relate to the protection of human health or the environment
from the effects of Hazardous Substances, including but not limited to those
pertaining to reporting, licensing, permitting, investigating and remediating
emissions, discharges, releases or threatened releases of Hazardous Substances
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
SECTION 4.14. EMPLOYEES. (a) The Company does not currently have, and
never had, any employees, and is not a party to any employment contract.
SCHEDULE 4.14 sets forth a true and complete list of the names and salaries of
all employees of the Partnership. Such employees are employees at will. The
Partnership has withheld all amounts required by law or agreement to be withheld
by it from the wages, salaries and other payments to its employees and is not
liable for any arrears of wages or any taxes for failure to comply with any of
the foregoing. There are no collective bargaining agreements covering any of
the employees of the Partnership. The Partnership has not breached or otherwise
failed to comply with any provision of any collective bargaining agreement or
other labor union contract applicable to any of its employees. No consent of
any union (or similar group or organization) is required in connection with the
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consummation of the transactions contemplated hereby. There are no pending, or,
to the Partnership's knowledge threatened or anticipated, and, there is no
factual basis for any (a) employment discrimination (including age, sex, racial
or handicap discrimination) charges or complaints against or involving the
Partnership, before any federal, state, or local board, department, commission
or agency or (b) unfair labor practice charges or complaints, disputes or
grievances affecting the Partnership. There are no pending, or, to the
Partnership's knowledge threatened or anticipated (a) union representation
petitions respecting the employees of the Partnership, (b) efforts being made to
organize any of the employees of the Partnership, or (c) strikes, slow downs,
work stoppages, or lockouts or threats affecting the Partnership.
SECTION 4.15. EMPLOYEE BENEFITS. Except as set forth on SCHEDULE 4.15
attached hereto, neither the Company nor the Partnership has any pension plan,
profit sharing plan, deferred compensation plan, stock option or stock bonus
plan, saving plan, or other benefit plan, policy, practice, or procedure or
contract concerning employee benefits or fringe benefits of any kind
(collectively, "Employee Benefit Plans"), whether or not governed by the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Except
as set forth on SCHEDULE 4.15, the Partnership is not a party to any employment
contract. Except as set forth on SCHEDULE 4.15 attached hereto, no officer,
director or employee of the Partnership participates or is eligible to
participate in a "defined benefit pension plan" as defined in Section 3(35) of
ERISA, maintained or made available by the Partnership. Except as set forth on
SCHEDULE 4.15 attached hereto, neither the Partnership nor any Controlled Group
Member maintains or contributes to, or ever maintained or contributed to, a plan
under which any employee of the Partnership participates or is eligible to
participate subject to Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"). The term "Controlled Group Member" means any trade or
business (whether or not incorporated) which is, or was at any relevant time,
aggregated with the Partnership pursuant to Section 414(b), (c), (m) or (o) of
the Code. Except as set forth on SCHEDULE 4.15 attached hereto, neither the
Partnership nor any ERISA Affiliate has participated in or made contributions to
any "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. The term
"ERISA Affiliate" means each trade or business (whether or not incorporated)
which is, or was at any relevant time, treated as a single employer with the
Partnership pursuant to Section 4001(b)(1) of ERISA. The Sellers have furnished
Purchaser with true, complete and accurate copies of all Employee Benefit Plans
and related trust agreements as in effect on the date hereof, all summary plan
descriptions, and the latest annual reports filed with the Department of Labor
or the Internal Revenue Service (the "IRS").
Each of the Employee Benefit Plans is in compliance with all applicable
requirements of ERISA, the Code, and other applicable law. Each of the Employee
Benefit Plans has been administered in all material respects in accordance with
its terms and with applicable legal requirements. All "employee pension plans"
(within the meaning of Section 3(2) of ERISA) have been determined by the IRS to
be qualified under Section 401(a) of the Code, and no action or proceeding has
been instituted or threatened which would affect the qualification of any
pension plan of the Partnership. No unfunded liabilities, based upon the
Pension Benefit Guarantee Corporation (the "PBGC") rates currently in effect for
plan terminations, exist with
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respect to any Employee Benefit Plan which is a "defined benefit plan"
(within the meaning of Section 3(35) of ERISA). There has not been any
reportable event with respect to any pension plan of the Partnership. The
Partnership has not engaged in a "prohibited transaction" or breach of
fiduciary responsibility with respect to any Employee Benefit Plan which
could subject Purchaser or any affiliate of Purchaser to a penalty tax or
other liability under ERISA or the Code. Neither the Partnership nor any
ERISA Affiliate of the Partnership has ever incurred any liability under
Title IV of ERISA to the PBGC or to a multi-employer pension plan.
SECTION 4.16. TAX MATTERS. (a) Except as set forth on SCHEDULE 4.16(a)
attached hereto, (i) the Company and each Seller has timely filed all Tax (as
defined below) returns and statements which it is required to file with respect
to the Company; (ii) all such returns are complete and accurate and disclose all
Taxes required to be paid for the periods covered thereby; (iii) neither the
Company nor any Seller has waived any statute of limitations in respect of Taxes
or agreed to an extension of time with respect to a Tax assessment or
deficiency; (iv) no assessment of any additional Taxes for periods for which
returns have been filed has been asserted and no basis exists therefor; (v) to
the Company's and each Seller's knowledge, there are no unresolved questions or
claims raised by any Taxing authority concerning the Tax liability of the
Company, (vi) all Taxes which the Company is required by law to withhold or to
collect for payment have been duly withheld and collected, and have been paid
and (vii) the Company has made a valid election to be taxed as an "S
Corporation" (within the meaning of Section 1361 of the Code) and will be
classified for Federal income tax purposes as an S Corporation for the period
from the date of its incorporation through the Closing Date. The Company has
paid all Taxes due prior to the date hereof and will pay when due (or contest in
good faith by appropriate proceedings) all Taxes which may become due on or
before the Closing Date.
(b) Except as set forth on SCHEDULE 4.16(b) attached hereto, (i) the
Partnership has timely filed all Tax returns and statements which it is required
to file; (ii) all such returns are complete and accurate and disclose all Taxes
required to be paid for the periods covered thereby; (iii) the Partnership has
not waived any statute of limitations in respect of Taxes or agreed to an
extension of time with respect to a Tax assessment or deficiency; (iv) no
assessment of any additional Taxes for periods for which returns have been filed
has been asserted and no basis exists therefor; (v) to the Company's and each
Seller's knowledge, there are no unresolved questions or claims raised by any
Taxing authority concerning any Tax liability of the Partnership and (vi) all
Taxes which the Partnership is required by law to withhold or to collect for
payment have been duly withheld and collected, and have been paid; and
(c) For purposes of this Section 4.16, the term "Tax" or "Taxes" means all
taxes, charges, fees, levies, imposts and other assessments including all
income, sales, use, goods and services, value added, capital, capital gains,
alternative net worth, transfer, profits, withholding, payroll, employer health,
excise, real property and personal property taxes, and any other taxes, customs
duties, stamp duties, fees, assessments or similar charges in the nature of a
tax, together with any interest, fines and penalties imposed by any governmental
authority (including federal, state, provincial, municipal and foreign
governmental authorities), and whether disputed or not.
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SECTION 4.17. FINANCIAL STATEMENTS.
(a) The Purchaser has heretofore been furnished with the following:
(i) true and complete copies of the audited balance sheets of each of
the Partnership and the Company as of December 31, 1994, December 31, 1995
and December 31, 1996 and the related audited statements of income, cash
flows and stockholders equity or partner capital, as the case may be, for
the years then ended, each of such balance sheet and income statement being
attached hereto as SCHEDULE 4.17(a)(i) (collectively, the "Audited
Historical Financial Statements");
(ii) true and complete copies of the unaudited balance sheets (the
"September Balance Sheets") of each of the Company and the Partnership at
September 30, l997 (the "Balance Sheet Date") and the related unaudited
statements of income for the nine-month period then ended (the "Nine Month
Income Statements"; and together with the September Balance Sheets, the
"Current Financial Statements"), such balance sheets and income statements
being attached hereto as SCHEDULE 4.17(a)(ii);
(iii) the capital expenditure budget for each of the Company and the
Partnership providing for expenditure of capital items in each month for
the period from January 1, 1997 through December 31, 1997 and attached
hereto as SCHEDULE 4.17(a)(iii) (the "Budgets").
(b) Each of the Audited Historical and Current Financial Statements
delivered under Section 4.17(a)(i) and (ii) hereof was prepared in accordance
with GAAP applied on a basis consistent with prior periods and past practices
and, with respect to the Current Financial Statements, subject to normally
recurring year-end adjustments and except for the omission of certain footnotes
and other presentation items required by GAAP with respect to audited financial
statements; each of the balance sheets included in such Audited Historical and
Current Financial Statements fairly presents the financial condition of the
Company or Partnership, as applicable, as at the close of business on the date
thereof; and each of the statements of income included in such Audited
Historical and Current Financial Statements fairly presents the results of
operations of the Company or the Partnership, as applicable, for the fiscal
period then ended.
(c) Except as set forth on SCHEDULE 4.17(c) attached hereto, since the
Balance Sheet Date, neither the Company nor the Partnership has:
(i) sold, assigned or transferred any of its assets or
properties (except in the case of the Partnership pursuant to
existing contracts or commitments disclosed on any Schedule to
this Agreement or inventory in the ordinary course of business
consistent with past practice); or canceled any material debts or
material claims;
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(ii) waived any material rights, whether or not in the ordinary
course of business;
(iii) entered into any other transaction, except in the ordinary
course of business, or entered into any transaction with any
partner of the Partnership or any director, officer or
shareholder of the Company, or any affiliate or family member of
any such Person;
(iv) suffered any material damage, destruction or casualty loss
with respect to its assets or properties whether or not covered
by insurance;
(v) declared or paid any dividend, made any distribution of any
of its assets to any partner of the Partnership, any director,
officer or shareholder of the Company or any affiliate or family
member of any such Person or redeemed or purchased any of its
shares of capital stock or other equity interest;
(vi) except as disclosed in writing by the Sellers to
Purchaser, the Partnership has not obligated itself or the
Business to give free or reduced price service to customers with
respect to the Business other than promotions offered in the
ordinary course of business and set forth on SCHEDULE 2.04(a);
(vii) made any increases in the base compensation, bonuses,
paid vacation time allowed or material fringe benefits for its
partners, officers, employees or consultants, except for normal
periodic increases in base compensation for employees made
pursuant to established compensation policies of the Partnership
applied on a basis consistent with that of prior years;
(viii) suffered to its knowledge any material adverse
change in the business relationship of the Company or the
Partnership with any customer, advertiser, distributor or
supplier;
(ix) made any capital expenditures, additions or
improvements or commitments for the same, except those (A)
permitted by Section 2.04(d) hereof or (B) which do not exceed
$100,000 in the aggregate for the Company and the Partnership;
(x) entered into any contract, commitment or agreement
under which it has outstanding indebtedness for borrowed money or
for the deferred purchase price of property in excess of
$100,000, or has the right or obligation to incur any such
indebtedness or obligation, or made any loan or advance to any
Person other than advances to employees for business expenses not
exceeding $50,000 in the aggregate for the Company and the
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Partnership;
(xi) paid any bonuses, deferred or otherwise, or deferred
any compensation to any of its directors, officers or employees
in excess of $25,000 to any such person for the Company's 1996
and 1997 fiscal years, except as reflected in the Historical
Financial Statements;
(xii) made any material change in accounting procedures or
practices;
(xiii) mortgaged or pledged any of its properties or
assets, tangible or intangible, or subjected them to any
Encumbrances, except Encumbrances for current property taxes not
yet due and payable;
(xiv) except for the sale of inventory in the ordinary
course of business, entered into any agreement or arrangement
granting any rights to purchase or lease any of its assets,
properties or rights or requiring the consent of any Person to
the transfer, assignment or lease of any such assets, properties
or rights;
(xv) disposed of or permitted to lapse any rights to the
use of any patent, trademark, service mark, logo, trade name or
copyright identified on SCHEDULE 4.23 hereto, or disposed of or
disclosed to any Person (other than Persons subject to
confidentiality obligations in favor of the Company or the
Partnership) any trade secret, formula, process, method or know-how
not theretofore a matter of public knowledge;
(xvi) suffered any resignation or termination of any key
officer or key employee; or
(xvii) entered into any agreement or understanding to do
any of the foregoing.
SECTION 4.18. SUBSCRIBERS; AGENTS. SCHEDULE 4.18 attached hereto sets
forth (a) the number of customers who have subscribed for and who are receiving
service from Cellular System as of a date within 5 days prior to the date hereof
and (b) a list of all agents who sell cellular telephone equipment and/or
service on behalf of the Partnership as of the date hereof, together with such
agent's address and the number of gross activations produced by each agent from
October 1, 1996 to September 30, 1997.
SECTION 4.19. INSURANCE. Sellers have delivered previously to Purchaser
all policies of title, liability, fire, worker's compensation and other forms of
insurance (including bonds) of the Company or the Partnership which insure
against risks and liabilities to an extent and in a manner customary in the
cellular industry and which are adequate to provide coverage against risks of a
nature to which the Company or the Partnership would normally be exposed in the
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operation of its business. All such insurance policies and binders are in full
force and effect. Each of the Company and the Partnership has complied in all
material respects with each of such insurance policies and binders and have not
failed to give any notice or present any claim thereunder in a due and timely
manner. There are no outstanding unpaid claims under any of such insurance
policies or binders and neither the Company nor the Partnership has received any
notice of cancellation or non-renewal of any such policy or binder. There is no
inaccuracy in any application for such policies or binders which would
reasonably be expected to materially adversely affect coverage thereunder. No
insurance carrier has canceled or reduced any insurance coverage for the Company
or the Partnership or has given any notice or other indication of its intention
to cancel or reduce any such coverage. All premiums due and payable under any
such insurance policies or binders of the Company or the Partnership have been
duly paid or accrued to the extent taken into account in the Working Capital
Adjustment.
SECTION 4.20. BROKERS. Except for Daniels & Associates, none of the
Sellers, the Company and the Partnership have engaged any agent, broker or other
person acting pursuant to its express or implied authority which is or may be
entitled to a commission or broker or finder's fee in connection with the
transactions contemplated by this Agreement or otherwise with respect to the
sale of the Shares.
SECTION 4.21. UNDISCLOSED LIABILITIES; GUARANTEES. Neither the Company
nor the Partnership has any liabilities or obligations of any nature, whether
absolute, accrued, contingent, known or unknown, or otherwise, which are not
reflected in or reserved against the September Balance Sheets except for
liabilities and obligations that have arisen in the ordinary and usual course of
business and consistent with past practice (none of which results from, arises
out of, relates to, is in the nature of, or caused by any breach of contract,
breach of warranty, tort, infringement or violation of law). Except as
disclosed on SCHEDULE 4.21 or in the Audited Historical and Current Financial
Statements, there are no contracts or commitments by the Company or the
Partnership guaranteeing the payment or performance by others, or whereby,
except for the endorsement of checks in the regular and ordinary course of its
business, neither the Company nor the Partnership in any way is or will be
liable with respect to the obligations of any other Person.
SECTION 4.22. PRICING OF SERVICES. SCHEDULE 4.22 sets forth a description
of all rate plans currently offered to subscribers of the Cellular System.
SECTION 4.23. PROPRIETARY RIGHTS. The Partnership owns or has legal right
to use all patents, trademarks, tradenames, service marks and logos including
applications therefor, and all trade secrets, inventions and proprietary rights
and processes (all such items being hereinafter referred to as "Intangible
Property"), presently used in the conduct of the Business of the Partnership,
without any infringement upon the proprietary rights of others provided,
however, no representation is made as to the Partnership's or the Company's
entitlement to use the name "Cellular 2000" or "Cellular 2000 Telephone Co.".
All patents, registered trademarks, trademark applications, trade names, service
marks, and registered logos used or owned by or licensed to
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the Partnership in connection with its Business are set forth on SCHEDULE
4.23, and, in the case of any Intangible Property owned by the Partnership,
have been duly registered in, filed in, or issued by the United States Patent
and Trademark Office or the corresponding offices of other jurisdictions
(foreign or domestic) to the extent set forth on SCHEDULE 4.23. All material
licenses held by the Partnership, whether as licensee or licensor, are also
set forth on SCHEDULE 4.23. SCHEDULE 4.23 accurately sets forth with respect
to each patent, registered trademark, trademark application, trade name,
service mark, registered logo and material license owned or used by or
licensed by or to the Partnership in the conduct of its business, (i) the
owner thereof, (ii) the date of expiration, if any, (iii) whether such rights
are exclusive and (iv) any other licensee of the Partnership of such rights.
Except as otherwise set forth on SCHEDULE 4.23 hereto, no royalties or fees
are payable by the Partnership to any Person by reason of the ownership or
use of any of the Intangible Property. All items of Intangible Property
owned by the Partnership are, and all items of Intangible Property owned by a
third party and used by the Partnership are, (x) valid and in good standing,
(y) adequate and sufficient to permit the Partnership to conduct its Business
as presently conducted, and (z) no other rights of any kind in respect of the
Intangible Property are required by the Partnership for its operation as
presently conducted. Except as set forth on SCHEDULE 4.23, the Partnership
has not entered into any material licenses, sublicenses or agreements
relating to the use by any other Person of any Intangible Property now used
by the Partnership, and no infringement exists upon such Intangible Property
by any other Person. Except as disclosed on SCHEDULE 4.23, no charge or
claim is pending or threatened, nor has any charge or claim been made within
the past three years to the effect that, the sale of any of the services by
the Partnership infringe upon or conflict in any way with any rights or
properties of the type enumerated above owned or held by any other Person.
SECTION 4.24. ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of the Company or the Partnership shown on the September Balance
Sheets or thereafter acquired were or (to the extent not heretofore collected)
are valid and genuine, were acquired in the ordinary course of business, are
subject to no asserted counterclaims, defenses or setoffs and will be fully
collectible within 90 days of Closing (subject to reserves therefor as will be
taken into account in the determination of Current Assets at Closing in
accordance with Section 2.04). SCHEDULE 4.24 attached hereto sets forth a true,
complete and accurate list, as of the end of the most recent normal billing
cycle of the Cellular System, listing the total amounts of subscriber
receivables and the aging of such subscriber receivables based on the following
Schedule: 0-30 days, 31-60 days, 61-90 days and over 90 days, from the date
thereof.
SECTION 4.25. PRODUCT INFORMATION. The Partnership has not sold and does
not have in its inventory any refurbished telephone handsets. SCHEDULE 4.25
sets forth a list of manufacturers of telephone handsets presently in the
Partnership's inventory.
SECTION 4.26. CERTAIN BUSINESS RELATIONSHIPS. Except as set forth in
SCHEDULE 4.26 attached hereto, none of the officers, directors or partners of
the Partnership or officers, directors or stockholders of the Company and any of
their affiliates or family members have been involved in any business
arrangement or relationship with the Company or the Partnership within the past
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12 months.
SECTION 4.27. OFFICERS, DIRECTORS AND CERTAIN AUTHORIZED PERSONS.
Schedule 4.27 sets forth a complete and accurate list of:
(i) the names of all directors of the Company;
(ii) the names and offices of all officers of the Company;
(iii) the names of all Persons authorized to borrow money
or incur or guarantee indebtedness on behalf of the Company or
the Partnership;
(iv) all safes, vaults and safe deposit boxes maintained by
or on behalf of the Company or the Partnership or in which their
respective property is held, and the names of all Persons
authorized to have access thereto;
(v) all bank accounts of the Company and the Partnership
and the names of all Persons who are authorized signatories and
the terms of their authorizations; and
(vi) the names of all Persons to which either the Company
or the Partnership has granted its power of attorney and the
terms of any such powers of attorney.
SECTION 4.28. DISCLOSURE. No provision of this Agreement relating to any
of the Sellers, the Company, the Partnership, the Business or the Shares or any
other document, Schedule, Exhibit or other information furnished by Sellers to
Purchaser in connection with the execution, delivery and performance of this
Agreement, or the consummation of the transactions contemplated hereby, contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated in order to make the statement, in
light of the circumstances in which it is made, not misleading. In connection
with the preparation of this Agreement and the documents, descriptions,
opinions, certificates, Exhibits, Schedules or written material prepared by
Sellers and appended hereto or delivered or to be delivered hereunder, each
Seller agrees it will disclose to Purchaser any fact known to such Seller which
such Seller knows or believes would affect Purchaser's decision to proceed with
the execution of this Agreement. Except for facts affecting the cellular
telephone industry generally, there is no fact now known to any of the Sellers
relating to the Business which in such Seller's reasonable opinion adversely
affects the condition of the Shares, the status of the Authorizations or the
ownership, operation, financial condition or prospects of the Business which has
not been disclosed to Purchaser or set forth in the Exhibits or Schedules
attached hereto. All Schedules attached hereto are accurate and complete as of
the date hereof.
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ARTICLE V
PURCHASER'S REPRESENTATIONS
Purchaser hereby represents, warrants, covenants and agrees that:
SECTION 5.01. ORGANIZATION; QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma. Purchaser has all power and authority to (i) own and operate
its properties, (ii) carry on its business as it is now being conducted, and
(iii) carry out the transactions contemplated by this Agreement and to own the
Shares and operate the Business, subject to obtaining all necessary consents
required for the transfer by Sellers of the Shares.
SECTION 5.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF
AGREEMENT. All necessary consents and approvals have been obtained by Purchaser
for the execution and delivery of this Agreement. The execution and delivery of
this Agreement by Purchaser has been duly and validly authorized and approved by
all necessary corporate action. Purchaser has full power and authority to
execute and deliver and perform its obligations under this Agreement. This
Agreement is a valid and binding obligation of Purchaser, enforceable against it
in accordance with its terms.
SECTION 5.03. LITIGATION AND LEGAL PROCEEDINGS. There is no outstanding
judgment against Purchaser and there is no litigation, proceeding or
investigation pending, or, to Purchaser's knowledge, threatened, against
Purchaser or its assets which individually or in the aggregate would, if
adversely determined, result in a material adverse change in the business
condition (financial or otherwise), properties or assets of Purchaser or which
questions the validity of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement or the consummation of the
transactions contemplated hereby by the Purchaser.
SECTION 5.04. BROKERS. Purchaser has not engaged any agent, broker or
other person acting pursuant to the express or implied authority of Purchaser
which is or may be entitled to a commission or broker or finder's fee in
connection with the transactions contemplated by this Agreement or otherwise
with respect to the sale of the Shares.
SECTION 5.05. NO DISTRIBUTION. The Shares will not be taken by Purchaser
with a view to the public distribution thereof and will not be transferred
except in a transaction registered or exempt from registration under the
Securities Act of 1933, as amended and any applicable state securities laws.
SECTION 5.06. USURY RATE. The usury rate in the State of Oklahoma
applicable to the Subordinated Promissory Note is greater than 9% per annum.
ARTICLE VI
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THE COMPANY'S, SELLERS' AND PURCHASER'S COVENANTS
SECTION 6.01. FINANCIAL STATEMENTS AND CELLULAR SYSTEM INFORMATION. The
Sellers and the Company covenant and agree that during the period after the
execution of this Agreement and prior to the Closing, they shall provide
Purchaser, within 21 days of the end of each calendar month, the unaudited
balance sheet and income statement for such month for each of the Company and
the Partnership ("Interim Financial Statements"). The Interim Financial
Statements will be true and correct in all material respects, will be prepared
using the same accounting methods and procedures as used in the preparation of
the Historical Financial Statements except for the absence of footnotes, subject
to normally recurring year-end adjustments, and will present fairly the
financial position of the Company and the Partnership at the date indicated and
the results of each of the Company and the Partnership's operations for such
period. The Sellers and the Company also shall provide Purchaser within 21 days
of the end of each calendar month (i) a comparison of the results of each of the
Company and the Partnership's income from operations for such month as reflected
in the Interim Financial Statements to the amount budgeted for such month and
the year to date (as reflected in the Budgets delivered to Purchaser, copies of
which are annexed hereto as SCHEDULE 6.01 (the "Operating Budgets"), (ii) the
number of subscribers on the Cellular System at the beginning and end of such
month with a comparison to the Operating Budget of the Partnership, (iii) an
accounts receivable aging report for the Cellular System and (iv) other reports
generated by the Partnership's billing system as reasonably requested by
Purchaser.
SECTION 6.02. GOVERNMENTAL APPROVALS. (a) Purchaser covenants and agrees
that it will cooperate with the Company and Sellers, and do all things
reasonably necessary to assist them, to obtain all consents and approvals
necessary for transfer of control to Purchaser of the Authorizations, including
the furnishing of financial and other information specifically with respect to
Purchaser reasonably required by the Person whose consent or approval is being
sought. The Company and Sellers shall use all reasonable efforts to provide
adequate prior written notice to Purchaser of any meeting with governmental
authorities the purpose of which is to seek a consent or approval to the
transactions contemplated hereby, and Purchaser shall use all reasonable efforts
to furnish a representative to attend meetings with appropriate government
authorities for the purpose of obtaining such consents or approvals. The
Purchaser, the Company and each Seller hereby agree to file and to cause the
Partnership to file the necessary Form(s) 490 and 702 with the FCC transferring
or assigning control of the FCC Authorizations for the Business to Purchaser and
diligently pursue the processing of the assignment of the FCC Authorizations to
Purchaser and to file for all other necessary regulatory approvals for the
consummation of the transactions contemplated by this Agreement within five
business days of the date of execution of this Agreement to the extent any such
filings have not been made prior to the date of execution of this Agreement.
Sellers, on the one hand, and Purchaser, on the other, shall share equally all
filing fees in connection with any filings pursuant to this Section 6.02(a).
(b) The Company, Sellers and Purchaser shall each cooperate and use their
reasonable best efforts to prepare and file with the Federal Trade Commission
and the Department of Justice
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and other regulatory authorities as promptly as possible all requisite
applications and amendments thereto together with related information, data
and exhibits necessary to satisfy the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act ("Hart-Scott Act"). Sellers, on the one hand, and
Purchaser, on the other, shall share equally all filing fees in connection
with any filings pursuant to this Section 6.02(b).
SECTION 6.03. THIRD PARTY CONSENTS; CLOSING CONDITIONS. (a) The Company
and the Sellers covenant and agree to do all things reasonably necessary to
obtain all consents and approvals necessary for the transfer or assignment to
Purchaser of the Existing Contracts requiring assignment as a result of the
Purchaser's purchase of the Shares. Purchaser covenants and agrees to cooperate
with the Company and Sellers and assist the Company and the Sellers in obtaining
such consents and approvals including the furnishing of financial and other
information, reasonably required by the Person whose consent or approval is
being sought.
(b) Purchaser, the Company and the Sellers hereby covenant and agree to
use all reasonable efforts to satisfy, or assist the other party in satisfying,
the closing conditions applicable to the Purchaser in Article VII hereof and the
Company and the Sellers in Article VIII hereof prior to the Closing Date.
SECTION 6.04. ACCESS. (a) Purchaser shall have the right, itself or
through its representatives, during normal business hours, after reasonable
notice (which may be oral) to Sellers' Representative, the Company and the
Partnership, and without undue disruption to the Company or the Partnership's
normal business activities, to inspect the assets and properties of the Company
and the Partnership and to inspect and make abstracts and reproductions of all
books and records of the Company and the Partnership including, without
limitation, applications and reports to the FCC and CPUC, all financial
information relevant to the Business, employee records, and engineering and
environmental reports and the Company shall furnish or cause the Partnership to
furnish Purchaser with such information respecting the assets, business and
financial records of the Company and the Partnership as Purchaser may, from
time to time, reasonably request.
(b) The Company and the Sellers acknowledge and agree, subject to any
restrictions placed thereon by an owner or lessor of any real property involved
that Purchaser may commission, at Purchaser's cost and expense, a so-called
"Phase I" environmental site assessment of the assets of the Partnership (the
"Phase I Assessment"). If the Phase I Assessment indicates that a so-called
"Phase II" assessment (the "Phase II Assessment") or other additional testing or
analysis of such assets is advisable, the Purchaser may elect to cause its
agents to conduct such testing and analysis at Purchaser's expense. The Company
and the Sellers will comply with any reasonable request for information made by
Purchaser or its agents in connection with any such investigation. The Company
and the Sellers covenant that any response to any such request for information
will be complete and correct in all material respects. The Company and the
Sellers will afford Purchaser and its agents access to all operations of the
Partnership at all reasonable times and in a reasonable manner in connection
with any such investigation subject to any
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required approval of the Partnership's landlords, which approval the Company
and the Sellers will use their best efforts to obtain. Should Purchaser
commission such an investigation, such investigation will have no effect upon
the representations and warranties made by the Company's and the Sellers to
Purchaser under this Agreement except that if any Phase I Assessment or Phase
II Assessment uncovers an environmental condition which then comprises a
breach of the Company and the Sellers' representations or warranties herein,
the Company and the Sellers shall not have breached such representation or
warranty if the Company and the Sellers cure such breach in accordance with
the provisions of this Agreement.
(c) The Company and the Sellers shall allow Purchaser the opportunity to
conduct an engineering review of the Cellular System to confirm that the
Cellular System complies with the FCC Authorizations and the regulations of the
FCC and is otherwise in good condition and repair, reasonable wear and tear
excepted.
SECTION 6.05. CONDUCT OF BUSINESS. From and after the date hereof the
Company and the Sellers shall, and shall cause the Partnership to:
(a) operate the Cellular System in accordance with the FCC
Authorizations and all other Authorizations, and comply with all laws,
rules and regulations applicable to the Company and the Partnership,
including the regulations of the FCC and CPUC;
(b) except for inventory sold in the ordinary course of business,
refrain from making any sale, lease, transfer or other disposition of any
of the assets of the Company or the Partnership other than in connection
with replacements with assets of like use and value, or with the prior
written approval of Purchaser;
(c) refrain from modifying, amending or altering or terminating any
of the Existing Contracts, and from waiving or canceling any default or
breach or modifying, altering or terminating any right or asset of the
Company or the Partnership without Purchaser's prior written approval,
which approval will not be unreasonably withheld;
(d) maintain insurance on the assets and properties of the Company
and the Partnership comparable to that maintained prior to the date
hereof, and use the proceeds of any claims for loss under such policies,
together with such other funds as may be required, to repair, replace, or
restore to their former condition any assets or properties which may be
damaged by fire or other casualty, all as soon as reasonably possible;
(e) maintain its books and records in accordance with prior practice;
maintain all of its property and assets in their present condition,
ordinary wear and tear excepted; maintain supplies of inventory and spare
parts consistent with past practice; and otherwise operate its business in
the ordinary course in accordance with past practices;
(f) refrain from changing the Cellular System's agents' commission
rate, sales
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practices (including the quality of the credit of subscribers contracting
for cellular telephone service) or marketing practices without Purchaser's
approval;
(g) refrain from increasing the compensation payable or to become
payable to any employee or agent of the Partnership without Purchaser's
approval;
(h) refrain from entering into any contract or renewal of any
existing contract for the employment of any employee or agent of the
Partnership other than "at-will" employees and agents;
(i) use its best efforts to (x) keep the business organization of the
Company and the Partnership intact, (y) retain the services of the key
employees of the Cellular System, and (z) maintain good relationships with
its employees, suppliers, advertisers, subscribers, agents and others
having business relations with it, in each case in accordance with past
practices;
(j) refrain from changing its Charter or by-laws of the Company, or
the Partnership Agreement of the Partnership;
(k) continue to advertise, promote and market the Cellular System and
its services in a manner consistent with past practice, and in any event
from the date hereof through the Closing, spend on advertising, marketing
and promotion, on an aggregate basis from the date hereof to the Closing,
the amounts set forth in the Operating Budgets.
(l) refrain from subjecting any of the assets or properties of the
Company or the Partnership to any new Encumbrance;
(m) refrain from doing or omitting to do any act which will cause a
breach of, or default under, or termination of (except in accordance with
its terms), any contract, agreement, lease, commitment, or obligation to
which the Company or the Partnership is a party or by which it is bound;
(n) provide to the Purchaser, concurrently with filing thereof,
copies of all reports to and other filings with the FCC;
(o) not permit any of the Authorizations to expire or to be
surrendered or voluntarily modified in a matter adverse to the Business, or
take any action which would reasonably be expected to cause the
Authorizations or any other governmental authority to institute proceedings
for the suspension, revocation or limitation of rights under any of the
Authorizations; or fail to prosecute with due diligence any pending
applications to any governmental authority;
(p) notify Purchaser in writing promptly after learning of the
institution or threat of
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any material action against the Company or the Partnership in any court,
or any action against the Company or the Partnership before the FCC or
the CPUC or any other governmental agency, and notify Purchaser in writing
promptly upon receipt of any administrative or court order relating to the
Business;
(q) if the Partnership deems it to be prudent promptly replace any
employee who leaves the employ of the Cellular System; notify Purchaser of
the hiring of any new employee, any material change in job function of an
employee, and the termination of any employee;
(r) pay or cause to be paid or provide for all Taxes of or relating
to the Company, the Partnership, the Shares and the employees required to
be paid to city, county, state, federal and other governmental units up to
the Closing Date;
(s) refrain from taking any action not in the Company's usual course
of business or the Partnership's usual course of business regarding the
Cellular System without Purchaser's prior approval;
(t) cooperate with Purchaser in connection with Purchaser's efforts
to identify the current employees of the Partnership that Purchaser would
like to continue to hire following the Closing consistent with all
applicable federal, state and/or local employment laws, rules and
regulations;
(u) refrain from declaring or paying any dividends or making any
distribution upon, or redeeming or repurchasing any shares of its capital
stock or partnership interests, as the case may be, provided, however, cash
distributions may be made to the Partnership's partners and the Company's
shareholders, in each case consistent with past practice;
(v) refrain from creating, incurring, assuming, guaranteeing, being
or remaining liable, contingently or otherwise, with respect to any
indebtedness, other than the Fleet Debt and indebtedness of the Company and
the Partnership not to exceed $100,000 in the aggregate;
(w) refrain from being a party to any merger or consolidation or
other transfer of any shares of the capital stock of the Company or
interests in the Partnership;
(x) refrain from prepaying any indebtedness for borrowed money (other
than repayments of advances under its existing lines of credit with
financial institutions in the ordinary course of its business) or prepaying
any lease or other contractual obligations;
(y) continue to make all capital expenditures in connection with the
operation of the Business when and as required by its capital expenditures
in the Budgets as set forth IN SCHEDULE 4.17(a)(iii) as are required prior
to the Closing Date; and
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(z) refrain from changing the rates charged to Subscribers except for
promotional programs of not more than sixty (60) days in duration provided
that if such promotional programs are not reasonably expected to terminate
before the Closing Date then such programs shall require Purchaser's
written approval, which approval shall not be unreasonably withheld.
SECTION 6.06. NO SHOPPING. None of the Sellers, the Company and any of
their affiliates, advisors or representatives shall, directly or indirectly,
solicit, encourage or initiate any contact with, negotiate with, or provide any
information to, endorse or enter into any agreement with respect to, or take any
other action to facilitate any person or group, other than Purchaser and its
representatives, concerning any inquiries or the making of any proposals
concerning any merger involving the Company or the Partnership, sale of all or
substantially all of the assets of the Company or the Partnership, acquisition
of the Shares or an equity interest in the Company or the Partnership or any
similar transaction involving the Company or the Partnership.
SECTION 6.07. EMPLOYEES. Nothing contained in this Agreement shall confer
upon any employee of the Partnership any right with respect to continued
employment by the Partnership or Purchaser. No provision of this Agreement
shall create any third-party rights in any such employee, or any beneficiary or
dependent thereof, with respect to the compensation, terms and conditions of
employment and benefits that may be provided to such employee by Purchaser or
under any benefit plan that Purchaser may maintain.
SECTION 6.08. SUPPLEMENTAL DISCLOSURE. The Company and the Sellers shall
promptly from time to time prior to the Closing Date supplement in writing the
Schedules hereto with respect to any matter hereafter arising that, if existing
or known as of the date of this Agreement, would have been required to be set
forth or described in the Schedules hereto; provided, however, that no such
supplemental disclosure shall be deemed to cure any breach of any representation
or warranty of the Company or the Sellers made in this Agreement unless
Purchaser fails to object in writing to the Company and the Sellers to any such
supplemental disclosure within ten (10) business days after Purchaser's receipt
thereof.
SECTION 6.09. SECTION 338(h)(10) ELECTIONS. (a) Sellers shall jointly
make timely and irrevocable elections under Section 338(h)(10) of the Code
thereby electing to treat the sale of the Shares as a sale by the Company of its
assets for Federal income tax purposes. Sellers, Company and Purchaser shall
report the transaction consistent with such elections (the "Elections") under
Section 338(h)(10) of the Code for federal income tax purposes and shall take no
position contrary thereto unless and to the extent required to do so pursuant to
a determination (as defined in Section 1313(a) of the Code).
(b) Purchaser shall be responsible for preparing drafts of all forms,
attachments and schedules necessary to effectuate the Elections (including,
without limitation, IRS Form 8023-A ("Form 8023-A") attached hereto as EXHIBIT
C). At least 5 days prior to the anticipated Closing
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Date, Purchaser shall furnish Sellers' Representative with a copy of each
such draft Form 8023-A prepared by the Purchaser together with a copy of a
report (the "Allocation Report") of the proposed allocation pursuant to
Section 6.10(c) below.
(c) Purchaser agrees to prepare the Allocation Report so that the Sellers
are deemed to have sold their assets pursuant to Section 338(h)(10) of the Code
(i) to all Class I and II assets (within the meaning of Section 1.338(b)-2T of
the Treasury Regulations) in an amount equal to the face amount of such assets
or closing quoted market price thereof, as the case may be, as of the Closing
Date, and (ii) to all Class III assets (within the meaning of Section
1.338(b)-2T of the Treasury Regulations) in an amount equal to the fair
market value thereof as determined by the Purchaser. Any remaining amount
will be allocated to goodwill and going concern value; provided that Sellers
shall not be obligated to make such election, if the making of such election
would result in Sellers incurring a tax liability that would, in the
aggregate, exceed the sum of the tax liabilities to Sellers resulting from
the Company having sold its assets to Purchaser (on the same terms as
reflected in this Agreement) for federal income tax purposes and the Sellers
having sold Shares to Purchaser for California tax purposes. Any dispute
between Purchaser, on the one hand, and Sellers on the other shall be
determined by a written opinion of the Independent Accountant whose opinion
shall be binding on the parties.
(d) Sellers agree that none of them shall, or shall permit any of their
affiliates to, take any action to modify the Forms 8023-A following the
execution thereof, or to modify or revoke the Elections following the filing of
the Forms 8023-A, without the written consent of the Purchaser.
(e) Sellers shall, and shall cause their respective affiliates to, file
all tax returns in a manner consistent with the information contained in the
Forms 8023-A filed and the allocation provided pursuant to this Section 6.09.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser under this Agreement with respect to the
purchase and sale of the Shares shall be subject to the fulfillment on or prior
to the Closing of each of the following conditions, any of which may be waived
in writing by Purchaser:
SECTION 7.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
THIS AGREEMENT. All of the representations and warranties made by the Company
and the Sellers in this Agreement shall be true and correct at and as of the
Closing except for such breaches and inaccuracies therein which, in the
aggregate, have not caused and would not reasonably be expected to cause
Purchaser to suffer a Loss (as defined in Section 10.01) in excess of $300,000
in the aggregate (a "Material Loss") or otherwise result in a Material Adverse
Effect. The Company and the Sellers shall have complied in all material
respects with and performed all of the agreements and covenants required by this
Agreement to be performed or complied with by
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them on or prior to the Closing. Purchaser shall have been furnished with a
certificate or certificates of the Company's President, dated as of the
Closing, certifying to the fulfillment of the foregoing conditions. As used
in this Agreement, the term "Material Adverse Effect" means a material
adverse effect on the assets, properties, business operations or prospects of
the Business taken as a whole.
SECTION 7.02. DIRECTORS RESOLUTIONS. The Company shall deliver to
Purchaser copies of the resolutions of the board of directors of the Company
authorizing the execution, delivery and performance of this Agreement and all
instruments and documents to be delivered in connection herewith and the
transactions contemplated hereby, duly certified by an officer of the Company.
SECTION 7.03. INCUMBENCY CERTIFICATE. Purchaser shall have received a
certificate or certificates of an officer of the Company, certifying as to the
genuineness of the signatures of officers of the Company authorized to take
certain actions or execute any certificate, document, instrument or agreement to
be delivered pursuant to this Agreement, which incumbency certificate shall
include the true signatures of such officers.
SECTION 7.04. THIRD PARTY CONSENTS; FCC; HART-SCOTT ACT. Sellers shall
have delivered to Purchaser such instruments, consents and approvals of third
parties (the form and substance of which shall be reasonably satisfactory to
Purchaser) as are necessary for the consummation of the transactions
contemplated by this Agreement and to assign to Purchaser without modification
thereof, as of the Closing, the Existing Contracts that require consent as a
result of Purchaser's purchase of the Shares and Purchaser shall have obtained
all Authorizations necessary for the consummation of the transactions
contemplated by this Agreement. Prior to Closing Date, the FCC shall have
issued a Final Order granting the FCC's consent to the transfer of control of
the FCC Authorizations to Purchaser without any material conditions, excepting
conditions applied on an industry-wide basis, which the Purchaser reasonably
deems to be adverse. In addition, all applicable waiting periods under the
Hart-Scott Act (if applicable to the transactions contemplated by this
Agreement) shall have expired or been terminated and no objection shall have
been made by the Federal Trade Commission ("FTC") or the United States
Department of Justice ("DOJ"). For the purposes of this Agreement, the term
"Final Order" shall mean action by the FCC as to which (i) no request for stay
by the FCC, as applicable, of the action is pending, no such stay is in effect,
and, if any deadline for filing any such request is designated by statute or
regulation, such deadline has passed; (ii) no petition for rehearing or
reconsideration of the action is pending before the FCC and the time for filing
any such petition has passed; (iii) the FCC does not have the action under
reconsideration on its own motion and the time for such reconsideration has
passed; and (iv) no appeal to a court, or request for stay by a court, of the
FCC's action, as applicable, is pending or in effect, and, if any deadline for
filing any such appeal or request is designated by statute or rule, it has
passed.
SECTION 7.05. DUE DILIGENCE. Purchaser and its agents and representative
shall have conducted a satisfactory legal, regulatory, tax, engineering,
accounting and business due diligence review of the Company, the Partnership,
the Business and the Cellular Systems
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including, without limitation, the Cellular System's properties, cellsites,
subscriber base and revenue potential, the results of which shall be
satisfactory to the Purchaser. Without limiting the generality of the
foregoing, Purchaser shall be satisfied that the Partnership possesses all
assets, licenses and property necessary to the operation of the Cellular
Systems as contemplated to be conducted by Purchaser, PROVIDED, HOWEVER, that
if Purchaser has not advised the Company and the Sellers in writing prior to
the close of business on January 2, 1998 that the results of such due
diligence review are not satisfactory, the conditions set forth in this
Section 7.05 shall no longer apply and shall have been satisfied.
SECTION 7.06. NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in the financial condition, assets, business or
prospects of the Company, the Partnership or the Cellular System, from May 31,
1997 to the Closing; provided, however, that changes in the Partnership's
business prospects caused by or principally related to changes in governing law,
relevant regulations or the introduction of personal communication service
providers shall not be considered a material adverse change.
SECTION 7.07. NORMAL COURSE OF BUSINESS. Each of the Partnership and the
Company shall have operated its business in the normal course prior to Closing,
including without limitation the continuation by the Partnership of budgeted
capital improvements, and shall have continued to market the Cellular System's
services in the normal course of business and in accordance with past practices.
SECTION 7.08. SECTION 338(h)(10) ELECTIONS. Sellers shall each deliver an
executed Form 8023-A at the Closing authorizing the Section 338(h)(10) election
for federal income tax purposes.
SECTION 7.09. OPINION OF COUNSEL TO SELLER. Purchaser shall have been
furnished with an opinion of Allen & Harold, P.L.C., counsel to Seller, dated as
of the Closing and addressed to Purchaser, and to any institution designated by
Purchaser which has provided financing in connection with the transactions
contemplated by this Agreement in substantially the form of EXHIBIT D hereto;
provided, however, opinions as to Sellers may be rendered by other counsel with
specific knowledge of or representational responsibilities as to matters to
which such opinions apply, and local counsel opinions of the Company's counsel
may be relied upon by Allen & Harold P.L.C.
SECTION 7.10. OPINION OF FCC COUNSEL TO THE PARTNERSHIP. Purchaser shall
have been furnished with opinions of Allen & Harold, P.L.C., FCC counsel for the
Company and the Partnership, dated as of the Closing and addressed to Purchaser,
and to any financial institution designated by Purchaser which has provided the
financing in connection with the transactions contemplated by this Agreement, in
substantially the form of EXHIBIT E attached hereto.
SECTION 7.11. SUBSCRIBERS. The aggregate number of "Subscribers" (as
defined in Section 2.04(a)) on the Partnership's Cellular System as of Closing
shall be at least 14,400.
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SECTION 7.12. TITLE INSURANCE; ESTOPPEL. The Company and Sellers shall
have obtained a consent from each lessor of the real property identified on
Schedule 4.07(b) consenting to the change in ownership of the Company or
Partnership (as applicable) if necessary in connection with the sale of the
Shares to Purchaser.
SECTION 7.13. RESIGNATIONS OF OFFICERS AND DIRECTORS. The Company and the
Sellers shall have provided to Purchaser, in a form satisfactory to Purchaser,
the resignations of each officer of the Company and each member of the Company's
Board of Directors other than those persons designated in writing by Purchaser
to the Company as persons who shall continue in office.
SECTION 7.14. PAYMENT OF INDEBTEDNESS. The Company and the Sellers shall
have provided to Purchaser, in a form satisfactory to Purchaser, a payoff letter
from every lender to the Partnership stating the outstanding principal balance
of all existing indebtedness, all interest accrued on such indebtedness and all
prepayment premiums and other amounts due in order to pay all such indebtedness
as of the Closing Date.
ARTICLE VIII
CONDITIONS PRECEDENT TO
THE COMPANY AND EACH SELLER'S OBLIGATION TO CLOSE.
The obligations of the Company and the Sellers under this Agreement with
respect to the sale of the Shares shall be subject to the fulfillment on or
prior to the Closing of each of the following conditions, any of which may be
waived in writing by the Company and the Sellers holding a majority of the
Shares:
SECTION 8.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
THIS AGREEMENT. All of the representations and warranties by Purchaser
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing. Purchaser shall have complied with and performed in
all material respects all of the agreements and covenants required by this
Agreement to be performed and complied with by it on or prior to the Closing.
The Company and the Sellers shall have been furnished with a certificate of an
officer of Purchaser, dated as of the Closing, certifying to the fulfillment of
the foregoing conditions.
SECTION 8.02. DIRECTORS' RESOLUTIONS. Purchaser shall deliver to the
Company and the Sellers copies of the resolutions of its Board of Directors
authorizing the execution, delivery and performance of this Agreement and all
instruments and documents to be delivered in connection herewith and the
transactions contemplated hereby, duly certified by an authorized officer of
Purchaser.
SECTION 8.03. INCUMBENCY CERTIFICATE. The Company and the Sellers shall
have received a certificate of a secretary of Purchaser, certifying as to the
genuineness of the signatures of representatives of Purchaser authorized to take
certain actions or execute any certificate,
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document, instrument or agreement to be delivered pursuant to this Agreement,
which incumbency certificate shall include the true signatures of such
representatives.
SECTION 8.04. FCC; HART-SCOTT ACT. The FCC shall have issued an order
granting the FCC's consent to the transfer of control of the FCC Authorizations
to Purchaser. In addition, all applicable waiting periods under the Hart-Scott
Act (if applicable to the transactions contemplated by this Agreement) shall
have expired or been terminated and no objection shall have been made by the FTC
or DOJ.
SECTION 8.05. OPINION OF COUNSEL TO PURCHASER. The Company and the
Sellers shall have been furnished with an opinion of Edwards & Angell, counsel
to Purchaser, dated as of the Closing and addressed to the Company and the
Sellers in substantially the form of EXHIBIT F hereto.
ARTICLE IX
CASUALTY LOSSES
In the event that there shall have been suffered between the date hereof
and the Closing any casualty loss relating to the assets or properties of the
Company or the assets, properties or the Business of the Partnership, the
Company and the Sellers will promptly notify Purchaser of such event. The
Sellers shall, at their option, cause the Company or the Partnership as
applicable to (i) repair, rebuild or replace the portion of the assets,
properties or Business damaged, destroyed or lost prior to the Closing Date, or
(ii) assign to Purchaser at Closing all claims to insurance proceeds or other
rights of the Company and the Partnership against third parties arising from
such casualty loss (the "Claims"); PROVIDED, HOWEVER that if such insurance
proceeds are or will not be sufficient in Purchaser's reasonable judgment to
cover the entire casualty loss, then the Sellers shall pay the difference at
Closing. To the extent any Claim is not assignable, such claim may be pursued
by Purchaser, for its own account and benefit, in the name of the Company and
the Sellers.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. INDEMNIFICATION BY SELLERS. Notwithstanding the Closing,
and regardless of any investigation made at any time by or on behalf of
Purchaser or any information Purchaser may have, but subject to the terms of
this Article X, each Seller severally (and not jointly and severally) agrees to
indemnify and to hold Purchaser, its shareholders, officers, directors, and
employees (the "Indemnified Purchaser Parties") harmless from and against and in
respect of any losses (including lost revenues), damages, costs, expenses
(including costs of investigations and reasonable attorney fees), claims, suits,
demands, judgments and diminutions in value suffered or incurred (each a "Loss"
and collectively "Losses") by Purchaser arising from or related to:
(i) Any Company Unrelated Liability, whether or not known
or asserted at
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or prior to Closing to the extent that such liability did not result
in a reduction in the Purchase Price at Closing pursuant to
Section 2.04 hereof;
(ii) Any Company Tax Liability, whether or not known or
asserted at or prior to the Closing, to the extent that such
liability did not result in a reduction in the Purchase Price at
the Closing pursuant to Section 2.04 hereof;
(iii) Any misrepresentation or breach of warranty in, or
omission from, any representation or warranty of the Company or
any Seller in this Agreement, the Schedules or Exhibits hereto,
or the Deposit Escrow Agreement, or in any closing certificate
delivered by the Company or any Seller to Purchaser pursuant to
Article VII hereof;
(iv) Any breach or non-fulfillment of any covenant or
agreement on the part of the Company or any Seller under this
Agreement to be performed on or following the Closing Date; and
(v) All costs and expenses (including reasonable attorneys'
fees) incurred by Purchaser in connection with any action, suit,
proceeding, demand, assessment or judgment incident to any of the
matters Purchaser is indemnified against by the Company and the
Sellers in this Agreement.
SECTION 10.02. INDEMNIFICATION BY PURCHASER. Notwithstanding the Closing,
and regardless of any investigation made at any time by or on behalf of the
Company or any Seller or any information the Company or any Seller may have, but
subject to the terms of this Article X, Purchaser agrees to indemnify and to
hold each of the Company and the Sellers, and their directors, officers,
stockholders, employees, representatives and agents harmless from and against
and in respect of any Losses incurred by the Company and the Sellers from:
(i) Any misrepresentation or breach of warranty in, or
omission from, any representation or warranty of Purchaser, in
this Agreement, the schedules or exhibits hereto, including the
Deposit Escrow Agreement or in any closing certificate delivered
by Purchaser to the Company and the Sellers pursuant to Article
VIII hereof;
(ii) Any breach or non-fulfillment of any covenant or
agreement on the part of Purchaser under this Agreement to be
performed on or following the Closing Date;
(iii) If any Seller's Election under Section 338(h)(10) of
the Code for Federal income tax purposes results in such Seller
recognizing taxable income in California, for all California
income taxes (including all related
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interest and penalties) arising from such Seller's sale of Shares
in excess of the amount of California income taxes (if any) which
such Seller would have owed if the sale of the Shares were treated
as a sale of assets for Federal income tax purposes and as a sale
of stock for California income tax purposes.
(iv) All reasonable costs and expenses (including
reasonable attorneys' fees) incurred by the Company and the
Sellers in connection with any action, suit, proceeding, demand,
assessment or judgment incident to any of the matters for which
the Company and the Sellers are indemnified against by Purchaser
in this Agreement.
SECTION 10.03. NOTICE OF CLAIMS; DEFENSE OF THIRD PARTY. A party claiming
indemnification under this Article X (the "Asserting Party") must notify (in
writing and in reasonable detail) the party from which indemnification is sought
(the "Defending Party") of the nature and basis of such claim for
indemnification. If such claim relates to a claim, suit, litigation or other
action by a third party against the Asserting Party or any fixed or contingent
liability to a third party (a "Third Party Claim"), the Defending Party may
elect to assume and control the defense of the Third Party Claim at its own
expense with counsel selected by the Defending Party from and after such time as
the Defending Party unconditionally agrees in writing to accept, as against the
Asserting Party, all liabilities on account of such Third Party Claim.
Assumption of such liability, as against the Asserting Party, shall not be
deemed an admission of liability as against any such third party.
Notwithstanding the foregoing, the Defending Party may not assume or control the
defense if the named parties to the Third Party Claim (including any impleaded
parties) include both the Defending Party and the Asserting Party and
representation of both parties by the same counsel (in such counsel's reasonable
determination) would be inappropriate due to actual or potential differing
interests between them, in which case the Asserting Party shall have the right
to defend the Third Party Claim and to employ counsel reasonably approved by the
Defending Party, and to the extent the matter is determined to be subject to
indemnification hereunder, the Defending Party shall reimburse the Asserting
Party for the reasonable costs of its counsel. If the Defending Party assumes
liability for the Third Party Claim as against the Asserting Party and assumes
the defense and control of the Third Party Claim pursuant to this Section 10.03,
the Defending Party shall not be liable for any fees and expenses of counsel for
the Asserting Party incurred thereafter in connection with the Third Party Claim
(except in the case of actual or potential differing interests, as provided in
the preceding sentence), but shall not agree to any settlement of such Third
Party Claim which does not include an unconditional release of the Asserting
Party by the third party claimant on account thereof, PROVIDED that such
requirement shall be deemed waived to the extent that the Asserting Party does
not undertake to provide and promptly execute and, concurrently with the
delivery of any such release, deliver a corresponding release of the third party
claimant with respect to such Third Party Claim. If the Defending Party does
not assume liability for and the defense of the Third Party Claim pursuant to
this Section 10.03, the Asserting Party shall have the right (i) to control the
defense thereof and (ii), if the Asserting Party shall have notified the
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Defending Party of the Asserting Party's intention to negotiate a settlement of
the Third Party Claim (at the Defending Party's expense to the extent the matter
is determined to be subject to indemnification hereunder), which notice shall
include the material terms of any proposed settlement in reasonable detail, to
settle the Third Party Claim (at the Defending Party's expense to the extent the
matter is determined to be subject to indemnification hereunder) on terms not
materially inconsistent with those set forth in such notice, unless the
Defending Party shall have notified the Asserting Party in writing of the
Defending Party's election to assume liability for and the defense of the Third
Party Claim pursuant to this Section 10.03 within ten days after receipt of such
notice, and the Defending Party promptly thereafter shall have taken appropriate
action to implement such defense. The Asserting Party shall not be entitled to
settle any such Third Party Claim pursuant to the preceding sentence unless such
settlement includes an unconditional release of the Defending Party by the Third
party claimant on account thereof, PROVIDED that such requirement shall be
deemed waived to the extent that the Defending Party does not undertake to
provide and promptly execute and, concurrently with delivery of any such
release, deliver a corresponding release of the third party claimant with
respect to such Third Party Claim. The Asserting Party and the Defending Party
shall use all reasonable efforts to cooperate fully with respect to the defense
and settlement of any Third Party Claim covered by this Article X.
SECTION 10.04. LIMITATIONS. The Defending Party's obligations to
indemnify the Asserting Party pursuant to this Article X shall be subject to the
following limitations:
(a) No indemnification shall be required to be made by the Defending Party
until the aggregate amount of the Asserting Party's Losses exceeds $50,000
(the "Deductible") and then indemnification shall only be required to be made by
the Defending Party to the extent of such Losses that exceed the Deductible;
provided, however, the Deductible shall not be applicable to (i) Sellers'
obligation to indemnify Purchaser for Company Unrelated Liabilities and Company
Tax Liabilities to the extent that such Company Tax Liabilities did not result
in a Purchase Price adjustment at Closing, (ii) adjustments to the Purchase
Price provided for in Section 2.04, (iii) a breach by any Seller or the Company
of its representations set forth in Section 4.02, Section 4.04, Section 4.05 and
Section 4.16, (iv) losses resulting from fraud; or (v) Purchaser's obligation to
indemnify Sellers pursuant to Section 10.02(iii) hereof.
(b) All representations and warranties contained in this Agreement shall
survive the Closing until the third anniversary thereof; provided, however, that
notwithstanding the foregoing, (x) the representations and warranties contained
in Section 4.02, Section 4.04, Section 4.05 and Section 4.16 shall survive the
Closing for an unlimited duration and (y) the representations and warranties
contained in Sections 4.13 and 4.10 (as it may relate to Environmental Laws)
shall survive the Closing until the sixth anniversary thereof (the applicable
period of survival being referred to as the "Survival Period"). To the extent a
claim is made in respect of a representation or warranty within the applicable
Survival Period, such representation or warranty shall survive after the
Survival Period for purposes of such claim until such claim is finally
determined or settled.
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(c) Each Seller shall indemnify the Indemnified Purchaser Parties for such
Seller's pro rata share (based upon the number of Shares sold by such Seller to
Purchaser under this Agreement relative to the total number of Shares sold by
all Sellers to Purchaser under this Agreement) of the Losses for which the
Indemnified Purchaser Parties are entitiled to indemnity pursuant to Section
10.01 hereof. In the absence of fraud, the maximum liability of a Seller
relating to its oblgiation to indemnify the Indemnified Purchaser Parties for
Losses pursuant to this Agreement shall be limited to the portion of Purchase
Price payable to such Seller under Article II of this Agreement.
ARTICLE XI
CONFIDENTIALITY AND PRESS RELEASES
SECTION 11.01. CONFIDENTIALITY. Each party (in such capacity, a
"Recipient Party") shall hold in strict confidence all documents and information
concerning the other (in such capacity, a "Disclosing Party") and its business
and properties and, if the transaction contemplated hereby should not be
consummated, such confidence shall be maintained, and all such documents and
information (in written form) shall immediately thereafter be returned to the
Disclosing Party. In furtherance of the foregoing, without the express prior
written consent of the Disclosing Party, the Recipient Party shall not, directly
or indirectly, disclose, disseminate, publish, reproduce, retain, use (for its
benefit or for the benefit of others) or otherwise make available in any manner
whatsoever, any such documents or information to anyone except as provided in
Section 11.03. If the Recipient Party breaches, or threatens to commit a breach
of, any of the provisions of this Article XI, the Disclosing Party shall have
the right (in addition to any other rights and remedies available at law or in
equity) to equitable relief (including injunctions) against such breach or
threatened breach, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable harm to the Disclosing Party and that
money damages would not be an adequate remedy.
SECTION 11.02. PRESS RELEASES. No press release or public disclosure,
either written or oral, of the existence or terms of this Agreement shall be
made by either Purchaser or any Seller without the consent of each party subject
to the provisions of Section 11.03, and Purchaser, the Company and Sellers shall
each furnish to the other advance copies of any release which it proposes to
make public concerning this Agreement or the transactions contemplated hereby
and the date upon which Purchaser, the Company or any Seller, as the case may
be, proposes to make such press release.
SECTION 11.03. DISCLOSURES REQUIRED BY LAW. This Article XI shall not,
however, be construed to prohibit any party from making any disclosures to any
governmental authority that it is required to make by law or from filing this
Agreement with, or disclosing the terms of this Agreement to, any institutional
lender to such party, or prohibit the Company, any Seller, Purchaser or any of
their affiliates from disclosing to its investors, partners, accountants,
auditors, attorneys, parent company and broker/dealers such terms of this
transaction as are
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customarily disclosed to them in connection with the sale or acquisition of a
cellular telephone system; PROVIDED, HOWEVER, that any such party shall be
informed of the confidential nature of such information and shall agree to
keep such information confidential; and PROVIDED, HOWEVER, that each party
shall provide to the other reasonable advance copies of any public release
except where the provision of such advance notice is not permissible.
ARTICLE XII
TERMINATION
SECTION 12.01. BREACHES AND DEFAULTS; OPPORTUNITY TO CURE. Prior to the
exercise by a party of any termination rights afforded under this Agreement, if
either party (the "Non-Breaching Party") believes the other (the "Breaching
Party") to be in breach hereunder, the Non-Breaching Party shall provide the
Breaching Party with written notice specifying in reasonable detail the nature
of such breach, whereupon the Breaching Party shall have 15 days from the
receipt of such notice to cure such breach to the reasonable satisfaction of the
Non-Breaching Party; PROVIDED, HOWEVER, that if such breach is curable but is
not capable of being cured within such period and if the Breaching Party shall
have commenced action to cure such breach within such period and is diligently
attempting to cure such breach, then the Breaching Party shall be afforded an
additional twenty (20) days to cure such breach, PROVIDED, HOWEVER, that the
cure period for a breach shall in no event extend beyond the Outside Date. If
the breach is not cured within such time period, then the Breaching Party shall
be in default hereunder and the Non-Breaching Party shall be entitled to
terminate this Agreement (as provided in Section 12.02). This right of
termination shall be in addition to, and not in lieu of, any legal or equitable
remedies available to the Non-Breaching Party.
SECTION 12.02. TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned, by written notice given to
the other party hereto, at any time prior to the Closing:
(a) by written consent of each of the Company, Sellers holding a majority
of the Shares and Purchaser;
(b) by either Purchaser or Sellers, if any court of competent jurisdiction
in the United States or other United States governmental body shall have issued
an order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise permanently prohibiting the sale of the Shares to
Purchaser (which Sellers and Purchaser shall have used all reasonable efforts to
have lifted or reversed) and such order, decree, ruling or other action shall
have become final and nonappealable;
(c) subject to Section 12.01, by Purchaser, if either the Company or the
Sellers shall have breached any of their representations herein and such
breaches, in the aggregate, would reasonably be expected to have a Material
Adverse Effect or if the Company or the Sellers shall have materially breached
any of their covenants;
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(d) subject to Section 12.01, by the Sellers, if Purchaser shall have
materially breached any of its representations or covenants herein; or
(e) by either Sellers or Purchaser if the Closing shall not have occurred
on or before June 30, 1998 (the "Outside Date"), unless the failure to have the
Closing shall be due to the failure of the party seeking to terminate this
Agreement to perform in any material respect its obligations under this
Agreement required to be performed by it at or prior to the Closing.
ARTICLE XIII
BROKERS' FEES
Each party represents and warrants to the other that it shall be solely
responsible for the payment of any fee or commission due to any broker or finder
it has engaged with respect to this transaction and the other party hereto shall
be indemnified for any liability with respect thereto pursuant to Article X
hereof. Without limiting the foregoing, Sellers shall be solely responsible for
the brokerage fees and expenses of Daniels & Associates, Inc., which amount
shall be paid at Closing by Sellers from the Purchase Price.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. ADDITIONAL INSTRUMENTS OF TRANSFER. (a) From time to time
after the Closing, each party shall, if requested by another party, make,
execute and deliver such additional stock assignments, other assignments, bills
of sale, deeds and other instruments, as may be reasonably necessary or proper
to carry out the specific provisions of this Agreement, including transfer to
Purchaser all of Sellers' right, title and interest in and to the Shares. Such
efforts and assistance shall be at the cost of the requesting party.
SECTION 14.02. NOTICES. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered, sent by telecopier, recognized overnight delivery
service or registered or certified mail, return receipt requested, postage
prepaid, to the following addresses:
(i) If to Purchaser:
13439 N. Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
Attention: Everett Dobson
Facsimile No.: (405) 391-8515
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with a required copy to:
Edwards & Angell
2800 Hospital Trust Tower
Providence, Rhode Island 02903
Attention: Joseph A. Kuzneski, Jr., Esq.
Facsimile No.: (401) 276-6602
(ii) If to Sellers to the addresses set forth on Schedule 1 with
copies to:
Richard A. Weymer
395 Marina Drive
Port Arkansas, TX 78373
Facsimile No.: (512) 749-7380
and
Robert Geller, Esquire
Hertz, Schram & Saretsky, P.C.
1760 S. Telegraph Rd., Suite 300
Bloomfield Hills, MI 48302-0183
Facsimile No: (248) 335-3346
with a required copy to:
Allen & Harold, P.L.C.
5413 Main Street
Stephens City, VA 22655
Attention: Douglas W. Harold, Jr., Esq.
Facsimile No.: (540) 869-0041
Notices delivered personally shall be effective upon delivery against
receipt. Notices transmitted by telecopy shall be effective when received,
provided that the burden of proving notice when notice is transmitted by
telecopy shall be the responsibility of the party providing such notice.
Notices delivered by overnight mail shall be effective when received. Notices
delivered by registered or certified mail shall be effective on the date set
forth on the receipt of registered or certified mail, or 72 hours after mailing,
whichever is earlier.
SECTION 14.03. EXPENSES. Each party shall bear its own expenses and
costs, including the fees of any corporate or FCC attorney retained by it,
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby; provided that Sellers and
Purchaser shall bear equally FCC, Hart-Scott Act and other governmental filing
fees.
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SECTION 14.04. SELLERS' REPRESENTATIVES. Each of the Sellers hereby
designates Richard A. Weymer, Douglas W. Harold, Jr. and Gene M. Valentino to be
the initial agents, attorneys in fact and representatives of all Sellers
(collectively, the "Sellers' Representatives" and individually, a "Sellers'
Representative"). Any Sellers' Representative may be removed, and a new
Sellers' Representative designated, at any time and from time to time, only by a
written notice to Purchaser and the then Sellers' Representatives from Sellers
whose Shares represent a majority of the outstanding capital stock of the
Company as of such date (or if after the Closing, as of the date immediately
prior to the Closing Date). In furtherance of the foregoing designation of
Sellers' Representatives, each of the Sellers, by his execution hereof, hereby
makes, constitutes and appoints the Sellers' Representatives (and any successor
Sellers' Representative designated in accordance with the terms hereof), to be
his true, sufficient and lawful attorney, for him and in his name, place and
stead, for the purpose of (a) receiving and holding the Subordinated Promissory
Note on behalf of Sellers, collecting and disbursing to Sellers any and all
interest, principal and other amounts due and payable to Sellers thereunder and
enforcing, waiving and compromising any and all rights of Sellers under the
Subordinated Promissory Note, this Agreement and all other agreements,
instruments and documents contemplated by or required to be delivered in
connection with the transactions contemplated by this Agreement, (b) amending,
modifying and interpreting the provisions of this Agreement, the Subordinated
Promissory Note, the Deposit Escrow Agreement and all other instruments and
documents contemplated to be delivered in connection with the transactions
contemplated by this Agreement; provided that no such amendment or modification
shall disproportionately affect any Seller, (c) making, agreeing to,
compromising and otherwise dealing with the Adjustments to the Purchase Price as
contemplated by Article II hereof and claims for indemnifications (whether
asserted by or against Purchaser) under Article X hereof, (d) executing and
delivering on behalf of Sellers all stock powers, endorsements, assignments,
stock certificates, receipts and all other instruments, documents and agreements
as shall be necessary or appropriate, in the good faith judgment of the Sellers'
Representatives, to consummate and carry out the transactions contemplated by
this Agreement, the Deposit Escrow Agreement and the Subordinated Promissory
Note and (e) acting as Sellers' Representatives under this Agreement, the
Subordinated Promissory Note and the Deposit Escrow Agreement, and to do and
perform all necessary acts contemplated of the Sellers' Representative under
this Agreement, the Subordinated Promissory Note and the Deposit Escrow
Agreement both prior to, at and subsequent to the Closing Date (including the
performance and prosecution of this Agreement both prior to, at and subsequent
to the Closing Date), in as full and ample a manner as such Seller might do if
such Seller were personally present. The Purchaser shall not be responsible or
liable in any manner for any actions taken or omitted to be taken by the
Sellers' Representatives, including but not limited to, any actions with respect
to any amounts paid to the Sellers' Representatives pursuant hereto and the
Subordinated Promissory Note, and the Purchaser shall be indemnified and held
harmless against any loss, expense or damage arising therefrom. Upon the
execution of this Agreement, each Seller shall deliver to Sellers'
Representatives, to hold in escrow until the Closing pending satisfaction or
waiver by the Sellers' Representatives of the conditions precedent to Sellers'
obligations set forth in Article VIII hereof, original certificates evidencing
the Shares owned by him together with such executed stock powers or other
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instruments of transfer and Form 8023-A as may be required pursuant to the terms
hereof. All action permitted to be taken by the Sellers' Representatives shall
require the approval of a majority of the Sellers' Representatives. The
Sellers' Representatives are authorized to receive at Closing, and the Sellers
hereby irrevocably direct Purchaser to pay to Sellers' Representatives at
Closing from the cash portion of the Purchase Price that would have otherwise
been paid to Sellers at Closing pursuant to the first sentence of Section 2.03,
the sum of $1.3 million (the "Sellers' Expense Reserve"). The Sellers'
Representatives are hereby authorized by Sellers to utilize the Sellers' Expense
Reserve for (w) the purposes of carrying out Sellers Representatives'
obligations and responsibilities under this Agreement, including, without
limitation, the expenses of accountants, attorneys and other professionals as
the Sellers' Representatives deem necessary or appropriate to hire, (x) paying
all out-of-pocket expenses of the Sellers' Representatives relating to the
performance of their duties, (y) paying reasonable compensation to the Sellers'
Representatives for their services and (z) paying the legal fees and expenses of
Allen & Harold P.L.C., the brokers fee to Daniels & Associates and the bonuses
and other amounts specified on Schedule 14.04.
The Sellers' Representatives agree to faithfully perform their duties and
responsibilities to the Sellers, but shall have no personal liability to the
Sellers except for fraud or bad faith proven by clear and convincing evidence.
The Sellers' Representatives shall be indemnified and held harmless by Sellers
for any claim, loss or expense arising from or related to the performance of
their duties and responsibilities hereunder and any and all costs of
investigation and defense of any claim incurred by the Sellers' Representatives
shall be advanced from the Sellers' Expense Reserve.
At such time as the Sellers' Representatives determine that all or any
portion of the Sellers' Expense Reserve is no longer necessary, the Sellers'
Representatives will disburse such amounts to the Sellers pro rata in proportion
to their respective share of the Purchase Price.
SECTION 14.05. SPECIFIC PERFORMANCE. The parties recognize and
acknowledge that in the event Sellers shall fail to perform their obligations
under the terms of this Agreement, money damages alone will not be adequate to
compensate the Purchaser. The parties, therefore, agree and acknowledge that in
the event the Sellers fail to perform their obligations under this Agreement
prior to Closing, the Purchaser shall be entitled, in addition to any action for
monetary damages, in addition to any other rights and remedies on account of
such failure, to specific performance of the terms of this Agreement and of the
covenants and obligations hereunder.
SECTION 14.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma (without
application of principles of conflicts of law).
SECTION 14.07. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written
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consent of the other parties, which consent will not be unreasonably withheld
except that Purchaser shall have the right to assign its rights under this
Agreement to any institutional lender.
SECTION 14.08. SUCCESSORS AND ASSIGNS. All agreements made and entered
into in connection with this transaction shall be binding upon and inure to the
benefit of the parties hereto, their respective successors, permitted assigns,
heirs and legal representatives.
SECTION 14.9. AMENDMENTS; WAIVERS. No alteration, modification or change
of this Agreement shall be valid except by an agreement in writing executed by
the parties hereto. No failure or delay by any party hereto in exercising any
right, power or privilege hereunder (and no course of dealing between or among
any of the parties) shall operate as a waiver of any such right, power or
privilege. No waiver of any default on any one occasion shall constitute a
waiver of any subsequent or other default. No single or partial exercise of any
such right, power or privilege shall preclude the further or full exercise
thereof.
SECTION 14.10. ENTIRE AGREEMENT. This Agreement merges all previous
negotiations and agreements between the parties hereto, either verbal or
written, and constitutes the entire agreement and understanding between the
parties with respect to the subject matter of this Agreement.
SECTION 14.11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which when so executed shall be an original, but all
of which together shall constitute one agreement. Facsimile signatures shall be
deemed original signatures.
SECTION 14.12. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law, but only
as long as the continued validity, legality and enforceability of such provision
or application does not materially (a) alter the terms of this Agreement, (b)
diminish the benefits of this Agreement or (c) increase the burdens of this
Agreement, for any person.
SECTION 14.13. SECTION HEADINGS. The section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
SECTION 14.14. INTERPRETATION. As both parties have participated in the
drafting of this Agreement, any ambiguity shall not be construed against either
party as the drafter.
SECTION 14.15. FURTHER ASSURANCES. For a period of twelve (12) months
after Closing, each Seller agrees to provide to Purchaser from time to time any
information that such Seller possesses with respect to the operation of the
Business and Shares prior to the Closing which the Purchaser reasonably requests
in the future in connection with the Purchaser's financing efforts
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<PAGE>
now or in the future or in connection with any FCC or other regulatory filing.
SECTION 14.16. THIRD PARTIES. Nothing herein, expressed or implied, is
intended to or shall confer on any person other than the parties hereto any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 14.17. WAIVER OF JURY TRIAL. THE PARTIES HERETO IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, COUNTERCLAIM, OR
CROSS CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized representative as of the day and year first
above written.
PURCHASER:
DOBSON CELLULAR OF
CALIFORNIA, INC.
By: /s/ EVERETT DOBSON
Everett Dobson
Chairman
THE COMPANY:
CELLULAR 2000 TELEPHONE CO.
By: /s/ GENE M. VALENTINO
Gene M. Valentino
Title: President
By: /s/ RICHARD A. WEYMER
Richard A. Weymer
Title: Chairman
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<PAGE>
SELLERS' REPRESENTATIVES
THE UNDERSIGNED AGREE TO SERVE AS
SELLERS' REPRESENTATIVES IN ACCORDANCE
WITH SECTION 14.04.
/s/ RICHARD A. WEYMER
Richard A. Weymer
/s/ GENE M. VALENTINO
Gene M. Valentino
/s/ DOUGLAS W. HAROLD, JR.
Douglas W. Harold, Jr.
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
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<PAGE>
SELLERS:
/s/ CAROLYN BELL
Carolyn Bell
/s/ NARAYANA BELLAMKONDA
Dr. Narayana Bellamkonda, individually
and as Trustee
/s/ NANCY CHARLTON
Nancy Charlton
/s/ MICHAEL CLOUGH
Michael Clough
/s/ JAMES DOUGLAS
James Douglas
/s/ CLARA MAE FORD
Clara Mae Ford
/s/ KEVIN W. KEARNEY
Kevin W. Kearney
/s/ COLLEEN K. KEARNEY
Colleen Kathryn Kearney
William E. and Judith J. Kearney
Revocable Trust
By: /s/ W.E. KEARNEY
William E. Kearney
By: /s/ JUDITH J. KEARNEY
Judith J. Kearney
/s/ MARY ANN KELLY
Mary Ann Kelly
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
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<PAGE>
Debra Lilley FBO Elizabeth Joy
Lilley under the Florida UTMA
By: /s/ DEBRA LILLEY
Debra Lilley
Debra Lilley FBO Amanda Rose Lilley
under Florida UTMA
By: /s/ DEBRA LILLEY
Debra Lilley
/s/ DEBRA LILLEY
Debra Lilley
/s/ MARK L. LINK
Mark L. Link
/s/ JOHN MANTER
John Manter
/s/ DONALD MATY
Don Maty
/s/ KENNETH MCGOVERN
Kenneth McGovern
/s/ THOMAS MORSE, JR.
Thomas Morse, Jr.
/s/ JUNE MORSE
June Morse
Diane and James Murtaugh as Trustees of
the James J. Murtaugh Revocable Trust
dated 1/26/96
By: /s/ DIANE MURTAUGH
Diane Murtaugh, Trustee
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
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<PAGE>
By: /s/ JAMES MURTAUGH
James Murtaugh, Trustee
James and Diane Murtaugh as Trustees of
the Diane C. Murtaugh Revocable Trust
dated 1/26/96
By: /s/ DIANE MURTAUGH
Diane Murtaugh, Trustee
By: /s/ JAMES MURTAUGH
James Murtaugh, Trustee
/s/ JOHN PARKIN
John Parkin
/s/ JOHN ERIC PARKIN
John Eric Parkin
/s/ JOHN SCOTT PARKIN
John Scott Parkin
John Scott Parkin FBO Kira Marie
Parkin under the Florida UTMA
By: /s/ JOHN SCOTT PARKIN
John Scott Parkin
/s/ RICHARD SAMMER
Richard Sammer
/s/ MARY PATRICIA SAMMER
Mary Patricia Sammer
Richard W. Sammer, Trustee, or any
Successor Trustee of the Richard W.
Sammer Living Trust Agreement dated
July 29, 1996 as it may be hereafter
amended
By: /s/ RICHARD W. SAMMER
Richard W. Sammer, Trustee
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
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<PAGE>
Mary P. Sammer, Trustee, or any Successor
Trustee of the Richard W. Sammer Living
Trust Agreement dated July 29, 1996 as it
may be hereafter amended
By: /s/ MARY P. SAMMER
Mary P. Sammer, Trustee
/s/ ROBERT SCARPITTO
Robert Scarpitto
/s/ NANCY J. SCARPITTO
Nancy J. Scarpitto
/s/ GENE M. VALENTINO
Gene M. Valentino
/s/ RICHARD A. WEYMER
Richard A. Weymer
/s/ VICTORIA YOQUELET
Victoria Yoquelet
/s/ PAUL YOQUELET
Paul Yoquelet
/s/ CHARLES R. ZEMAN
Charles Zeman
Burton Zipser, Trustee of the Burton A.
Zipser Revocable Living Trust U.A.D.
September 13, 1995
By: /s/ BURTON ZIPSER
Burton Zipser, Trustee
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
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EXHIBIT A
DEPOSIT ESCROW AGREEMENT
THIS DEPOSIT ESCROW AGREEMENT is made and entered into as of November
, 1997, by and among Dobson Cellular Of California, Inc., an Oklahoma
corporation ("Purchaser"); the Sellers' Representatives for the shareholders
of Cellular 2000 Telephone Co. (the "Sellers") listed on SCHEDULE 1 to that
certain Stock Purchase Agreement of even date herewith by and among
Purchaser, Sellers and Cellular 2000 Telephone Co. (the "Company") (the
"Stock Purchase Agreement"); and CORESTATES BANK, N.A., as escrow agent (the
"Escrow Agent").
RECITALS
WHEREAS, the Purchaser, Sellers and the Company have entered into the
Stock Purchase Agreement of even date herewith pursuant to which the
Purchaser has agreed to purchase the Shares of the Company;
WHEREAS, capitalized terms used herein and not otherwise defined have
the meaning given such terms in the Stock Purchase Agreement; and
WHEREAS, the Stock Purchase Agreement requires Purchaser to deposit the
sum of $2.5 million into escrow in accordance with the terms hereof, this
Agreement being the "Deposit Escrow Agreement" referred to in Section 2.02 of
the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Stock Purchase Agreement, and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, it
is agreed as follows:
SECTION 1. ESCROW DEPOSIT. (a) The Escrow Agent acknowledges receipt
of $2.5 million (the "Deposit") from the Purchaser.
(b) The Escrow Agent agrees to hold, administer and disburse the
Deposit, together with all interest and other amounts earned thereon and on
all such interest and other earnings (collectively, all such interest and
earnings are referred to as "Escrow Earnings"; and the Deposit and the Escrow
Earnings are collectively referred to as the "Escrowed Funds") pursuant to
the terms of this Agreement.
SECTION 2. RIGHTS, DUTIES AND IMMUNITIES. (a) Acceptance by the
Escrow Agent of its duties under this Agreement is subject to the following
terms and conditions, which all parties to this Agreement hereby agree shall
govern and control the rights, duties and immunities of the Escrow Agent:
(i) The Escrow Agent undertakes to perform such duties and
only such duties as are expressly set forth herein; the Escrow
Agent shall not be liable except for the performance of such
duties and obligations as are expressly set forth herein; and the
Escrow Agent shall not be deemed to have any knowledge of or
responsibility for the terms of any other agreement between or
among the Sellers, the Sellers' Representatives, the Company and
the Purchaser or any other party, including, without limitation,
the Stock Purchase Agreement.
(ii) The Escrow Agent shall not be responsible in any
manner whatsoever for any failure or inability of any Seller, the
Sellers' Representatives, the Company, the Purchaser or any third
party, to deliver moneys to the Escrow Agent or otherwise to
honor any of the provisions of this Agreement, the Stock Purchase
Agreement or any other agreement.
(iii) The Sellers' Representatives (in their representative
capacity and not individually) and the Purchaser shall, within
ten (10) days following demand, reimburse and indemnify the
Escrow Agent for, and hold it harmless from and against, any
loss,
<PAGE>
liability or expense, including but not limited to reasonable counsel
fees, arising out of or in connection with its acceptance of, or the
performance of its duties and obligations under this Agreement, except
for losses, liabilities and expenses caused by the willful misconduct
or gross negligence of the Escrow Agent. The Sellers' Representatives
(in their representative capacity and not individually) and the
Purchaser shall each be responsible for one-half of such expenses.
Without limiting the foregoing exculpation of the Escrow Agent, the
Escrow Agent shall in no event be liable in connection with its
investment or reinvestment of any cash held by it hereunder in
good faith in accordance with the terms hereof, including,
without limitation, any liability for any delays not resulting
from its bad faith, willful misconduct or gross negligence or any
loss of interest incident to any such delays. The provisions of
this Section 2(a)(iii) shall survive any termination of this
Agreement.
(iv) The Escrow Agent shall be fully protected in acting on
and relying upon any written notice, direction, request, waiver,
consent, receipt or other paper or document which the Escrow
Agent believes in good faith to have been signed or presented by
the proper party or parties.
(v) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in
good faith or for any mistake of fact or law, or for anything
which it may do or refrain from doing in connection herewith,
except its own willful misconduct or gross negligence.
(vi) The Escrow Agent may seek the advice of legal counsel
in the event of any dispute or question as to the construction of
any of the provisions of this Agreement or its duties hereunder,
and it shall incur no liability and shall be fully protected in
respect of any action taken, omitted or suffered by it in good
faith in accordance with the opinion of such counsel.
(vii) The Escrow Agent makes no representation as to the
validity, value, genuineness or collectibility of any security,
document or instrument held by or delivered to it.
(b) If a controversy or dispute arises between one or more of
the parties hereto, or between any of the parties hereto and any
person not a party hereto, as to whether or not or to whom the Escrow
Agent shall deliver the Escrowed Funds or any portion thereof or as to
any other matter arising out of or relating to the Escrowed Funds or
this Agreement, the Escrow Agent shall, in its sole discretion, have
the right to (but shall not be obligated to), commence interpleader or
similar actions or proceedings for determination of such controversy
or dispute; PROVIDED, HOWEVER, in no event shall the Escrow Agent
commence any interpleader or similar action or proceeding if it shall
have received written notice that such controversy or dispute shall
have been settled pursuant to a written agreement among the parties to
such controversy or dispute or by a final judgment of a court of
competent jurisdiction, not subject to further appeal.
(c) The Escrow Agent shall be entitled to receive an
administration fee at the rate of $2,500 per year, payable in advance
on the date hereof and on each anniversary of the date hereof. In
addition, the Escrow Agent shall also be entitled to reimbursement of
any other reasonable fees and expenses, including out-of-pocket costs
and expenses and reasonable attorney's fees incurred by the Escrow
Agent hereunder. The Sellers' Representatives (in their
representative capacity and not individually) and Purchaser shall each
be responsible for one-half of such fees and expenses.
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SECTION 3. INVESTMENT OF ESCROWED FUNDS; EARNINGS. Escrowed Funds
which are not disbursed by the Escrow Agent shall be invested by the Escrow
Agent in the CoreFund Treasury Reserve. The parties specifically recognize
that CoreStates Investment Advisers, Inc., an affiliate of CoreStates, serves
as adviser to the CoreFund Treasury Reserve and is compensated by the
CoreFund Treasury Reserve for services rendered to it. Investments in mutual
funds are not deposits of CoreStates Bank or any other bank; are not insured
by the FDIC or any other agency; and carry investment risk, including risk of
loss of principal.
SECTION 4. RELEASE OF ESCROWED FUNDS. The Escrow Agent shall disburse
the Escrowed Funds as follows:
(a) If the Closing under the Stock Purchase Agreement occurs,
then at the Closing upon receipt of joint written instructions from
Sellers' Representatives and Purchaser, the Escrow Agent shall pay the
Escrowed Funds in accordance with such instructions.
(b) If Escrow Agent receives written notice that the Stock
Purchase Agreement has been terminated by Sellers under Section
12.02(d) thereof, and provided at the time of such termination neither
the Company nor any Seller, is then in breach of any of its
representations, warranties, covenants or agreements set forth in the
Stock Purchase Agreement to such an extent that the Company's or
Sellers' breaches, in the aggregate, have caused or would reasonably
be expected to result in a Material Adverse Effect (as defined in the
Stock Purchase Agreement) and the conditions set forth in Sections
7.04 and 7.06 of the Stock Purchase Agreement shall have been
satisfied, then upon such claim for payment made by the Sellers'
Representatives and subject to Section 4(d) hereof, the Escrow Agent
shall pay out of the Escrowed Funds the Deposit as the Liquidated
Damages Amount in accordance with the instructions of Sellers'
Representatives. All claims and payments under this Section 4(b)
shall be made in accordance with the procedures set forth in Section
4(d) below.
(c) If the Stock Purchase Agreement is terminated pursuant to
its terms for any reason other than as described in Section 4(b)
above, then upon a claim for payment made by the Purchaser, the Escrow
Agent shall pay the Escrowed Funds to the Purchaser and Purchaser
shall retain any rights it may have against Sellers and the Company
for any breaches of their respective obligations under the Stock
Purchase Agreement. All claims and payments under this Section 4(c)
shall be made in accordance with the procedures set forth in Section
4(d) below.
(d) In the event of a claim for payment under this Agreement by
either the Sellers' Representatives or the Purchaser pursuant to
Section 4(b) or (c) above, the party claiming such payment (the
"Claiming Party") shall give written notice to the other party (the
"Other Party") and to the Escrow Agent stating that the Claiming Party
is entitled to payment of the Escrowed Funds (or any portion thereof)
in accordance with the provisions hereof and of the Stock Purchase
Agreement. If, within 10 days after receipt of such notice the Escrow
Agent has not received written notice from the Other Party disputing
the Claiming Party's right to payment of the Escrowed Funds (or any
portion thereof), then the Escrow Agent shall promptly pay the
Escrowed Funds or the claimed portion thereof to the Claiming Party or
its designees. If, within such 10-day period, the Escrow Agent
receives written notice from the Other Party disputing the Claiming
Party's right to payment of the Escrowed Funds (or any portion
thereof), then the Escrow Agent shall retain the Escrowed Funds until
(i) the Escrow Agent has received a written evidence satisfactory to
the Escrow Agent that the rights of Purchaser and Sellers have been
determined by a final judgment of a court of competent jurisdiction,
not subject to further appeal, at which time the
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<PAGE>
Escrow Agent shall disburse the Escrowed Funds in accordance with such
judgment, or (ii) the Escrow Agent has received written instructions
signed by the Sellers' Representatives and Purchaser as to disposition of
the Escrowed Funds (or any portion thereof), at which time the Escrow
Agent shall promptly disburse the Escrowed Funds (or any portion
thereof) in accordance with such written instructions. Each of the
Purchaser and Sellers' Representatives (for the account of Sellers)
shall bear their own fees and expenses in connection with any
proceedings hereunder.
(e) The Escrow Agent shall, in addition, disburse the Escrowed
Funds in accordance with any joint written instructions of the
Purchaser and the Sellers' Representatives received by the Escrow
Agent.
(f) The party receiving the Escrowed Funds pursuant to the terms
hereof shall be responsible for any and all tax obligations imposed
now or hereafter by any applicable law with respect to the investment
and disbursement of the Escrowed Funds, and shall indemnify and hold
the Escrow Agent harmless from and against any taxes, additions to tax
for late payment, interest, penalties and other expenses, including,
without limitation, any liability for failure to obtain proper
certifications or properly to report to governmental authorities, that
may be assessed against the Escrow Agent on any such investment,
disbursement or other activities which arises under this Agreement.
SECTION 5. TERMINATION OF ESCROW AGREEMENT. This Agreement shall
terminate upon the distribution of all amounts held by the Escrow Agent in
accordance with the provisions hereof.
SECTION 6. SUCCESSOR ESCROW AGENT. (a) The Escrow Agent (and any
successor escrow agent) may at any time resign as such by delivering the
Escrowed Funds to any successor escrow agent jointly designated in writing by
the Purchaser and the Sellers' Representatives, or to any court of competent
jurisdiction, whereupon the Escrow Agent shall be discharged of and from any
and all further obligations arising in connection with this Agreement. The
resignation of the Escrow Agent shall take effect on the earlier of the
appointment of a successor escrow agent or the day which is 30 days after the
date of delivery of the Escrow Agent's written notice of resignation to the
other parties hereto. In the event that a successor escrow agent has not
been appointed at the expiration of such 30-day period, the Escrow Agent's
sole responsibility hereunder shall be the safekeeping of the Escrowed Funds
and to disburse such amount in accordance with the instructions signed by the
Purchaser and the Sellers' Representatives.
(b) If the Escrow Agent receives a written notice signed by the
Sellers' Representatives and the Purchaser stating that they have selected
another escrow agent, any portion of the Escrowed Funds invested by the
Escrow Agent shall be promptly liquidated, and the Escrow Agent shall deliver
the Escrowed Funds to the successor escrow agent named in the aforesaid
notice within 10 days of its receipt of such notice.
SECTION 7. GOVERNING LAW. This Agreement shall take effect as a sealed
instrument and be construed under and governed by and enforced in accordance
with the laws of the Commonwealth of Pennsylvania.
SECTION 8. NOTICES. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be mailed
by first class, registered or certified mail, postage prepaid, or sent via
overnight courier service, or delivered personally or sent by facsimile
machine:
If to the Escrow Agent: CoreStates Bank, N.A.
Corporate Trust Administration, FC 5-4-82-12
Three Beaver Valley Road
Wilmington, DE 19803
Facsimile: (302) 421-7387
Attention: Yvette Howell
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If to Purchaser: 13439 N. Broadway Extension, Suite 200
Oklahoma City, Oklahoma 73114
Attention: Everett Dobson
Facsimile: (401) 391-8515
with a required copy Edwards & Angell
(which shall not 2700 Hospital Trust Tower
constitute notice) to: Providence, Rhode Island 02903
Attention: Joseph A. Kuzneski, Jr., Esq.
Facsimile: (401) 276-6602
If to the Sellers' Representatives to addresses set forth below:
Richard A. Weymer
395 Marina Drive
Port Arkansas, TX 78373
Facsimile No.: (512) 749-7380
Gene M. Valentino
Harbour Village at Pitt Slip Marina
600 S. Barracks #202
Pensacola, FL 32501
Facsimile No.: (904) 469-9880
and
Allen & Harold, P.L.C.
5413 Main Street
Stephens City, VA 22655
Attention: Douglas W. Harold, Jr., Esq.
Facsimile: (540) 869-0041
or to such other address of which the addressee shall have notified the
sender in writing. Notices delivered personally shall be effective upon
delivery against receipt. Notices transmitted by telecopy shall be effective
when received, provided that the burden of proving notice when notice is
transmitted by telecopy shall be the responsibility of the party providing
such notice. Notices delivered by overnight mail shall be effective when
received. Notices delivered by registered or certified mail shall be
effective on the date set forth on the receipt of registered or certified
mail, or 72 hours after mailing, whichever is earlier.
SECTION 9. HEADINGS. The headings of the paragraphs of this Agreement
are inserted as a matter of convenience and for reference purposes only, are
of no binding effect, and in no respect define, limit or describe the scope
of this Agreement or the intent of any paragraph.
SECTION 10. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts hereof, and by the different parties
hereto on separate counterparts hereof, each of which shall be deemed to be
an original and all of which together constitute one and the same agreement.
Facsimile signatures on this Agreement shall be deemed original signatures.
SECTION 11. ENTIRE AGREEMENT. This Agreement represents the entire
understanding and agreement among the parties hereto with respect to the
subject matter hereof, supersedes all prior negotiations between the parties,
and can be amended, modified, supplemented, extended, terminated, discharged
or changed only by an
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<PAGE>
agreement in writing which makes specific reference to this Agreement and
which is signed by the party intended to be bound thereby.
SECTION 12. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law, but only as long as the continued validity, legality and enforceability
of such provision or application does not materially (a) alter the terms of
this Agreement, (b) diminish the benefits of this Agreement or (c) increase
the burdens of this Agreement, for any person.
IN WITNESS WHEREOF, the undersigned have executed this Deposit Escrow
Agreement as of the date first written above.
DOBSON CELLULAR OF CALIFORNIA, INC.
By: /s/ Everett Dobson
Everett Dobson
Chairman
CORESTATES BANK, N.A.
By: /s/ D.J. King
Name: D.J. King
Title: Assistant Vice President
SELLERS' REPRESENTATIVES
/s/ Richard A. Weymer
Richard A. Weymer
/s/ Gene M. Valentino
Gene M. Valentino
/s/ Douglas W. Harold, Jr.
Douglas W. Harold, Jr.
[SIGNATURE PAGE TO DEPOSIT ESCROW AGREEMENT]
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<PAGE>
EXHIBIT B
SUBORDINATED PROMISSORY NOTE
$4,500,000 [ ] __, 1998
FOR VALUE RECEIVED, DOBSON CELLULAR OF CALIFORNIA, INC., an Oklahoma
corporation, with its principal office at 13439 N. Broadway Extension, Suite
200, Oklahoma City, Oklahoma 73114 ("Dobson") hereby promises to pay to
Richard A. Weymer, Douglas W. Harold, Jr. and Gene M. Valentino ("Holders")
in their capacity as Sellers' Representatives for the shareholders of
Cellular 2000 Telephone Co. (the "Company") listed on Schedule 1 to that
certain Stock Purchase Agreement dated November [ ], 1997 (as amended from
time to time, the "Purchase Agreement") among Dobson, said shareholders and
the Company, at [Address], the principal sum of Four Million Five Hundred
Thousand Dollars ($4,500,000) on [18 months from the date of issuance] (the
"Maturity Date").
Dobson hereby promises to pay to the Holders, on the first business day
of each January and July (each, an "Interest Payment Date") commencing on
January 1, 1998 and on the Maturity Date, interest on the outstanding
principal balance hereof from time to time from the date hereof until payment
in full at the rate of nine percent (9%) per annum.
All payments, as set forth above, will be applied first to accrued and
unpaid interest on the outstanding principal balance hereunder, calculated in
arrears and second, to the principal balance outstanding hereunder. All
amounts hereunder shall be due on or before the Maturity Date.
METHODS OF PAYMENT. Payments of amounts due hereunder shall be made in
lawful money of the United States of America in immediately available funds
at the office of Holders set forth above. If any payment shall become due on
a Saturday, Sunday, public holiday under the laws of the State of Oklahoma or
on any other day on which banking institutions are authorized or obligated by
law to close in Oklahoma City, Oklahoma, such payment shall be made on the
next succeeding business day and such extension of time shall in such case be
included in computing interest in connection with such payment. This Note
may be prepaid in whole or in part without penalty or premium.
RELATED DOCUMENTS. This Note is the "Subordinated Promissory Note"
referred to in, made pursuant to the terms of, and governed by, the Purchase
Agreement which Purchase Agreement is incorporated herein by reference. The
Purchase Agreement and all documents, certificates, reports, agreements and
instruments executed in connection therewith and with this Note are herein
referred to as the "Closing Documents". All terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Purchase
Agreement.
OFFSET RIGHTS. Notwithstanding any other provision contained herein,
Dobson shall have the right to offset its obligation to pay outstanding
principal, accrued interest or any other amounts owed hereunder (the
"Obligations") against the amounts owed by the Sellers to Dobson under or
pursuant to Articles II and X of the Purchase Agreement. Prior to making
any set off, Dobson agrees to notify the Sellers' Representative (an "Offset
Notice"); provided that the failure to give such Offset Notice shall not
affect the validity of such set off.
EVENTS OF DEFAULT. This Note shall, at the option of Holders, become
immediately due and payable upon the occurrence of any of the following
events (herein an "Event of Default"):
(a) failure of Dobson to pay any principal amount due hereunder when
the same shall become due and payable;
(b) failure of Dobson to pay any interest due on any Interest Payment
Date within five business days after the same is due;
(c) Dobson shall (i) apply for or consent to or suffer the appointment
of a receiver, trustee, custodian or liquidator of it or any of its property,
(ii) file a petition for relief under Title 11 of the United States Code, or
<PAGE>
(iii) file a petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute; or
(d) there shall be filed against Dobson an involuntary petition seeking
reorganization of Dobson or the appointment of a receiver, trustee, custodian
or liquidator of Dobson or any material part of its assets, or in involuntary
petition under any bankruptcy, reorganization or insolvency law of any
jurisdiction whether now, or hereafter in effect, unless such petition shall
be dismissed or stayed within one hundred eighty (180) days after the filing
thereof;
REMEDIES AFTER DEFAULT. If an Event of Default as defined herein has
occurred and is continuing, the entire unpaid principal balance hereof,
together with unpaid interest thereon, shall at the option of Holders become
immediately due and payable, subject to Dobson's offset rights, and in such
case Holders may exercise the remedies available to Holders at law and in
equity; and no failure on the part of Holders to exercise any of Holders
rights hereunder shall be deemed a waiver of any such rights or of any
default.
WAIVERS. Dobson hereby waives presentment for payment, protest and
demand, and notice of protest, demand and/or dishonor and nonpayment of this
Note, notice of any Event of Default except as otherwise specifically
provided herein, and all other notices or demands otherwise required by law
that Dobson may lawfully waive.
GOVERNING LAW. The rights and obligations of Dobson and Dobson
Communications Corporation ("DCC") as guarantor hereof and all provisions
hereof shall be governed by and construed in accordance with the laws of the
State of Oklahoma applicable to contracts made and performed in said State.
CONSENT TO JURISDICTION. Dobson and DCC hereby submit to the
jurisdiction of the courts of the State of Oklahoma and the United States
District Court for the District of Oklahoma, as well as to the jurisdiction
of all courts to which an appeal may be taken or other review sought from the
aforesaid courts, for the purpose of any suit, action or other proceeding
arising out of Dobson and DCC's obligations under or with respect to this
Note, and expressly waives any and all objections they may have as to venue
in any of such courts.
SAVINGS CLAUSE. All agreements between Dobson and Holders are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Holders for the use,
forbearance or detention of the indebtedness evidenced hereby exceed the
maximum permissible under applicable law. Any interest received by Holders
which would exceed the maximum permissible under applicable law shall be
applied to the reduction of the principal balance evidenced hereby and not to
the payment of interest. This provision shall control every other provision
of all agreements between Dobson and Holders including, without limitation,
the Purchase Agreement.
ATTORNEYS' FEES. If this Note shall not be paid when due and shall be
placed by the Holders hereof in the hands of any attorney for collection,
through legal proceedings or otherwise, Dobson will pay all reasonable costs
and expenses of collection incurred, including reasonable attorneys fees.
SUBORDINATION.
(a) AGREEMENT TO SUBORDINATE. Holders by accepting this Note consent
and agree that the indebtedness evidenced by this Note and all other
obligations of Dobson under this Note and all obligations of DCC to Holders
with respect to its guarantee of Dobson's obligations under this Note
(collectively the "Subordinated Obligations") are subordinated in right of
payment, to the extent and in the manner provided in these subordination
provisions ("these Provisions"), to the prior payment in full of all Senior
Debt, and that the subordination is for the benefit of the holders of Senior
Debt and they and/or each of them may enforce such subordination.
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<PAGE>
(b) CERTAIN DEFINITIONS. "Representative" means the indenture trustee
or other trustee, agent or representative for the Senior Debt selected by the
holders of a majority of the principal amount of the Senior Debt as their
representative for purposes of these Provisions.
"Payment or Distribution" means any direct or indirect payment or
distribution of any kind on account of any obligations with respect to the
Subordinated Obligations, whether in cash, securities or other property, by
set-off or otherwise, including without limitation any payment or
distribution by redemption, purchase or other acquisition of this Note and
any payment or distribution from or by way of collateral.
"Senior Debt" means the principal amount of all indebtedness for
borrowed money now or hereafter created, incurred, guaranteed or assumed by
Dobson or DCC, or for which Dobson or DCC is otherwise liable, under any note
agreement, indenture, loan agreement, guaranty or other document and which
Dobson or DCC expressly designates in writing as "Senior Debt" under this
Note or which refunds or refinances any then outstanding Senior Debt, in each
case, as from time to time amended, modified or supplemented, interest
accrued thereon (including, without limitation, Dobson's and DCC's guarantee
of the indebtedness and other obligations of Dobson Operating Company ("DOC")
under that certain Second Amended and Restated Credit Agreement dated
February 28, 1997 among DOC, CoreStates Bank, N.A. ("CoreStates"), First
Union National Bank of North Carolina ("First Union"), Nationsbank of Texas,
N.A. ("Nationsbank") and the additional banks listed on Schedule 1 attached
thereto (the "Credit Agreement"), as amended by Amendment No. 1 to the Credit
Agreement dated as of April 22, 1997 among DOC, CoreStates, First Union,
Nationsbank and the additional banks listed on Schedule 1 to the Credit
Agreement ("Amendment No. 1, and together with the Credit Agreement, the
"Amended Credit Agreement"), interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding, relating to Dobson, DOC or DCC, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding),
prepayment charges, if any, payable with respect thereto, fees, costs,
expenses, indemnities, reimbursements, damages and all other sums payable
under or in connection with the Senior Debt.
For the purpose of this Note, all Senior Debt shall not be deemed
to have been paid in full unless the holders thereof shall have received
payment in full in cash.
(c) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to
creditors of Dobson or DCC in a total or partial liquidation or dissolution
of Dobson or DCC in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to Dobson, DCC or their property or in an
assignment for the benefit of creditors, or an arrangement, adjustment,
composition or relief of Dobson, DCC or their debts or any marshaling of the
assets and liabilities of Dobson or DCC:
(1) holders of Senior Debt shall be entitled to receive payment in
full of all obligations due or to become due with respect to the Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the Holders shall be entitled
to receive any Payment or Distribution; and
(2) until all obligations with respect to Senior Debt (as provided
in paragraph (1) above) are paid in full, any Payment or Distribution to
which the Holders would be entitled but for these Provisions shall be made to
the holders of Senior Debt, as their interests may appear, for application
(in the case of cash) to, or as collateral (in the case of non-cash property
or securities) for the payment or prepayment of, the Senior Debt to the
extent necessary to pay all such Senior Debt in full after giving effect to
any concurrent payment or distribution to or for the holders of such Senior
Debt, except that pursuant to a plan of reorganization under applicable
bankruptcy law, the Holders may receive securities ("Permitted Subordinated
Distribution Securities") that are subordinated to at least the same extent
as this Note to (i) Senior Debt and (ii) any securities issued in exchange
for Senior Debt.
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<PAGE>
(d) NO PAYMENTS WITH RESPECT TO SUBORDINATED OBLIGATIONS IN CERTAIN
CIRCUMSTANCES.
(1) No Payment or Distribution in respect of the Subordinated
Obligations or any judgment with respect thereto shall be made by or on
behalf of Dobson or DCC if, at the time of such payment or immediately after
giving effect thereto:
(i) an event of default involving a default in the payment
when due (whether at the maturity thereof, or upon acceleration of maturity
or otherwise) of all or any portion of the Senior Debt shall have occurred,
and such event of default shall not have been cured or waived in accordance
with the terms of the relevant agreements and instruments; or
(ii) subject to the last sentence of this clause (1) of
paragraph (d), Dobson or DCC shall have received notice from a holders of
Senior Debt of the occurrence of one or more events of default in respect of
the Senior Debt (other than an event of default of the type referred to in
clause (i) above), each such default shall not have been cured or waived in
accordance with the terms of the documents governing the Senior Debt, and 180
days shall not have elapsed since the date such notice was received (any
period during which no payment in respect of the Subordinated Obligations or
any judgment with respect thereto may be made by reason of the application of
this clause (ii) being hereinafter called a "Payment Bar Period").
To the extent otherwise permitted under this Note, Dobson or DCC may
resume permitted payments under this Note (and may make any permitted
payments missed due to the application of this paragraph (d)) in respect of
the Subordinated Obligations or any judgment with respect thereto:
(A) in the case of an event of default referred to in
clause (i) of this paragraph (d), upon the cure or waiver thereof in
accordance with the terms of the Note; or
(B) in the case of an event of default referred to in
clause (ii) of this paragraph (d), upon the earlier to occur of (1) the cure
or waiver of such event of default in accordance with the terms of documents
governing the Senior Debt, or (2) the expiration of such period of 180 days.
Notwithstanding any provision of this paragraph (d) to the contrary, only one
Payment Bar Period may be implemented during any 360-day period.
(2) Upon the maturity of all or any part of any Senior Debt by
lapse of time, acceleration (unless waived in writing) or otherwise, all
amounts due or to become due in respect of all Senior Debt shall first be
paid in full, or provision for such payment shall be made in a manner
satisfactory to the holders of the Senior Debt, before any Payment or
Distribution is made on account of or applied on the Subordinated Debt,
except that the Holders may receive Permitted Subordinated Distribution
Securities.
(3) Dobson and DCC shall give prompt written notice to the Holders
of any default in respect of Senior Debt referred to in clause (1) of this
paragraph (d) and any notice of the type described in clause (1)(ii) of this
paragraph (d) from a Holders of Senior Debt.
(e) ACCELERATION OF SECURITIES. If payment of this Note is accelerated
because of an Event of Default, Dobson and DCC shall promptly notify the
Holders of Senior Debt and the Representative of the acceleration.
(f) WHEN DISTRIBUTION MUST BE PAID OVER. If a Payment or Distribution
is made to the Holders that because of these Provisions should not have been
made to it, such Holders shall segregate such Payment or Distribution from
its other funds and property and hold it in trust for the benefit of, and,
upon written request, pay it over (in the same form as received, with any
necessary endorsement) to, the holders of Senior Debt as their interests may
appear, or their Representatives, as their respective interests may appear,
for application (in the case of cash)
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<PAGE>
to, or as collateral (in the case of non-cash property or securities) for the
payment or prepayment of, all obligations with respect to Senior Debt
remaining unpaid to the extent necessary to pay such obligations in full in
accordance with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
(g) SUBROGATION. After all Senior Debt is paid in full and the holders
of the Senior Debt have no further obligation to extend credit to Dobson, DCC
or DOC and until this Note is paid in full, the Holders shall be subrogated
to the rights of holders of Senior Debt to receive payments and distributions
applicable to Senior Debt to the extent that payments and distributions
otherwise payable to the Holders have been applied to the payment of Senior
Debt. A payment or distribution made under these Provisions to holders of
Senior Debt which otherwise would have been made to the Holders is not, as
among Dobson, DCC and the Holders, a payment by Dobson or DCC on this Note.
(h) RELATIVE RIGHTS. These Provisions define the relative rights of
the Holders and holders of Senior Debt. Nothing in this Note shall: (1)
impair, as between Dobson and the Holders, the obligation of Dobson, which is
absolute and unconditional, to pay principal of and interest on the Note in
accordance with their terms; (2) impair, as among Dobson, DCC and the
Holders, the obligation of DCC with regard to its guarantee of Dobson's
obligations under this Note; (3) affect the relative rights of the Holders
and creditors of Dobson or DCC other than their rights in relation to holders
of Senior Debt.
(i) SUBORDINATION MAY NOT BE IMPAIRED. No right of any present or
future holders of any Senior Debt to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure
to act in good faith by any such holders, or any noncompliance by Dobson, DCC
or the Holders with the terms and provisions and covenants herein, regardless
of any knowledge thereof any such Holders may have or otherwise be charged
with. Without in any way limiting the generality of the foregoing paragraph,
the holders of the Senior Debt may at any time and from time to time, without
the consent of or notice to the Holders, without incurring responsibility to
the Holders and without impairing or releasing the subordination provided in
these Provisions or the obligations hereunder of the Holders to the holders
Senior Debt, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or
alter, all or any of the Senior Debt (including any change in the rate of
interest thereon), or otherwise amend or supplement in any manner, or grant
any waiver or release with respect to, Senior Debt or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding;
(ii) sell, exchange, release, not perfect or otherwise deal with any property
at any time pledged, assigned or mortgaged to secure or otherwise securing,
Senior Debt, or amend, or grant any waiver or release with respect to, or
consent to any departure from any guarantee for all or any of the Senior
Debt; (iii) release any person liable in any manner under or in respect of
Senior Debt; and (iv) exercise or refrain from exercising any rights against,
and release from obligations of any type, Dobson, DCC, DOC and any other
person; and (v) apply any sums from time to time received to the Senior Debt.
All rights and interests under this Note of the Representative and the
holders of Senior Debt, and all agreements and obligations of the Holders,
Dobson and DCC under these Provisions shall remain in full force and effect
irrespective of (i) any lack of validity or enforceability of any promissory
notes evidencing the Senior Debt, or any other agreement or instrument
relating thereto or to any other Senior Debt, or (ii) any other circumstances
that might otherwise constitute a defense available to, or a discharge of,
the Holders, Dobson or DCC.
These Provisions constitute a continuing agreement and shall (i) be and
remain in full force and effect until payment in full of all Senior Debt at
such time when no holders of Senior Debt shall have any obligation to extend
credit to Dobson, DOC or DCC in respect of the Senior Debt, (ii) be binding
upon Holders, Dobson, DCC and their respective successors, transferees and
assigns, and (iii) inure to the benefit of, and be enforceable directly by,
the holders of the Senior Debt and their respective successors, transferees
and assigns.
The Representative is hereby authorized to demand specific performance
of these Provisions, whether or not Dobson or DCC shall have complied with
any of these Provisions applicable to it, at any time when the Holders
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<PAGE>
shall have failed to comply with any of these provisions. The Holders hereby
irrevocably waives any defense based on the adequacy of a remedy at law that
might be asserted as a bar to such remedy of specific performance.
(j) DISTRIBUTION. Upon any payment or distribution of assets of Dobson
or DCC referred to in these Provisions, the Holders shall be entitled to rely
in good faith upon any ordered decree made by any court of competent
jurisdiction or upon any certificate of the Representative or of the
liquidating trustee or agent or other person making any distribution to the
Holders for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Debt and other indebtedness
of Dobson or DCC, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or
to these Provisions.
(k) MISCELLANEOUS. The agreement contained in these Provisions shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment or distribution with respect to any of the Senior Debt is
rescinded or must otherwise be returned by any holders of Senior Debt upon
the insolvency, bankruptcy or reorganization of Dobson or otherwise, all as
though such payment had not been made.
NO DISPOSITION OF NOTE. The Holders of the Note may not sell, assign,
transfer, pledge, encumber or otherwise dispose of the Note or any portion of
the Subordinated Obligations.
SELLERS. Neither Dobson nor DCC shall have any obligation to Sellers by
virtue of this Note, and Dobson shall make payments due hereunder only to
Holders.
SECTION HEADINGS. Any section headings in this Note are included herein
for convenience of reference only and shall not constitute a part of this Note
for any other purpose.
IN WITNESS WHEREOF, Dobson has caused this Note to be executed by its
duly authorized officer as of the day and year first above written.
WITNESS: DOBSON CELLULAR OF CALIFORNIA, INC.
- --------------------------------- By:
------------------------------------
Title:
------------------------------
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<PAGE>
GUARANTEE
The undersigned parent corporation of Dobson does hereby covenant and
guarantee, absolutely and unconditionally, to Holders that Dobson shall fully
and faithfully perform its obligations under this Note according to its terms
or, if not so performed by Dobson, shall be so performed or cause to be
performed by the undersigned corporation, without any notice of default to
Dobson (except as provided in this Note) or demand upon the undersigned.
Notwithstanding any other provision contained herein, the undersigned
may offset any payment obligation regarding its guarantee of Dobson's
obligations under this Note or any other amount owed hereunder against
amounts owed by the Sellers to Dobson to the same extent as Dobson may offset
its payment obligations under the Note.
DOBSON COMMUNICATIONS CORPORATION
By:
-------------------------------------
Everett Dobson, Chairman of the Board
President and Chief Executive Officer
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<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT dated as of March 18, 1998
by and among Dobson Cellular of California, Inc. ("Dobson") and Richard A.
Weymer ("Weymer"), Douglas W. Harold, Jr. ("Harold") and Gene M. Valentino
("Valentino"; and together with Weymer and Harold, the "Sellers'
Representatives"), in their capacities as Sellers' Representatives.
W I T N E S S E T H:
WHEREAS, Dobson, the Sellers' Representatives and the shareholders (the
"Sellers") of Cellular 2000 Telephone Co. (the "Company") have entered into
that certain Stock Purchase Agreement dated November 17, 1997 (the "Purchase
Agreement") pursuant to which Dobson has agreed to purchase from the Sellers
all of the outstanding shares of Common Stock of the Company; and
WHEREAS, pursuant to Section 14.04 of the Purchase Agreement, the
Sellers' Representatives have the right to enter into amendments to the
Purchase Agreement on behalf of the Sellers; and
WHEREAS, the parties hereto wish to amend the Purchase Agreement as
hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. The definition of "Current Assets" in Section 2.04(a) of the
Purchase Agreement is hereby amended to read in its entirety as follows:
"'Current Assets' means the Partnership's (i) cash on hand, bank
deposits and cash equivalents, (ii) accounts receivable that are current to
less than 91 days past due, net of a reserve for bad debts, which reserve
shall equal the sum of the following amounts: zero percent (0%) of such
accounts receivable that are not past due or that are thirty (30) or fewer
days past due, ten percent (10%) of such accounts receivable that are more
than thirty (30) or fewer days past due, but less than sixty-one (61) days
past due and fifty percent (50%) of such accounts receivable that are more
than sixty (60) but less than ninety-one (91) days past due; (iii) inventory
of cellular telephone handsets and ancillary equipment held for sale to
subscribers and which is not obsolete and will reasonably be expected based
on past practices to be consumed in the normal course of business within six
months after the Closing (the 'Inventory'); and (iv) prepaid items which
Purchaser will receive the benefit of after the Closing such as prepaid rent,
insurance, property taxes, utility charges, fees and deposits paid, all
determined as of 12:01 a.m. on the
<PAGE>
Closing Date in accordance with GAAP. Refurbished cellular telephone
handsets shall not be included in the Inventory for purposes of calculating
Current Assets."
2. The words "or the Partnership's" on line 6 of Section 2.04(e) of
the Purchase Agreement are hereby deleted.
3. Subsections (g) and (h) of Section 2.04 of the Purchase Agreement
are hereby redesignated Subsections (h) and (i), respectively, of Section
2.04 and a new Subsection (g) of Section 2.04 is hereby added to read as
follows:
"(g) COMPANY CASH ADJUSTMENT. The Base Price will be increased
by 100% of the Company's cash on hand, bank deposits and cash
equivalents as of the Closing Date (such increase in the Base Price
being referred to as the "Company Cash Adjustment")."
4. The definition of "Adjustments" in Section 2.04(h) of the Purchase
Agreement is hereby amended to include in such definition the Company Cash
Adjustment.
5. A new clause (vi) is hereby added to Section 10.01 of the Purchase
Agreement to read as follows:
"(vi) any liability or obligation of, and any claims
against, the Partnership which are for the payment of Taxes with
respect to the Partnership's operations for the period up to the
Closing Date, whether or not known or asserted at or prior to the
Closing, but only to the extent such liability did not result in
a reduction in the Purchase Price at the Closing pursuant to
Section 2.04 hereof and only to the extent of 75.018 percent of
such liabilities or obligations."
6. Except as otherwise amended herein, the terms of the Purchase
Agreement shall remain in full force and effect as of the date hereof.
7. Except as otherwise defined herein, all defined terms shall have
those meanings as set forth in the Purchase Agreement.
8. This Agreement may be executed in one or more counterparts, each of
which when so executed shall be an original, but all of which together shall
constitute one agreement. Facsimile signatures shall be deemed original
signatures.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date first above written.
DOBSON CELLULAR OF CALIFORNIA, INC.
By:
-------------------------------------
Title:
SELLERS' REPRESENTATIVES:
----------------------------------------
Richard A. Weymer
----------------------------------------
Douglas W. Harold, Jr.
----------------------------------------
Gene M. Valentino
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<PAGE>
STOCK PURCHASE AGREEMENT
by and among
DOBSON CELLULAR OF CALIFORNIA, INC.,
RSA 339, INC.
and
AT&T WIRELESS SERVICES, INC.
DATED AS OF MARCH 19, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
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ARTICLE I PURCHASE AND SALE OF STOCK 2
Section 1.01 Transfer of Stock 2
ARTICLE II PURCHASE PRICE 2
Section 2.01 Purchase Price 2
Section 2.02 Payment of Purchase Price 2
Section 2.03 Purchase Price Adjustments 2
ARTICLE III CLOSING 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER 6
Section 4.01 Organization; Qualification 6
Section 4.02 Consents; Authorization; Execution and Delivery of
Agreement 7
Section 4.03 Subsidiaries and Interests in Other Companies 7
Section 4.04 Capital Stock; Interests 7
Section 4.05 Ownership of Shares; Ownership of Interest 8
Section 4.06 Assets 8
Section 4.07 Contracts 8
Section 4.08 Governmental Licenses 8
Section 4.09 Compliance with Laws 8
Section 4.10 No Violation of Existing Agreements 9
Section 4.11 Litigation and Legal Proceedings 9
Section 4.12 Environmental Compliance 9
Section 4.13 Employees 10
Section 4.14 Employee Benefits 10
Section 4.15 Tax Matters 10
Section 4.16 Financial Statements 11
Section 4.17 Brokers 12
Section 4.18 Undisclosed Liabilities; Guarantees 12
Section 4.19 Certain Business Relationships 12
Section 4.20 Officers, Directors and Certain Authorized Persons 13
Section 4.21 Disclosure 13
<PAGE>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER 13
Section 5.01 Organization; Qualification 13
Section 5.02 Consents; Authorization; Execution and Delivery of
Agreement 14
Section 5.03 Brokers 14
Section 5.04 No Distribution 14
Section 5.05 Compliance with Laws 14
Section 5.06 No Violation of Existing Agreements 14
Section 5.07 Litigation and Legal Proceedings 14
Section 5.08 Ownership 14
Section 5.09 Cellular 2000 Purchase Agreement 15
ARTICLE VI THE COMPANY'S, SELLER'S AND PURCHASER'S COVENANTS 15
Section 6.01 Governmental Approvals 15
Section 6.02 Third Party Consents; Closing Conditions 16
Section 6.03 Access 16
Section 6.04 Conduct of Business 17
Section 6.05 No Shopping 18
Section 6.06 Employees 18
Section 6.07 Supplemental Disclosure 18
Section 6.08 Cellular 2000 Purchase 18
Section 6.09 Taxes 19
ARTICLE VII CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE 20
Section 7.01 Accuracy of Representations and Warranties; Performance
of this Agreement 20
Section 7.02 Directors' Resolutions 21
Section 7.03 Incumbency Certificate 21
Section 7.04 Third Party Consents; FCC; Hart-Scott Act 21
Section 7.05 No Material Adverse Change 21
Section 7.06 Normal Course of Business 22
Section 7.07 Opinion of Counsel to the Company and Seller 22
Section 7.08 Resignations of Directors 22
Section 7.09 Cellular 2000 Company Closing 22
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ARTICLE VIII CONDITIONS PRECEDENT TO THE COMPANY'S AND SELLER'S
OBLIGATION TO CLOSE 22
Section 8.01 Accuracy of Representations and Warranties;
Performance of this Agreement 22
Section 8.02 Directors' Resolutions 22
Section 8.03 Incumbency Certificate 23
Section 8.04 FCC; Hart-Scott Act 23
Section 8.05 Opinion of Counsel to Purchaser 23
Section 8.06 Vendor Purchase Agreement 23
Section 8.07 Cellular 2000 Company Closing 23
ARTICLE IX CASUALTY LOSSES 23
ARTICLE X INDEMNIFICATION 24
Section 10.01 Indemnification by Seller 24
Section 10.02 Indemnification by Purchaser 24
Section 10.03 Notice of Claims; Defense of Third Party Claims 25
Section 10.04 Limitations 26
ARTICLE XI CONFIDENTIALITY AND PRESS RELEASES 27
Section 11.01 Confidentiality 27
Section 11.02 Press Releases 27
Section 11.03 Disclosures Required By Law 27
ARTICLE XII TERMINATION 28
Section 12.01 Breaches and Defaults; Opportunity to Cure 28
Section 12.02 Termination 28
ARTICLE XIII BROKERS' FEES 29
ARTICLE XIV MISCELLANEOUS 29
Section 14.01 Additional Instruments of Transfer 29
Section 14.02 Notices 29
Section 14.03 Expenses 30
Section 14.04 Intentionally Omitted 30
Section 14.05 Specific Performance 30
Section 14.06 Governing Law 30
Section 14.07 Assignment 31
Section 14.08 Successors and Assigns 31
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Section 14.09 Amendments; Waivers 31
Section 14.10 Entire Agreement 31
Section 14.11 Counterparts 31
Section 14.12 Severability 31
Section 14.13 Section Headings 31
Section 14.14 Interpretation 31
Section 14.15 Further Assurances 32
Section 14.16 Third Parties 32
Section 14.17 WAIVER OF JURY TRIAL 32
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DEFINED TERMS
TERM SECTION CITE
---- ------------
Adjustment Amount 2.03(h)
Adjustments 2.03(g)
Agreed Adjustment Amount 2.03(h)
Asserting Party 10.03
Authorizations 6.01(a)
Base Price 2.01
Billing Cycle 2.03(a)
Breaching Party 12.01
Business Recitals
Capital Expenditures Adjustment 2.03(d)
Cellular 2000 Company Recitals
Cellular 2000 Purchase Recitals
Cellular 2000 Purchase Agreement Recitals
Cellular 2000 Shareholders Recitals
Cellular Area Recitals
Cellular System Recitals
CERCLA 4.12(b)
Claims Article IX
Closing Article III
Closing Certificate 2.03(h)
Closing Date Article III
Common Stock Recitals
Company Authorizations 4.08(a)
Company Unrelated Liabilities 2.03(e)
CPUC 4.09
Current Assets 2.03(a)
Current Liabilities 2.03(a)
Debt Adjustment 2.03(f)
December Balance Sheet 4.16(a)
Deductible 10.04(a)
Defending Party 10.03
Disclosing Party 11.01
DOJ 7.04
Encumbrances 1.01
Environmental Laws 4.12(c)
Existing Contracts 4.07(a)
FCC Recitals
FCC Authorizations 6.01(a)
Final Adjustment Amount 2.03(h)
Final Order 7.04
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Financial Statements 4.16(a)
FTC 7.04
GAAP 2.03(a)
Hart-Scott Act 6.01(b)
Hazardous Substance 4.12(b)
Independent Accountants 2.03(h)
Interest 4.03
Inventory 2.03(a)
Loss 10.01
Material Adverse Effect 7.01
Material Loss 7.01
Non-Breaching Party 12.01
Outside Date 12.02(e)
Parent 5.08
Partnership Recitals
Partnership Agreement 4.01(b)
Person 4.03
Purchase Price 2.01
Purchaser's Estimate 2.03(g)
RCLA 4.12
RCRA 4.12
Recipient Party 11.01
Response Period 2.03(h)
RSA Recitals
Seller Payable 8.06
Seller's Estimate 2.03(g)
Shares Recitals
Statement 6.09(c)
Subscriber 2.03(a)
Subscriber Adjustment 2.03(c)
Survival Period 10.04
Target Number of Subscribers 2.03(a)
Tax 4.15(b)
Tentative Subscriber 2.03(a)
Third Party Claim 10.03
Unrelated Liabilities Adjustment 2.03(e)
Working Capital Adjustment 2.03(b)
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SCHEDULES
4.01(a) Charter of the Company
4.01(b) Partnership Agreement
4.07(a) Existing Contracts
4.07(b) Violation of Existing Contracts
4.08 Company Authorizations
4.09 Compliance with Laws
4.11 Litigation and Legal Proceedings
4.12 Environmental Compliance
4.15(a) Taxes
4.16(a) Financial Statements
4.16(c) Subsequent Developments
4.18 Guarantees
4.19 Business Relationships
4.20 Officers, Directors and Authorized Persons
8.06 Vendor Purchase Agreements
EXHIBITS
A Opinion of Counsel to the Company and Seller
B Opinion of Counsel to Purchaser
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of March 19, 1998, by and among DOBSON CELLULAR OF CALIFORNIA, INC., an
Oklahoma corporation ("Purchaser"), RSA 339, INC. a California corporation (the
"Company"), and AT&T WIRELESS SERVICES, INC., a Delaware corporation
("Seller").
R E C I T A L S
WHEREAS, Cellular 2000 (A Partnership), a general partnership formed under
the laws of the State of Michigan (the "Partnership"), owns all right, title
and interest in certain licenses granted by the Federal Communications
Commission ("FCC") to provide cellular radio telephone service in the FCC's
rural service area ("RSA") #4 in the State of California (the "Cellular Area")
and owns and operates the non-wireline cellular telephone system (the
"Business") in the Cellular Area (the "Cellular System");
WHEREAS, the Company owns 24.982 percent of the outstanding partnership
interests of the Partnership;
WHEREAS, Cellular 2000 Telephone Co., a Delaware corporation ("Cellular
2000 Company"), owns the remaining 75.018 percent of the outstanding
partnership interests in the Partnership;
WHEREAS, Cellular 2000 Company, the shareholders of Cellular 2000 Company
(the "Cellular 2000 Shareholders") and Purchaser have entered into a certain
Stock Purchase Agreement dated October 27, 1997 (the "Cellular 2000 Purchase
Agreement") pursuant to which Purchaser has agreed to purchase, and the Cellular
2000 Shareholders have agreed to sell, up to one hundred percent of the issued
and outstanding capital stock of Cellular 2000 Company (the "Cellular 2000
Purchase");
WHEREAS, the Company has a capitalization consisting of 50,000 authorized
shares of Common Stock, $1.00 par value per share (the "Common Stock"), of
which 200 shares are issued and outstanding (collectively, the "Shares");
WHEREAS, all of the issued and outstanding Shares are owned by Seller; and
WHEREAS, Purchaser desires to purchase the Shares from Seller, and Seller
desires to sell the Shares to Purchaser, all subject to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
<PAGE>
ARTICLE I
PURCHASE AND SALE OF STOCK
SECTION 1.01. TRANSFER OF STOCK. Except as otherwise provided and
subject to the terms and conditions set forth in this Agreement, Seller agrees
to sell, convey, assign, transfer and deliver to Purchaser, and Purchaser
agrees to purchase from Seller at the Closing, all of Seller's right, title and
interest in and to the Shares, free and clear of all options, pledges,
obligations, security interests, liens, charges, rights of third parties,
community property rights and other encumbrances (collectively,
"Encumbrances").
ARTICLE II
PURCHASE PRICE
SECTION 2.01. PURCHASE PRICE. The total unadjusted purchase price for
the Shares shall be Twenty-One Million Seven Hundred Thirty-Four Thousand Four
Hundred Fifty Dollars ($21,734,450) (the "Base Price"), as adjusted in
accordance with the provisions of Section 2.03 hereof (as adjusted, the
"Purchase Price").
SECTION 2.02. PAYMENT OF PURCHASE PRICE. On the Closing Date and subject
to the terms and conditions set forth in this Agreement, in reliance on the
representations, warranties, covenants and agreements of the parties contained
herein and in consideration of the sale, assignment, transfer and delivery of
the Shares, Purchaser shall pay the Purchase Price to Seller by wire transfer
of immediately available funds.
SECTION 2.03. PURCHASE PRICE ADJUSTMENTS.
(a) As used in this Section 2.03, the following terms shall have the
meaning set forth below:
"CURRENT ASSETS" means the Partnership's (i) cash on hand, bank deposits
and cash equivalents; (ii) accounts receivable that are current to less than 91
days past due, net of a reserve for bad debts, which reserve shall equal the
sum of the following amounts: zero percent (0%) of such accounts receivable
that are not past due or that are thirty (30) or fewer days past due, ten
percent (10%) of such accounts receivable that are more than thirty (30) days
past due, but less than sixty-one (61) days past due and fifty percent (50%) of
such accounts receivable that are more than sixty (60) but less than ninety-one
(91) days past due; (iii) inventory of cellular telephone handsets and
ancillary equipment held for sale to subscribers and which is not obsolete and
will reasonably be expected based on past practices to be consumed in the
normal course of business within six months after the Closing (the
"Inventory"); and (iv) prepaid items which Purchaser will receive the benefit
of after the Closing such as prepaid rent, insurance, property taxes, utility
charges, fees and deposits paid, all determined as of 12:01 a.m. on the Closing
Date in accordance with GAAP. Refurbished cellular telephone handsets shall
not be included in the Inventory for purposes of calculating Current Assets.
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"CURRENT LIABILITIES" means the Partnership's (i) subscriber deposits
received, (ii) deferred revenue, (iii) employee vacation and sick pay expense
(whether or not to be paid or time taken after the Closing), (iv) to the extent
not paid by the Partnership prior to Closing, salaries, bonuses, fringe
benefits and other remuneration payable to employees of the Partnership, (v)
all trade payables (including any Seller Payable) and accrued expenses
including, without limitation, taxes, utility charges, special assessments,
commissions and fees, all determined as of 12:01 a.m. on the Closing Date in
accordance with GAAP.
"GAAP" means generally accepted accounting principles consistently
applied.
"SUBSCRIBER" means each account maintained by a person or entity
subscribing for cellular telephone service on the Cellular System for at least
the 30 consecutive day billing cycle of the Cellular System ("Billing Cycle")
ending on or prior to the Closing Date who (i) pays for service under a rate
plan for that category of subscriber established by the Cellular System in the
ordinary course of business, (ii) has paid for at least one full Billing
Cycle's service and whose account is active within the normal practices and
procedures of the Cellular System and in no case is more than 90 days past due,
and (iii) with respect to any customer acquired on or after January 1, 1996,
was obtained as a subscriber in the normal course of business of the Cellular
System consistent with past practice and not as a result of (A) marketing
efforts that are not customary in the cellular telephone industry generally or
which were not utilized by the Partnership between January 1, 1996 and
October 27, 1997, or (B) any other plans for which the Partnership failed to
obtain Purchaser's prior written consent.
"TARGET NUMBER OF SUBSCRIBERS" means 14,600 plus the product of (x) 170
and (y) the number of 30-day periods elapsed from November 30, 1997 to the
Closing Date (pro rated for any partial periods of less than 30 days).
"TENTATIVE SUBSCRIBER" means each account maintained by a person or entity
which as of the Closing Date meets all of the requirements for being a
"Subscriber" (as defined in this Section 2.03(a)) except for the failure to
have been a cellular telephone service customer for the full Billing Cycle
immediately prior to the Closing Date.
(b) WORKING CAPITAL ADJUSTMENT. The Base Price shall be increased (or
decreased) by an amount equal to 24.982 percent of the amount by which Current
Assets exceeds (or is less than) Current Liabilities as of the Closing Date
(such increase or decrease in the Base Price being referred to herein as the
"Working Capital Adjustment").
(c) SUBSCRIBER ADJUSTMENT. The Base Price shall be decreased by 24.982
percent of the product of (i) $300.00 and (ii) the excess, if any, of the
Target Number of Subscribers over the number of Subscribers as of the Closing
Date (such decrease in the Base Price being referred to herein as the
"Subscriber Adjustment"); PROVIDED, HOWEVER, that for purposes of determining
the Subscriber Adjustment, a Tentative Subscriber shall be counted as a
Subscriber as of the Closing Date if as of the end of the Partnership's normal
Billing Cycle which commences after the Closing Date such Tentative Subscriber
is still an active cellular telephone service customer
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of the Cellular System and has paid all charges for service when due.
(d) CAPITAL EXPENDITURES ADJUSTMENT. The Base Price shall be increased
by 24.982 percent of the dollar amount of capital expenditures incurred and
paid for by the Partnership during the period from December 6, 1997 to the
Closing Date (such increase in the Base Price being referred to herein as the
"Capital Expenditures Adjustment"); provided that Purchaser has given the
Company its prior written consent for the amount, type and purpose of each such
capital expenditure, which consent shall not be withheld unreasonably and shall
solely be for the purpose of determining the allowable amount of the Capital
Expenditure Adjustment.
(e) UNRELATED LIABILITIES ADJUSTMENT. The Base Price shall be decreased
by 100 percent of the amount of any outstanding liabilities and obligations of
the Company which are known by the Company or Seller as of the Closing Date
which are not directly related to the Company's ownership interest in the
Partnership (the "Company Unrelated Liabilities") (such decrease in the Base
Price being referred to herein as the "Unrelated Liabilities Adjustment").
(f) DEBT ADJUSTMENT. The Base Price shall be decreased by (i) 100% of
the outstanding indebtedness of the Company for borrowed money (including
capitalized lease obligations, accrued and unpaid interest and prepayment
premiums) as of the Closing and (ii) 24.982 percent of the amount of
outstanding indebtedness of the Partnership for borrowed money (including
capitalized lease obligations, accrued and unpaid interest and prepayment
premiums) as of the Closing (such decrease in the Base Price being referred to
herein as the "Debt Adjustment"); provided that prepayment premiums shall only
be treated as indebtedness for purposes of the Debt Adjustment to the extent
Purchaser pays same in connection with the payment at the Closing of
indebtedness of the Company and/or the Partnership.
(g) PURCHASER'S AND SELLER'S ESTIMATES. Seller shall prepare and submit
to Purchaser, not later than 5 business days prior to the Closing Date, a
written good faith estimate of the amount of the Working Capital Adjustment,
Subscriber Adjustment, Capital Expenditures Adjustment, Unrelated Liabilities
Adjustment and Debt Adjustment (collectively, the "Adjustments") in accordance
with this Section 2.03 and Seller's estimate of the Purchase Price resulting
from the Adjustments ("Seller's Estimate"). Seller's Estimate shall be
accompanied by detailed supporting documents, work papers, subscriber records
and other data supporting each Adjustment and Seller's Estimate. Seller's
Estimate shall be based upon the books and records of the Partnership, to the
extent available to the Company, and the Company. To the extent applicable,
and to the best of Seller's knowledge, Seller's Estimate shall be consistent
with the estimates of the Cellular 2000 Shareholders of the adjustments to the
purchase price for the Cellular 2000 Purchase, but for the fact that the
Adjustments are based on a different percentage than the adjustments for the
Cellular 2000 Purchase. Seller's Estimate shall be accompanied by a
certificate signed by Seller certifying that Seller's Estimate was calculated
in good faith and in accordance with the provisions of this Section 2.03.
After the delivery of Seller's Estimate and prior to the Closing, Purchaser and
Seller shall attempt to resolve any disputes between Seller and Purchaser with
respect to Seller's proposed Adjustments. In connection therewith, Purchaser
shall have full access to all records of the Company and, to the extent
available to the Company,
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the Partnership related to Seller's proposed Adjustments. Prior to Closing,
Purchaser shall advise Seller in writing as to any dispute Purchaser has with
Seller's Estimate and provide Seller with Purchaser's calculation of the
Adjustments and the Purchase Price, accompanied by a certificate signed by
the President or Chief Financial Officer of Purchaser certifying that
Purchaser's calculation was made in good faith and shall be accompanied by
supporting documents and information, to the extent the same is available to
Purchaser ("Purchaser's Estimate"). In the event that (i) Purchaser's
Estimate of the Purchase Price is less than $25,000 less than Seller's
Estimate, the Closing shall proceed with the Purchase Price based upon
Seller's Estimate; or (ii) Purchaser's Estimate of the Purchase Price is more
than $25,000 less than Seller's Estimate, then the mid-point between Seller's
Estimate and Purchaser's Estimate shall be used as the Purchase Price for
purposes of the Closing.
(h) POST-CLOSING ADJUSTMENTS. Within 120 days after the Closing Date,
Purchaser shall deliver to Seller a certificate (the "Closing Certificate")
signed by the President or Chief Financial Officer of Purchaser providing a
compilation of the Adjustments to be made pursuant to this Section 2.03,
including any changes in the Adjustments used to determine the Purchase Price
at Closing, together with a statement of any additional amount owing to either
party (the "Adjustment Amount"), a copy of any supporting documents, work
papers, Subscriber records and other data relating to such Closing Certificate
and such other supporting evidence as Seller may reasonably request either
prior to or after delivery thereof. If Seller shall conclude that the Closing
Certificate does not accurately reflect the Adjustments to be made to the Base
Price in accordance with this Section 2.03 and the Adjustment Amount, Seller
shall, within 30 days after receipt of the Closing Certificate (such 30 day
period being referred to as the "Response Period"), deliver to Purchaser a
written statement of any discrepancies believed to exist. If Seller fails to
so notify Purchaser of any discrepancies, then the calculation of the Purchase
Price set forth in Purchaser's Closing Certificate shall be controlling for all
purposes hereof and, on or before the fifth (5th) day following the expiration
of the Response Period, (i) if the Purchaser is obligated to pay Seller the
Adjustment Amount, then Purchaser shall pay Seller the Adjustment Amount, or
(ii) if Seller is obligated to pay Purchaser the Adjustment Amount, then Seller
shall pay Purchaser the Adjustment Amount. On or before the fifth (5th) day
following the earlier to occur of the expiration of the Response Period and the
date Purchaser receives Seller's statement of discrepancies, Purchaser or
Seller, as the case may be, shall pay the portion of the Adjustment Amount, if
any, as to which there is no discrepancy (the "Agreed Adjustment Amount").
Purchaser and Seller shall use good faith efforts to jointly resolve their
discrepancies within fifteen (15) days of Purchaser's receipt of Seller's
written statement of discrepancies, which resolution, if achieved, shall be
binding upon Seller and Purchaser and not subject to further dispute or review.
In the event Purchaser and Seller are unable to resolve their differences
within such fifteen (15) day period, then either party may request that the
matter be resolved by Price Waterhouse (the "Independent Accountants"). In
submitting a dispute to the Independent Accountants, each of the parties shall
furnish, at its own expense, the Independent Accountants and the other party
with such documents and information as the Independent Accountants may
reasonably request. Each party may also furnish to the Independent Accountants
such other information and documents as it deems relevant with the appropriate
copies and notification being given to the other party. The Independent
Accountants may conduct a conference
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concerning the disagreements between Seller and Purchaser at which conference
each party shall have the right to present additional documents, material and
other evidence and to have present its advisors, accountants and counsel.
The Independent Accountants shall promptly render a decision on the issues
presented and shall provide Purchaser and Seller with a statement of the
amount owing (the "Final Adjustment Amount"), and such decision shall be
final and binding on the parties. The fees and expenses of the Independent
Accountants shall be divided equally between Purchaser and Seller.
Notwithstanding the foregoing, to the extent that such fees and expenses of
the Independent Accountants are attributable to resolving a disagreement of
the same issue arising out of both this Agreement and the Cellular 2000
Agreement, then such fees and expenses shall be allocated 50% to Purchaser,
12.491% to Seller, and 37.509% to the Cellular 2000 Shareholders. Within
five (5) days of receipt of the Independent Accountants' decision with
respect to such dispute, (i) if Purchaser is determined to owe the Final
Adjustment Amount to Seller, then Purchaser shall pay Seller the Final
Adjustment Amount; or (ii) if Seller is determined to owe the Final
Adjustment Amount to Purchaser, then Seller shall pay the Final Adjustment
Amount to Purchaser. All amounts owed by Purchaser or Seller to the other in
accordance with this Section 2.03(h) shall be paid by wire transfer of
immediately available funds and shall not bear any interest.
ARTICLE III
CLOSING
Subject to the terms and conditions hereof, the closing (the "Closing")
shall take place at the offices of Edwards & Angell, 2700 Hospital Trust Tower,
Providence, Rhode Island 02903-2499, on the date (the "Closing Date") defined
in Article III of the Cellular 2000 Purchase Agreement as the "Closing Date".
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants that:
SECTION 4.01. ORGANIZATION; QUALIFICATION. (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all necessary power and authority to
own and operate its properties and to carry on its business as now being
conducted or proposed to be conducted. The Company is duly qualified or
licensed to do business as a foreign corporation in good standing in the
jurisdictions in which the ownership of property or the conduct of its business
requires such qualification. Attached hereto as SCHEDULE 4.01(a) is a true and
complete copy of the Articles of Incorporation, as amended to date, of the
Company.
(b) To the best of Seller's knowledge, the Partnership is a general
partnership duly organized and validly existing under the laws of the State of
Michigan and has all necessary power and authority to own and operate its
properties and to carry on its business as now being conducted or proposed to
be conducted. Attached hereto as SCHEDULE 4.01(b) is a true and
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complete copy of the Partnership Agreement (the "Partnership Agreement") of
the Partnership that is in Seller's possession.
SECTION 4.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF
AGREEMENT. Seller has full power, authority and capacity, and the Company has
full corporate power, authority and capacity, to execute and deliver this
Agreement and to carry out the transactions contemplated hereby. No other
proceedings, corporate or otherwise, on the part of Seller or the Company are
necessary to approve and authorize the execution and delivery of this Agreement
by Seller and the Company and the consummation by Seller and the Company of the
transactions contemplated hereby, subject to the other governmental and third-
party consents referred to in SECTION 7.04. This Agreement has been duly
executed and delivered by Seller and the Company and constitutes a valid and
binding agreement of Seller and the Company enforceable against Seller and the
Company in accordance with its terms.
SECTION 4.03. SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES. (a) Other
than its interest in the Partnership (the "Interest"), the Company has no
subsidiaries, and does not own or control any shares or other securities of, or
have any other proprietary interest in, any individual, corporation,
partnership, limited liability company, joint venture, business association or
other entity (a "Person").
(b) To the best of Seller's knowledge, the Partnership has no
subsidiaries and does not own or control any shares or other securities of, or
have any other proprietary interest in, any Person.
SECTION 4.04. CAPITAL STOCK; INTERESTS. (a) The authorized capital
stock of the Company consists of 50,000 shares of Common Stock, of which 200
shares are issued and outstanding. All of the issued and outstanding Shares
are owned beneficially and of record by Seller. There are no subscriptions,
options, warrants, calls, rights, tag-along rights, drag-along rights, rights
of first refusal, contracts, commitments, voting trusts, proxies,
understandings, restrictions or arrangements relating to the issuance, voting,
sale or transfer by Seller or the Company of the Shares, including rights of
conversion or exchange under any outstanding securities or other instruments.
All outstanding shares of capital stock of the Company have been duly
authorized, validly issued and are fully paid, non-assessable and free of
preemptive rights. There are no accrued dividends or other amounts due and
owing with respect to the Shares.
(b) With respect to the Interest, the Company has satisfied all capital
calls, contribution requirements and similar obligations to make contributions
or investments. The Company is not in default under the Partnership Agreement
of the Partnership (the "Partnership Agreement") or any other instrument
setting forth the rights and obligations of the Company as owner of an Interest
in the Partnership. To the best of Seller's knowledge, there are no
subscriptions, options, warrants, calls, rights, tag-along rights, drag-along
rights, rights of first refusal, contracts, commitments, voting trusts,
proxies, understandings, restrictions or arrangements relating to the Interest
other than as set forth in the Partnership Agreement, including without
limitation, any agreement or commitment of the Company to deliver or sell the
Interest.
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SECTION 4.05. OWNERSHIP OF SHARES; OWNERSHIP OF INTEREST. (a) Seller is
the record and beneficial owner of the Shares. Seller has, and will convey to
Purchaser at Closing, good and marketable title to the Shares, free and clear
of all Encumbrances of any kind whatsoever.
(b) The Company is the record and beneficial owner of the Interest, free
and clear of all Encumbrances of any kind whatsoever.
SECTION 4.06. ASSETS. The Company does not own or lease any assets other
than the Interest.
SECTION 4.07. CONTRACTS. (a) Except as set forth on SCHEDULE 4.07(a)
attached hereto (the "Existing Contracts"), the Company is not a party to any
contract, agreement, commitment, or obligation other than agreements with
affiliates of the Company that will be canceled at or prior to the Closing.
(b) Except as disclosed on SCHEDULE 4.07(b) attached hereto, neither the
Company nor any Seller has knowledge of any breach, anticipated breach or
violation by the other parties to any Existing Contract. The Existing
Contracts are valid and binding obligations of the Company, and are in full
force and effect against the Company and the Company is in compliance with its
obligations under such Existing Contracts.
SECTION 4.08. GOVERNMENTAL LICENSES. Except as set forth on SCHEDULE
4.08 attached hereto, the Company holds all necessary licenses, consents,
permits, approvals and authorizations of public and governmental bodies which
are required in connection with the ownership and operation of the Company's
business (collectively referred to as the "Company Authorizations"). All
Company Authorizations are in full force and effect. The Company has complied
with the terms of the Company Authorizations which it holds and there are no
pending modifications, amendments or revocations of the Company Authorizations
which would adversely affect the ownership or the operation of its business.
All fees due and payable from the Company to governmental authorities pursuant
to the Company Authorizations have been paid. All reports required of the
Company to be filed in connection with the Company Authorizations have been
timely filed and are accurate and complete. True and correct copies of the
Company Authorizations, and all amendments thereto to the date hereof, have
been delivered by Seller to Purchaser and are identified on SCHEDULE 4.08
attached hereto.
SECTION 4.09. COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 4.09
attached hereto, Seller and the Company are currently complying with and have
so complied with, and are not in default under, in violation or contravention
of, any statute, law (including environmental or employment laws), ordinance,
decree, order, rule or regulation of any governmental body applicable to the
business of the Company or the Business, including, without limitation, the
rules and regulations of the FCC and the California Public Utilities Commission
("CPUC").
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SECTION 4.10. NO VIOLATION OF EXISTING AGREEMENTS. The execution,
delivery and performance of this Agreement by Seller and the Company and
Seller's transfer of the Shares to Purchaser (i) will not violate any
provisions of any law or any provision of the Company's articles of
incorporation or by-laws, or the Partnership Agreement, (ii) to the best of
Seller's knowledge, will not, with or without the giving of notice or the
passage of time, or both, conflict with or result in any breach of any of the
terms or conditions of, or constitute a default under any Existing Contract or
any contract to which Seller is a party, and (iii) will not result in the
creation of any Encumbrance upon any of the Shares or, to the best of Seller's
knowledge, the assets of the Partnership.
SECTION 4.11. LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
SCHEDULE 4.11 attached hereto, there is no outstanding judgment against the
Company, Seller or any director, officer or stockholder of the Company
affecting the Business or the Shares or which questions the validity of any
action taken or to be taken pursuant to or in connection with the provisions of
this Agreement. Except as set forth on SCHEDULE 4.11 attached hereto, there is
no claim, litigation, proceeding or investigation pending, or, to the Company's
or Seller's knowledge, threatened, against the Company or Seller or any
director, officer or stockholder of the Company affecting the Business or which
questions the validity of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement and there is no basis for any
such claim, litigation, proceeding or investigation. Except as set forth on
SCHEDULE 4.11 attached hereto, there are no proceedings pending to which the
Company or Seller or any director, officer or stockholder of the Company is a
party or, to the Company's or Seller's knowledge, threatened, nor any demands
by any governmental agency, utility or other party, to terminate, modify or
adversely change the terms and conditions of the Company's rights with respect
to the Company Authorizations or Existing Contracts.
SECTION 4.12. ENVIRONMENTAL COMPLIANCE. (a) Except as set forth on
SCHEDULE 4.12 attached hereto, (i) neither Seller nor the Company has received
any notice alleging any violation of any Environmental Law; (ii) the Company is
in compliance with all Environmental Laws; (iii) the Company has obtained and
complies with all required governmental environmental permits with respect to
its business as presently conducted; (iv) the Company has not generated, used,
transported, treated, stored, released or disposed of, or suffered or permitted
anyone else to generate, use, transport, treat, store, release or dispose of
any Hazardous Substance (as hereinafter defined) with respect to its business
in violation of any Environmental Laws (as hereinafter defined); (v) there has
not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with the Company's ownership
and conduct of its business, which has created or might reasonably be expected
to create any liability under any Environmental Laws or which would require
reporting to or notification of any governmental entity; (vi) no friable
asbestos or polychlorinated biphenyl, and no underground storage tank, is
contained in or located on or under any property or facility owned, used or
leased by the Company; and (vii) any Hazardous Substance handled or dealt with
in any way with respect to the business of the Company or the Company's
ownership of its business, has been and is being handled or dealt with in
compliance with all Environmental Laws.
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(b) For purposes of this Agreement, the term "Hazardous Substance"
shall mean any substance which, as of the date of this Agreement, is listed as
hazardous or toxic in the regulations implementing the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Response Compensation and Liability Act ("RCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), or listed as a
hazardous substance under any applicable state environmental laws, or any
substance which has been determined by regulation, ruling or otherwise by any
agency or court to be a hazardous or toxic substance regulated under federal or
state law, and shall include petroleum and petroleum products.
(c) For purposes of this Agreement, the term "Environmental Laws"
shall mean CERCLA, RCRA, RCLA and any applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans, authorizations,
concessions, franchises and similar items of all governmental authorities and
all applicable judicial, administrative and regulatory decrees, judgments and
orders, any of which relate to the protection of human health or the
environment from the effects of Hazardous Substances, including but not limited
to those pertaining to reporting, licensing, permitting, investigating and
remediating emissions, discharges, releases or threatened releases of Hazardous
Substances into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
SECTION 4.13. EMPLOYEES. The Company does not currently have, and never
had, any employees, and is not a party to any employment contract.
SECTION 4.14. EMPLOYEE BENEFITS. The Company does not have any pension
plan, profit sharing plan, deferred compensation plan, stock option or stock
bonus plan, saving plan, or other benefit plan, policy, practice, or procedure
or contract concerning employee benefits or fringe benefits of any kind,
whether or not governed by the Employee Retirement Income Security Act of 1974,
as amended.
SECTION 4.15. TAX MATTERS. (a) Except as set forth on SCHEDULE 4.15(a)
attached hereto: (i) the Company and Seller has timely filed all Tax (as
defined below) returns and statements which it is required to file with respect
to the Company; (ii) all such returns are complete and accurate and disclose
all Taxes required to be paid for the periods covered thereby; (iii) neither
the Company nor Seller has waived any statute of limitations in respect of
Taxes or agreed to an extension of time with respect to a Tax assessment or
deficiency; (iv) no assessment of any additional Taxes for periods for which
returns have been filed has been asserted and no basis exists therefor; (v) to
the Company's and Seller's knowledge, there are no unresolved questions or
claims raised by any Taxing authority concerning the Tax liability of the
Company; and (vi) all Taxes which the Company is required by law to withhold or
to collect for payment have been duly withheld and collected, and have been
paid. The Company has paid all Taxes due prior to the date hereof and will pay
when due (or contest in good faith by appropriate proceedings) all Taxes which
may become due on or before the Closing Date.
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(b) For purposes of this Section 4.15, the term "Tax" or "Taxes" means
all taxes, charges, fees, levies, imposts and other assessments including all
income, sales, use, goods and services, value added, capital, capital gains,
alternative net worth, transfer, profits, withholding, payroll, employer
health, excise, real property and personal property taxes, and any other taxes,
customs duties, stamp duties, fees, assessments or similar charges in the
nature of a tax, together with any interest, fines and penalties imposed by any
governmental authority (including federal, state, provincial, municipal and
foreign governmental authorities), and whether disputed or not.
SECTION 4.16. FINANCIAL STATEMENTS.
(a) Purchaser has heretofore been furnished with true and complete copies
of the unaudited balance sheets of the Company as of December 31, 1997,
December 31, 1996 and December 31, 1995 (the balance sheet as of December 31,
1997 being referred to as the "December Balance Sheet") and the related
statements of income, cash flows and shareholders' equity for the years then
ended, each of such balance sheets and income statements being attached hereto
as SCHEDULE 4.16(a) (collectively, the "Financial Statements").
(b) The Financial Statements delivered were prepared in accordance with
GAAP applied on a basis consistent with prior periods and past practices,
except for the omission of certain footnotes and other presentation items
required by GAAP with respect to audited financial statements; the December
Balance Sheet fairly presents the financial condition of the Company as at the
close of business on the date thereof; and each of the statements of income
included in such Financial Statements fairly presents the results of operations
of the Company for the fiscal period then ended.
(c) Except as set forth on SCHEDULE 4.16(c) attached hereto, since
December 31, 1997, the Company has not:
(i) sold, assigned or transferred any of its assets or
properties or canceled any material debts or material claims;
(ii) waived any material rights, whether or not in the
ordinary course of business;
(iii) entered into any other transaction, except in the
ordinary course of business, or entered into any transaction with
any partner of the Partnership or any director, officer or
shareholder of the Company, or any affiliate or family member of
any such Person;
(iv) suffered any material damage, destruction or casualty
loss with respect to its assets or properties whether or not
covered by insurance;
(v) declared or paid any dividend, made any distribution of
any of its assets to any director, officer or shareholder of the
Company or any affiliate
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or family member of any such Person or redeemed or purchased any of
its shares of capital stock or other equity interest;
(vi) entered into any contract, commitment or agreement
under which it has outstanding indebtedness for borrowed money or
for the deferred purchase price of property, or has the right or
obligation to incur any such indebtedness or obligation, or made
any loan or advance to any Person;
(vii) made any material change in accounting procedures or
practices;
(viii) mortgaged or pledged any of its properties or
assets, tangible or intangible, or subjected them to any
Encumbrances, except Encumbrances for current property taxes not
yet due and payable;
(ix) entered into any agreement or arrangement granting any
rights to purchase or lease any of its assets, properties or
rights or requiring the consent of any Person to the transfer,
assignment or lease of any such assets, properties or rights; or
(x) entered into any agreement or understanding to do any
of the foregoing.
SECTION 4.17. BROKERS. Neither Seller nor the Company has engaged any
agent, broker or other person acting pursuant to its express or implied
authority which is or may be entitled to a commission or broker or finder's fee
in connection with the transactions contemplated by this Agreement or otherwise
with respect to the sale of the Shares.
SECTION 4.18. UNDISCLOSED LIABILITIES; GUARANTEES. The Company does not
have any liabilities or obligations of any nature, whether absolute, accrued,
contingent, known or unknown, or otherwise, which are not reflected in or
reserved against the December Balance Sheet, except for liabilities and
obligations that have arisen in the ordinary and usual course of business and
consistent with past practice (none of which results from, arises out of,
relates to, is in the nature of, or caused by any breach of contract, breach of
warranty, tort, infringement or violation of law). Except as disclosed on
SCHEDULE 4.18 attached hereto or in the Financial Statements, there are no
contracts or commitments by the Company guaranteeing the payment or performance
of an obligation by any other Person.
SECTION 4.19. CERTAIN BUSINESS RELATIONSHIPS. Except as set forth in
SCHEDULE 4.19 attached hereto, none of the officers, directors or stockholders
of the Company or Seller or any of their affiliates or family members have been
involved in any business arrangement or relationship with the Company or the
Partnership outside the ordinary course of business within the past 12 months.
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SECTION 4.20. OFFICERS, DIRECTORS AND CERTAIN AUTHORIZED PERSONS.
Attached hereto as SCHEDULE 4.20 sets forth a complete and accurate list of:
(i) the names of all directors of the Company;
(ii) the names and offices of all officers of the Company;
(iii) the names of all Persons authorized to borrow money
or incur or guarantee indebtedness on behalf of the Company;
(iv) all safes, vaults and safe deposit boxes maintained by
or on behalf of the Company or in which their respective property
is held, and the names of all Persons authorized to have access
thereto;
(v) all bank accounts of the Company and the names of all
Persons who are authorized signatories and the terms of their
authorizations; and
(vi) the names of all Persons to which the Company has
granted its power of attorney and the terms of any such powers of
attorney.
SECTION 4.21. DISCLOSURE. No provision of this Agreement relating to
Seller, the Company or the Shares or any other document, Schedule, Exhibit or
other information furnished by Seller or the Company to Purchaser in connection
with the execution, delivery and performance of this Agreement, or the
consummation of the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated in order to make the statement, in light of
the circumstances in which it is made, not misleading. All Schedules provided
by Seller or the Company attached hereto are accurate and complete as of the
date hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants that:
SECTION 5.01. ORGANIZATION; QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma. Purchaser has all necessary power and authority to (i) own
and operate its properties, (ii) carry on its business as it is now being
conducted, and (iii) carry out the transactions contemplated by this Agreement
and to own the Shares and operate the Business, subject to Seller's obtaining
all necessary consents required for the transfer of the Shares. Purchaser is
duly qualified and in good standing as a foreign corporation in the State of
California and in any other jurisdiction in which the ownership of property or
the conduct of its business requires such qualification.
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SECTION 5.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF
AGREEMENT. All necessary consents and approvals have been obtained by
Purchaser for the execution, delivery and performance of this Agreement. The
execution and delivery of this Agreement by Purchaser has been duly and validly
authorized and approved by all necessary corporate action. Purchaser has full
power and authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by Purchaser
and is a valid and binding obligation of Purchaser, enforceable against it in
accordance with its terms.
SECTION 5.03. BROKERS. Purchaser has not engaged any agent, broker or
other person acting pursuant to the express or implied authority of Purchaser
which is or may be entitled to a commission or broker or finder's fee in
connection with the transactions contemplated by this Agreement or otherwise
with respect to the sale of the Shares.
SECTION 5.04. NO DISTRIBUTION. The Shares will not be taken by Purchaser
with a view to the public distribution thereof and will not be transferred
except in a transaction registered or exempt from registration under the
Securities Act of 1933, as amended, and any applicable state securities laws.
SECTION 5.05. COMPLIANCE WITH LAWS. Purchaser is currently complying
with and has so complied with, and is not in default under or in violation or
contravention of, any statute, law, ordinance, decree, order, rule, or
regulation of any governmental body applicable to its business, including,
without limitation, the rules and regulations of the FCC and the CPUC.
SECTION 5.06. NO VIOLATION OF EXISTING AGREEMENTS. The execution,
delivery and performance of this Agreement by Purchaser (i) will not violate
any provisions of any law or any provision of Purchaser's certificate of
incorporation or by-laws and (ii) will not, with or without the giving of
notice or the passage of time, or both, conflict with or result in any breach
of any terms or conditions of, or constitute a default under any contract to
which Purchaser is a party.
SECTION 5.07. LITIGATION AND LEGAL PROCEEDINGS. There is no outstanding
judgment against Purchaser or any director, officer or stockholder of Purchaser
which questions the validity of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement. There is no claim,
litigation, proceeding or investigation pending or, to Purchaser's knowledge,
threatened against Purchaser or any of its directors, officers or stockholders
which questions the validity of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement and there is no basis for
any such claim, litigation, proceeding or investigation.
SECTION 5.08. OWNERSHIP. All of the issued and outstanding shares of the
capital stock of Purchaser are owned, of record and beneficially by, Dobson
Cellular Operations Company, an Oklahoma corporation which is a wholly-owned
subsidiary of Dobson Communications Corporation, an Oklahoma corporation
("Parent"). There are no options, warrants or other rights to acquire capital
stock of Purchaser or securities representing the right to acquire or convert
into capital stock of Purchaser.
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SECTION 5.09. CELLULAR 2000 PURCHASE AGREEMENT. Purchaser has provided
to Seller a complete, true and accurate copy of the Cellular 2000 Purchase
Agreement. Purchaser is not in breach of any of its representations,
warranties, covenants or agreements under the Cellular 2000 Purchase Agreement
as a result of which breach(es), individually or in the aggregate, the Cellular
2000 Shareholders would be entitled, at their sole election, to terminate or
otherwise not consummate the transactions contemplated in the Cellular 2000
Purchase Agreement, except that any such breach shall be considered waived if,
with full knowledge thereof by the Cellular 2000 Shareholders, the Closing (as
defined in the Cellular 2000 Purchase Agreement) occurs. Purchaser is not
aware of any breach by any party to the Cellular 2000 Purchase Agreement that
currently is in existence and could cause the transactions contemplated by that
agreement not to be consummated.
ARTICLE VI
THE COMPANY'S, SELLER'S AND PURCHASER'S COVENANTS
SECTION 6.01. GOVERNMENTAL APPROVALS. (a) Purchaser covenants and
agrees that it will cooperate with the Company and Seller, and use its
reasonable best efforts to assist them, to obtain all consents and approvals
necessary for transfer of control to Purchaser of the licenses, consents,
permits, approvals and authorizations of public and governmental bodies
including, without limitation, the FCC licenses, consents, permits and
authorizations to operate a cellular telephone system in the Cellular Area and
microwave paths used in connection with such cellular operations (the "FCC
Authorizations") and authorizations from the CPUC and other states, counties
and municipalities served by the Business which are required in connection with
the ownership and operation of the Business (collectively referred to as the
"Authorizations"). The Company and Seller shall use all reasonable efforts to
provide adequate prior written notice to Purchaser of any meeting with
governmental authorities the purpose of which is to seek a consent or approval
to the transactions contemplated hereby, and Purchaser shall use all reasonable
efforts to furnish a representative to attend meetings with appropriate
government authorities for the purpose of obtaining such consents or approvals.
Purchaser, the Company and Seller hereby agree to file and to cause the
Partnership to file the necessary Form(s) 490 and 702 with the FCC transferring
or assigning control of the FCC Authorizations for the Business to Purchaser
and diligently pursue the processing of the assignment of the FCC
Authorizations to Purchaser and to file for all other necessary regulatory
approvals for the consummation of the transactions contemplated by this
Agreement within five business days of the date of execution of this Agreement
to the extent any such filings have not been made prior to the date of
execution of this Agreement. Seller, on the one hand, and Purchaser, on the
other, shall share equally all filing fees in connection with any filings
pursuant to this Section 6.01(a). Notwithstanding the foregoing, to the extent
that Purchaser, Seller and the Cellular 2000 Shareholders jointly shall be
permitted to make a single filing under this Section 6.01(a) and pay a single
filing fee in connection therewith, such filing fee shall be paid 50% by
Purchaser, 12.491% by Seller, and 37.509% by the Cellular 2000 Shareholders.
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(b) The Company, Seller and Purchaser shall each cooperate and use their
reasonable best efforts to prepare and file with the Federal Trade Commission
and the Department of Justice and other regulatory authorities as promptly as
possible all requisite applications and amendments thereto together with
related information, data and exhibits necessary to satisfy the requirements of
the Hart-Scott-Rodino Antitrust Improvements Act ("Hart-Scott Act"). Seller,
on the one hand, and Purchaser, on the other, shall share equally all filing
fees in connection with any filings pursuant to this Section 6.01(b).
Notwithstanding the foregoing, to the extent that Purchaser, Seller and the
Cellular 2000 Shareholders jointly shall be permitted to make a single filing
under this Section 6.01(b) and pay a single filing fee in connection therewith,
such filing fee shall be paid 50% by Purchaser, 12.491% by Seller, and 37.509%
by the Cellular 2000 Shareholders.
SECTION 6.02. THIRD PARTY CONSENTS; CLOSING CONDITIONS. (a) The Company
and Seller covenant and agree to use their reasonable best efforts to assist
the Cellular 2000 Shareholders to obtain all consents and approvals necessary
for the transfer or assignment to Purchaser of the contracts requiring
assignment as a result of Purchaser's purchase of the Shares. Purchaser
covenants and agrees to cooperate with the Cellular 2000 Shareholders and
assist the Cellular 2000 Shareholders in obtaining such consents and approvals
including the furnishing of financial and other information, reasonably
required by the Person whose consent or approval is being sought.
(b) Purchaser, the Company and Seller hereby covenant and agree to use
all reasonable efforts to satisfy, or assist the other party in satisfying, the
closing conditions applicable to the Purchaser in Article VII hereof and the
Company and Seller in Article VIII hereof prior to the Closing Date.
SECTION 6.03. ACCESS. (a) Purchaser shall have the right, itself or
through its representatives, during normal business hours, after reasonable
notice (which may be oral) to Seller and the Company, and without undue
disruption to the Company, to inspect the assets and properties of the Company
and to inspect and make abstracts and reproductions of all books and records of
the Company including, without limitation, applications and reports to the FCC
and CPUC, all financial information relevant to the Business, employee records,
and engineering and environmental reports, and the Company shall furnish
Purchaser with such information respecting the assets, business and financial
records of the Company as Purchaser may, from time to time, reasonably request.
(b) The Company and Seller acknowledge that the Cellular 2000 Shareholders
have permitted Purchaser the opportunity to conduct an engineering review of
the Cellular System to confirm that the Cellular System complies with the FCC
Authorizations and the regulations of the FCC and is otherwise in good
condition and repair, reasonable wear and tear excepted.
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SECTION 6.04. CONDUCT OF BUSINESS. From and after the date hereof, the
Company and Seller shall:
(a) comply with all laws, rules and regulations applicable to the
Company;
(b) refrain from making any sale, lease, transfer or other disposition
of the Shares or the Interest;
(c) refrain from modifying, amending or altering or terminating any of
the Existing Contracts, and from waiving or canceling any default or breach
or modifying, altering or terminating any right or asset of the Company
without Purchaser's prior written approval, which approval will not be
unreasonably withheld;
(d) maintain insurance on the assets and properties of the Company
comparable to that maintained prior to the date hereof, and use the
proceeds of any claims for loss under such policies, together with such
other funds as may be required, to repair, replace, or restore to their
former condition any assets or properties which may be damaged by fire or
other casualty, all as soon as reasonably possible;
(e) maintain its books and records in accordance with prior practice;
maintain all of its property and assets in their present condition,
ordinary wear and tear excepted; and otherwise operate its business in the
ordinary course in accordance with past practices;
(f) refrain from changing the articles of incorporation or by-laws of
the Company;
(g) refrain from subjecting the Shares or the Interest to any
Encumbrance;
(h) refrain from doing or omitting to do any act which will cause a
breach of, or default under, or termination of (except in accordance with
its terms), any contract, agreement, lease, commitment, or obligation to
which the Company is a party or by which it is bound;
(i) notify Purchaser in writing promptly after learning of the
institution or threat of any material action against the Company in any
court, or any action against the Company before the FCC or the CPUC or any
other governmental agency, and notify Purchaser in writing promptly upon
receipt of any administrative or court order relating to the Business;
(j) pay or cause to be paid or provide for all Taxes of or relating to
the Company or the Shares up to the Closing Date;
(k) refrain from taking any action not in the Company's usual course
of business without Purchaser's prior approval;
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(l) refrain from distributing, by dividend or otherwise, the Interest
or any portion thereof, or issuing, redeeming or repurchasing any shares of
the Company's capital stock; PROVIDED, HOWEVER, that the Company may
distribute to Seller any and all assets of the Company other than the
Interest;
(m) refrain from creating, incurring, assuming, guaranteeing, or being
or remaining liable, contingently or otherwise, with respect to any
indebtedness; and
(n) refrain from being a party to any merger or consolidation or other
transfer of any shares of the capital stock of the Company or interests in
the Partnership.
SECTION 6.05. NO SHOPPING. None of Seller, the Company and any of their
affiliates, advisors or representatives shall, directly or indirectly, solicit,
encourage or initiate any contact with, negotiate with, or provide any
information to, endorse or enter into any agreement with respect to, or take
any other action to facilitate any person or group, other than Purchaser and
its representatives, concerning any inquiries or the making of any proposals
concerning any merger involving the Company or the Partnership, sale of all or
substantially all of the assets of the Company or the Partnership, acquisition
of the Shares or an equity interest in the Company or the Partnership or any
similar transaction involving the Company or the Partnership.
SECTION 6.06. EMPLOYEES. Nothing contained in this Agreement shall confer
upon any employee of the Partnership any right with respect to continued
employment by the Partnership or Purchaser. No provision of this Agreement
shall create any third-party rights in any such employee, or any beneficiary or
dependent thereof, with respect to the compensation, terms and conditions of
employment and benefits that may be provided to such employee by Purchaser or
under any benefit plan that Purchaser may maintain.
SECTION 6.07. SUPPLEMENTAL DISCLOSURE. The parties hereto shall promptly
from time to time prior to the Closing Date supplement in writing the Schedules
hereto or other information delivered pursuant hereto with respect to any
matter hereafter arising that, if existing or known as of the date of this
Agreement, would have been required to be set forth or described in the
Schedules hereto; provided, however, that no such supplemental disclosure shall
be deemed to cure any breach of any representation or warranty of the
disclosing party made in this Agreement unless the other party fails to object
in writing to any such supplemental disclosure within ten (10) business days
after receipt thereof.
SECTION 6.08. CELLULAR 2000 PURCHASE. Purchaser shall perform all of its
obligations under, and shall not breach, the Cellular 2000 Purchase Agreement
and shall consummate the transactions contemplated thereunder, unless any such
action or inaction by Purchaser is (i) excused by the terms of the Cellular
2000 Purchase Agreement, or (ii) is waived by the other parties to that
agreement in accordance with the terms thereof, or (iii) does not otherwise
prevent consummation of the transactions contemplated thereunder.
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SECTION 6.09 TAXES.
(a) Taxes, together with all related deductions, credits and allowances,
attributable to the business and operations of the Company shall be allocated
to (i) Seller for the period up to and including the Closing Date, and (ii)
Purchaser for the period subsequent to the Closing Date. For purposes of this
Section 6.09, Taxes for the period up to and including the Closing Date shall
be determined on the basis of a closing of the books as of the Closing Date,
except that any such Tax imposed annually based on ownership of assets on a
particular date or similar Tax shall be prorated to the period prior to and
including the Closing Date and the period thereafter.
(b) Seller shall be solely responsible for and shall prepare or cause to
be prepared, and file or cause to be filed, all Tax returns of the Company with
respect to periods ending on or before the Closing Date. Purchaser shall
prepare or cause to be prepared, and file or cause to be filed, all Tax returns
of the Company with respect to periods ending after the Closing Date.
(c) With respect to any Tax return for any taxable period of the Company
that includes but does not terminate on the Closing Date, Purchaser shall
deliver, at least thirty (30) business days prior to the due date for filing
such Tax return (including extensions), to Seller a statement setting forth the
amount of Taxes for which Seller is responsible pursuant to this Agreement or
that are allocable to Seller pursuant to Section 6.09(a), as the case may be
(the "Statement"), and copies of such Tax return. Seller shall have the right
to review and approve or disapprove such Tax return and the Statement prior to
the filing of such Tax return. Seller and Purchaser agree to negotiate and
resolve in good faith any issue arising as a result of the review of such Tax
return and the Statement and to mutually consent to the filing of such Tax
return as promptly as possible.
(d) Whenever any taxing authority sends a notice of an audit, initiates
an examination of the Company or otherwise asserts a claim, makes an assessment
or disputes the amount of Taxes (i) for any taxable period for which Seller is
or may be liable under this Agreement or (ii) for any taxable period that
involves an issue that could potentially affect a taxable period for which
Seller is or may be liable under this Agreement, Purchaser shall promptly
inform Seller, and Seller shall have the right to control, at its cost, any
resulting proceedings and to determine whether and when to settle any such
claim, assessment or dispute to the extent such proceedings or determinations
affect the amount of Taxes for which Seller is liable under this Agreement.
Whenever any taxing authority sends a notice of an audit, initiates an
examination of the Company or otherwise asserts a claim, makes an assessment or
disputes the amount of Taxes (i) for any taxable period for which Purchaser is
liable under this Agreement or (ii) for any taxable period that involves an
issue that could potentially affect a taxable period for which Purchaser is or
may be liable under this Agreement, Seller shall promptly inform Purchaser, and
Purchaser shall have the right to control, at its cost, any resulting
proceedings and to determine whether and when to settle any such claim,
assessment or dispute, except to the extent such proceedings affect the amount
of Taxes for which Seller is liable under this Agreement.
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(e) Each of Purchaser and Seller will provide the other with such
assistance as may reasonably be requested by either of them in connection with
the preparation of any Tax return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each will retain and provide the other with any records or
information which may be relevant to such return, audit or examination,
proceedings or determination. Such assistance shall include making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder and shall include providing
copies of any relevant tax return and supporting work schedules. The party
requesting assistance hereunder shall reimburse the other for reasonable
expenses incurred in providing such assistance. Without limiting in any way
the foregoing provisions of this Section 6.09(e), Purchaser hereby agrees that
it will retain, until the appropriate statutes of limitation (including any
extensions) expire, copies of all tax returns, supporting work schedules and
other records or information which it possesses and which may be relevant to
such returns of the Company for all taxable periods ending on or prior to the
Closing Date, and that such records shall be maintained until the expiration of
the applicable statute of limitations, including any extensions thereto.
Further, Purchaser will not destroy or otherwise dispose of such records
without first providing Seller with a reasonable opportunity to review and copy
such records.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser under this Agreement with respect to the
purchase and sale of the Shares shall be subject to the fulfillment on or prior
to the Closing of each of the following conditions, any of which may be waived
in writing by Purchaser:
SECTION 7.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
THIS AGREEMENT. All of the representations and warranties made by the Company
and Seller in this Agreement shall be true and correct at and as of the
Closing, except for such breaches and inaccuracies therein which, in the
aggregate, have not caused and would not reasonably be expected to cause
Purchaser to suffer a Loss (as defined in Section 10.01) in excess of $300,000
in the aggregate (a "Material Loss") or otherwise result in a Material Adverse
Effect. The Company and Seller shall have complied in all material respects
with and performed all of the agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing.
Purchaser shall have been furnished with a certificate or certificates of the
Company's President or any Vice President, dated as of the Closing, certifying
to the fulfillment of the foregoing conditions. As used in this Agreement, the
term "Material Adverse Effect" means a material adverse effect on the assets,
properties, business, operations or prospects of the Business taken as a whole,
without regard to whether such effect constitutes a Material Loss.
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SECTION 7.02. DIRECTORS' RESOLUTIONS. The Company shall deliver to
Purchaser copies of the resolutions of the board of directors of the Company
authorizing the execution, delivery and performance of this Agreement and all
instruments and documents to be delivered in connection herewith and the
transactions contemplated hereby, duly certified by an officer of the Company.
SECTION 7.03. INCUMBENCY CERTIFICATE. Purchaser shall have received a
certificate or certificates of an officer of each of the Company and Seller,
certifying as to the genuineness of the signatures of officers of such Person
authorized to take certain actions or execute any certificate, document,
instrument or agreement to be delivered pursuant to this Agreement, which
incumbency certificate shall include the true signatures of such officers.
SECTION 7.04. THIRD PARTY CONSENTS; FCC; HART-SCOTT ACT. Seller shall
have delivered to Purchaser such instruments, consents and approvals of third
parties (the form and substance of which shall be reasonably satisfactory to
Purchaser) as are necessary for the consummation of the transactions
contemplated by this Agreement and to assign to Purchaser without modification
thereof, as of the Closing, the Existing Contracts that require consent as a
result of Purchaser's purchase of the Shares, and Purchaser shall have obtained
all Authorizations necessary for the consummation of the transactions
contemplated by this Agreement. Prior to the Closing Date, the FCC shall have
issued a Final Order granting the FCC's consent to the transfer of control of
the FCC Authorizations to Purchaser without any material conditions, excepting
conditions applied on an industry-wide basis, which the Purchaser reasonably
deems to be adverse. In addition, all applicable waiting periods under the
Hart-Scott Act (if applicable to the transactions contemplated by this
Agreement) shall have expired or been terminated and no objection shall have
been made by the Federal Trade Commission ("FTC") or the United States
Department of Justice ("DOJ"). For the purposes of this Agreement, the term
"Final Order" shall mean action by the FCC as to which (i) no request for stay
by the FCC, as applicable, of the action is pending, no such stay is in effect,
and, if any deadline for filing any such request is designated by statute or
regulation, such deadline has passed; (ii) no petition for rehearing or
reconsideration of the action is pending before the FCC and the time for filing
any such petition has passed; (iii) the FCC does not have the action under
reconsideration on its own motion and the time for such reconsideration has
passed; and (iv) no appeal to a court, or request for stay by a court, of the
FCC's action, as applicable, is pending or in effect, and, if any deadline for
filing any such appeal or request is designated by statute or rule, it has
passed.
SECTION 7.05. NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in the financial condition, assets, business or
prospects of the Company, the Partnership or the Cellular System, from May 31,
1997 to the Closing; provided, however, that changes in the Partnership's
business prospects caused by or principally related to changes in governing
law, relevant regulations, the introduction of competitive service providers or
conditions affecting the industry or the local, regional or national economy
generally shall not be considered a material adverse change.
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SECTION 7.06. NORMAL COURSE OF BUSINESS. Each of the Partnership and the
Company shall have operated its business in the normal course prior to Closing,
except as permitted or required under this agreement or the Cellular 2000
Purchase Agreement or by Purchaser in writing, including without limitation the
continuation by the Partnership of budgeted capital improvements, and shall
have continued to market the Cellular System's services in the normal course of
business and in accordance with past practices.
SECTION 7.07. OPINION OF COUNSEL TO THE COMPANY AND SELLER. Purchaser
shall have been furnished with an opinion of in-house counsel to the Company
and Seller, dated as of the Closing and addressed to Purchaser, and to any
institution designated by Purchaser which has provided financing in connection
with the transactions contemplated by this Agreement, in substantially the form
of EXHIBIT A hereto.
SECTION 7.08. RESIGNATIONS OF DIRECTORS. The Company and Seller shall
have provided to Purchaser, in a form satisfactory to Purchaser, the
resignations of each member of the Company's Board of Directors.
SECTION 7.09. CELLULAR 2000 COMPANY CLOSING. The "Closing" (as defined
in the Cellular 2000 Purchase Agreement) shall have occurred, or shall occur
simultaneously with the Closing of the transactions hereunder.
ARTICLE VIII
CONDITIONS PRECEDENT TO
THE COMPANY'S AND SELLER'S OBLIGATION TO CLOSE
The obligations of the Company and Seller under this Agreement with
respect to the sale of the Shares shall be subject to the fulfillment on or
prior to the Closing of each of the following conditions, any of which may be
waived in writing by the Company and Seller:
SECTION 8.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
THIS AGREEMENT. All of the representations and warranties by Purchaser
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing. Purchaser shall have complied with and performed in
all material respects all of the agreements and covenants required by this
Agreement to be performed and complied with by it on or prior to the Closing.
The Company and Seller shall have been furnished with a certificate of an
officer of Purchaser, dated as of the Closing, certifying to the fulfillment of
the foregoing conditions.
SECTION 8.02. DIRECTORS' RESOLUTIONS. Purchaser shall deliver to the
Company and Seller copies of the resolutions of its Board of Directors
authorizing the execution, delivery and performance of this Agreement and all
instruments and documents to be delivered in connection herewith and the
transactions contemplated hereby, duly certified by an authorized officer of
Purchaser. In addition, if the transactions contemplated by this Agreement are
the subject of any action by the Board of Directors of Parent, Purchaser also
shall deliver a copy of such resolutions to the Company and Seller.
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SECTION 8.03. INCUMBENCY CERTIFICATE. The Company and Seller shall
have received a certificate of a secretary of Purchaser, certifying as to the
genuineness of the signatures of representatives of Purchaser authorized to
take certain actions or execute any certificate, document, instrument or
agreement to be delivered pursuant to this Agreement, which incumbency
certificate shall include the true signatures of such representatives.
SECTION 8.04. FCC; HART-SCOTT ACT. The FCC shall have issued an order
granting the FCC's consent to the transfer of control of the FCC
Authorizations to Purchaser. In addition, all applicable waiting periods
under the Hart-Scott Act (if applicable to the transactions contemplated by
this Agreement) shall have expired or been terminated and no objection shall
have been made by the FTC or DOJ.
SECTION 8.05. OPINION OF COUNSEL TO PURCHASER. The Company and Seller
shall have been furnished with an opinion of Edwards & Angell, counsel to
Purchaser, dated as of the Closing and addressed to the Company and Seller in
substantially the form of EXHIBIT B hereto.
SECTION 8.06. VENDOR PURCHASE AGREEMENTS. At Closing, Purchaser shall
pay Seller on behalf of the Partnership the full amount of any outstanding
amounts for equipment and services purchased by or for the benefit of the
Partnership pursuant to any agreement between Seller and any vendor or
supplier, which amounts are evidenced by the promissory notes set forth on
SCHEDULE 8.06 attached hereto (a "Seller Payable"). All security agreements
and related financing statements securing payment of such Seller Payable
shall be terminated as of the Closing. To the extent not already completed,
title to any such equipment or other assets purchased on behalf of the
Partnership shall be transferred to the Partnership as of the Closing.
SECTION 8.07. CELLULAR 2000 COMPANY CLOSING. The "Closing" (as defined
in the Cellular 2000 Purchase Agreement) shall have occurred, or shall occur
simultaneously with the Closing of the transactions hereunder.
ARTICLE IX
CASUALTY LOSSES
In the event that there shall have been suffered between the date hereof
and the Closing any casualty loss relating to the assets or properties of the
Company, the Company and Seller will promptly notify Purchaser of such event.
Seller shall, at its option, cause the Company to (i) repair, rebuild or
replace the portion of the assets, or properties damaged, destroyed or lost
prior to the Closing Date, or (ii) assign to Purchaser at Closing all claims
to insurance proceeds or other rights of the Company against third parties
arising from such casualty loss (the "Claims"); PROVIDED, HOWEVER that if
such insurance proceeds are or will not be sufficient in Purchaser's
reasonable judgment to cover the entire casualty loss, then Seller shall pay
the difference at Closing. To the extent any Claim is not assignable, such
claim may be pursued by Purchaser, for its own account and benefit, in the
name of the Company and Seller.
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ARTICLE X
INDEMNIFICATION
SECTION 10.01. INDEMNIFICATION BY SELLER. Notwithstanding the Closing,
and regardless of any investigation made at any time by or on behalf of
Purchaser or any information Purchaser may have, but subject to the terms of
this Article X, Seller agrees to indemnify and to hold Purchaser, its
shareholders, officers, directors, and employees harmless from and against
and in respect of any losses, damages, costs, expenses (including costs of
investigations and reasonable attorney fees), claims, suits, demands and
judgments suffered or incurred (each a "Loss" and collectively "Losses") by
Purchaser arising from or related to:
(i) Any Company Unrelated Liability, whether or not
known or asserted at or prior to Closing, to the extent that such
liability did not result in a reduction in the Purchase Price at
Closing pursuant to Section 2.03 hereof;
(ii) Any misrepresentation or breach of warranty in
any representation or warranty of the Company or Seller in this
Agreement, the Schedules or Exhibits hereto, or in any
certificate delivered pursuant to Section 2.03(g) or any closing
certificate delivered by the Company or Seller to Purchaser
pursuant to Article VII hereof;
(iii) Any breach or non-fulfillment of any covenant or
agreement on the part of the Company or Seller under this
Agreement to be performed on or following the Closing Date; and
(iv) Any liability or obligation of, and any claims
against, the Partnership which are for the payment of Taxes with
respect to the Partnership's operations for the period up to the
Closing Date, whether or not known or asserted at or prior to the
Closing, but only to the extent such liability did not result in
a reduction in the Purchase Price at the Closing pursuant to
Section 2.03 hereof and only to the extent of 24.982 percent of
such liabilities or obligations.
SECTION 10.02. INDEMNIFICATION BY PURCHASER. Notwithstanding the
Closing, and regardless of any investigation made at any time by or on behalf
of the Company or Seller or any information the Company or Seller may have,
but subject to the terms of this Article X, Purchaser agrees to indemnify and
to hold each of the Company and Seller, and their directors, officers,
stockholders, employees, representatives and agents, harmless from and
against and in respect of any Losses by the Company or Seller arising from or
related to:
(i) Any misrepresentation or breach of warranty in any
representation or warranty of Purchaser, in this Agreement, the
Schedules or Exhibits hereto, or in any certificate delivered
pursuant to Section 2.03(g) or
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any closing certificate delivered by Purchaser to the Company and
Seller pursuant to Article VIII hereof;
(ii) Any breach or non-fulfillment of any covenant or
agreement on the part of Purchaser under this Agreement to be
performed on or following the Closing Date; and
(iii) Any action, suit, proceeding, demand, assessment
or judgment arising out of the termination of employees of the
Partnership after the Closing by Purchaser, except to the extent
that such termination is the result of non-compliance by the
Company, Seller or the Partnership with any representation,
warranty or covenants contained herein.
SECTION 10.03. NOTICE OF CLAIMS; DEFENSE OF THIRD PARTY CLAIMS. A
party claiming indemnification under this Article X (the "Asserting Party")
must promptly notify (in writing and in reasonable detail) the party from
which indemnification is sought (the "Defending Party") of the nature and
basis of such claim for indemnification. If such claim relates to a claim,
suit, litigation or other action by a third party against the Asserting Party
or any fixed or contingent liability to a third party (a "Third Party
Claim"), the Defending Party may elect to assume and control the defense of
the Third Party Claim at its own expense with counsel selected by the
Defending Party from and after such time as the Defending Party
unconditionally agrees in writing to accept, as against the Asserting Party,
all liabilities on account of such Third Party Claim other than the
Deductible. Assumption of such liability, as against the Asserting Party,
shall not be deemed an admission of liability as against any such third
party. Notwithstanding the foregoing, the Defending Party may not assume or
control the defense if the named parties to the Third Party Claim (including
any impleaded parties) include both the Defending Party and the Asserting
Party and representation of both parties by the same counsel (in such
counsel's reasonable determination) would be inappropriate due to actual or
potential differing interests between them, in which case the Asserting Party
shall have the right to defend the Third Party Claim and to employ counsel
reasonably approved by the Defending Party, and to the extent the matter is
determined to be subject to indemnification hereunder, the Defending Party
shall reimburse the Asserting Party for the reasonable costs of its counsel.
If the Defending Party assumes liability for the Third Party Claim as against
the Asserting Party and assumes the defense and control of the Third Party
Claim pursuant to this Section 10.03, the Defending Party shall not be liable
for any fees and expenses of counsel for the Asserting Party incurred
thereafter in connection with the Third Party Claim (except in the case of
actual or potential differing interests, as provided in the preceding
sentence), but shall not agree to any settlement of such Third Party Claim
which does not include an unconditional release of the Asserting Party by the
third party claimant on account thereof, PROVIDED that such requirement shall
be deemed waived to the extent that the Asserting Party does not undertake to
provide and promptly execute and, concurrently with the delivery of any such
release, deliver a corresponding release of the third party claimant with
respect to such Third Party Claim. If the Defending Party does not assume
liability for and the defense of the Third Party Claim pursuant to this
Section 10.03, the Asserting Party shall have the right (i) to control the
defense thereof and (ii), if the Asserting
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Party shall have notified the Defending Party of the Asserting Party's
intention to negotiate a settlement of the Third Party Claim (at the
Defending Party's expense to the extent the matter is determined to be
subject to indemnification hereunder), which notice shall include the
material terms of any proposed settlement in reasonable detail, to settle the
Third Party Claim (at the Defending Party's expense to the extent the matter
is determined to be subject to indemnification hereunder) on terms not
materially inconsistent with those set forth in such notice, unless the
Defending Party shall have notified the Asserting Party in writing of the
Defending Party's election to assume liability for and the defense of the
Third Party Claim pursuant to this Section 10.03 within ten days after
receipt of such notice, and the Defending Party promptly thereafter shall
have taken appropriate action to implement such defense. The Asserting Party
shall not be entitled to settle any such Third Party Claim pursuant to the
preceding sentence unless such settlement includes an unconditional release
of the Defending Party by the Third party claimant on account thereof,
PROVIDED that such requirement shall be deemed waived to the extent that the
Defending Party does not undertake to provide and promptly execute and,
concurrently with delivery of any such release, deliver a corresponding
release of the third party claimant with respect to such Third Party Claim.
The Asserting Party and the Defending Party shall use all reasonable efforts
to cooperate fully with respect to the defense and settlement of any Third
Party Claim covered by this Article X.
SECTION 10.04. LIMITATIONS. The Defending Party's obligations to
indemnify the Asserting Party pursuant to this Article X shall be subject to
the following limitations:
(a) No indemnification shall be required to be made by the Defending
Party until the aggregate amount of the Asserting Party's Losses exceeds
$50,000 (the "Deductible") and then indemnification shall only be required to
be made by the Defending Party to the extent of such Losses that exceed the
Deductible; PROVIDED, HOWEVER, that the Deductible shall not be applicable to
(i) Seller's obligation to indemnify Purchaser for Company Unrelated
Liabilities, (ii) adjustments to the Purchase Price provided for in Section
2.03, (iii) a breach by Seller or the Company of its representations set
forth in Section 4.02, Section 4.04, Section 4.05, and Section 4.15, (iv) a
breach by Purchaser of any of its representations set forth in Section 5.02,
or (v) losses resulting from fraud.
(b) All representations and warranties contained in this Agreement
shall survive the Closing until the third anniversary thereof; PROVIDED,
HOWEVER, that notwithstanding the foregoing, (x) the representations and
warranties contained in Section 4.02, Section 4.04, Section 4.05, Section
4.15 and Section 5.02 shall survive the Closing for an unlimited duration and
(y) the representations and warranties contained in Sections 4.12 and 4.09
(as it may relate to Environmental Laws) shall survive the Closing until the
sixth anniversary thereof (the applicable period of survival being referred
to as the "Survival Period"). To the extent a claim is made in respect of a
representation or warranty within the applicable Survival Period, such
representation or warranty shall survive after the Survival Period for
purposes of such claim until such claim is finally determined or settled.
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ARTICLE XI
CONFIDENTIALITY AND PRESS RELEASES
SECTION 11.01. CONFIDENTIALITY. Each party (in such capacity, a
"Recipient Party") shall hold in strict confidence all documents and
information concerning the other (in such capacity, a "Disclosing Party")
and its business and properties that is received in connection with this
Agreement and, if the transaction contemplated hereby should not be
consummated, such confidence shall be maintained, and all such documents and
information (in written form), other than this Agreement and the Schedules
and other information specifically required by this Agreement to be provided,
shall immediately thereafter be returned to the Disclosing Party. In
furtherance of the foregoing, without the express prior written consent of
the Disclosing Party, the Recipient Party shall not, directly or indirectly,
disclose, disseminate, publish, reproduce, retain, use (for its benefit or
for the benefit of others) or otherwise make available in any manner
whatsoever, any such documents or information to anyone except as provided in
Section 11.03. If the Recipient Party breaches, or threatens to commit a
breach of, any of the provisions of this Article XI, the Disclosing Party
shall have the right (in addition to any other rights and remedies available
at law or in equity) to equitable relief (including injunctions) against such
breach or threatened breach, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable harm to the Disclosing
Party and that money damages would not be an adequate remedy. The foregoing
obligations shall not apply with respect to any document or information that
(i) was rightly in the Recipient Party's possession before receipt from the
Disclosing Party, (ii) is or becomes a matter of public knowledge without
violation of this Agreement by the Receiving Party, or (iii) is disclosed by
the Disclosing Party to a third party without a duty of confidentiality upon
the third party.
SECTION 11.02. PRESS RELEASES. No press release or public disclosure,
either written or oral, of the existence or terms of this Agreement shall be
made by either Purchaser or Seller without the consent of each party subject
to the provisions of Section 11.03, and Purchaser, the Company and Seller
shall each furnish to the other advance copies of any release which it
proposes to make public concerning this Agreement or the transactions
contemplated hereby and the date upon which Purchaser, the Company or Seller,
as the case may be, proposes to make such press release.
SECTION 11.03. DISCLOSURES REQUIRED BY LAW. This Article XI shall not,
however, be construed to prohibit any party from making any disclosures to
any governmental authority that it is required to make by law or from filing
this Agreement with, or disclosing the terms of this Agreement to, any
institutional lender to such party, or prohibit the Company, Seller,
Purchaser or any of their affiliates from disclosing to its investors,
partners, accountants, auditors, attorneys, parent company and broker/dealers
such terms of this transaction as are customarily disclosed to them in
connection with the sale or acquisition of a cellular telephone system;
PROVIDED, HOWEVER, that any such party shall be informed of the confidential
nature of such information and shall agree to keep such information
confidential; and PROVIDED, HOWEVER, that each party shall provide to the
other reasonable advance copies of any public release except where the
provision of such advance notice is not permissible.
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ARTICLE XII
TERMINATION
SECTION 12.01. BREACHES AND DEFAULTS; OPPORTUNITY TO CURE. Prior to
the exercise by a party of any termination rights afforded under this
Agreement, if either party (the "Non-Breaching Party") believes the other
(the "Breaching Party") to be in breach hereunder, the Non-Breaching Party
shall provide the Breaching Party with written notice specifying in
reasonable detail the nature of such breach, whereupon the Breaching Party
shall have 15 days from the receipt of such notice to cure such breach to the
reasonable satisfaction of the Non-Breaching Party; PROVIDED, HOWEVER, that
if such breach is curable but is not capable of being cured within such
period and if the Breaching Party shall have commenced action to cure such
breach within such period and is diligently attempting to cure such breach,
then the Breaching Party shall be afforded an additional twenty (20) days to
cure such breach, PROVIDED, HOWEVER, that the cure period for a breach shall
in no event extend beyond the Outside Date. If the breach is not cured
within such time period, then the Breaching Party shall be in default
hereunder and the Non-Breaching Party shall be entitled to terminate this
Agreement (as provided in Section 12.02). This right of termination shall be
in addition to, and not in lieu of, any legal or equitable remedies available
to the Non-Breaching Party. Notwithstanding the foregoing, in the event that
Seller exercises its termination rights under Section 12.02(d), Seller's only
remedy shall be reimbursements for all reasonable costs and expenses incurred
in the preparation of the transactions contemplated herein, plus a fee of two
percent (2%) of the Purchase Price.
SECTION 12.02. TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned, by written notice given to
the other party hereto, at any time prior to the Closing:
(a) by written consent of each of the Company, Seller and Purchaser;
(b) by either Purchaser or Seller, if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise permanently prohibiting the
sale of the Shares to Purchaser (which Seller and Purchaser shall have used
all reasonable efforts to have lifted or reversed) and such order, decree,
ruling or other action shall have become final and nonappealable;
(c) subject to Section 12.01, by Purchaser, if either the Company or
Seller shall have breached any of their representations herein and such
breaches, in the aggregate, would reasonably be expected to have a Material
Adverse Effect, or if the Company or Seller shall have materially breached
any of their covenants;
(d) subject to Section 12.01, by Seller, if Purchaser shall have
materially breached any of its representations or covenants herein; or
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(e) by either Seller or Purchaser if the Closing shall not have
occurred on or before June 30, 1998 (the "Outside Date"), unless the failure
to have the Closing shall be due to the failure of the party seeking to
terminate this Agreement to perform in any material respect its obligations
under this Agreement required to be performed by it at or prior to the
Closing.
ARTICLE XIII
BROKERS' FEES
Each party represents and warrants to the other that it shall be solely
responsible for the payment of any fee or commission due to any broker or
finder it has engaged with respect to this transaction and the other party
hereto shall be indemnified for any liability with respect thereto pursuant
to Article X hereof.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. ADDITIONAL INSTRUMENTS OF TRANSFER. (a) From time to
time after the Closing, each party shall, if requested by another party,
make, execute and deliver such additional stock assignments, other
assignments, bills of sale, deeds and other instruments, as may be reasonably
necessary or proper to carry out the specific provisions of this Agreement,
including transfer to Purchaser all of Seller's right, title and interest in
and to the Shares. Such efforts and assistance shall be at the cost of the
requesting party.
SECTION 14.02. NOTICES. All notices and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered, sent by telecopier, recognized overnight
delivery service or registered or certified mail, return receipt requested,
postage prepaid, to the following addresses:
(i) If to Purchaser:
13439 N. Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
Attention: Everett Dobson
Facsimile No.: (405) 391-8515
with a required copy to:
Edwards & Angell
2800 Hospital Trust Tower
Providence, Rhode Island 02903
Attention: Joseph A. Kuzneski, Jr., Esq.
Facsimile No.: (401) 276-6602
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(ii) If to Seller:
5000 Carillon Point
Kirkland, Washington 98033
Attention: Vice President, Acquisitions and Development
Facsimile No.: (425) 828-8451
with a required copy to:
5000 Carillon Point
Kirkland, Washington 98033
Attention: General Counsel
Facsimile No.: (425) 828-2333
Notices delivered personally shall be effective upon delivery against
receipt. Notices transmitted by telecopy shall be effective when received,
provided that the burden of proving notice when notice is transmitted by
telecopy shall be the responsibility of the party providing such notice.
Notices delivered by overnight mail shall be effective when received.
Notices delivered by registered or certified mail shall be effective on the
date set forth on the receipt of registered or certified mail, or 72 hours
after mailing, whichever is earlier.
SECTION 14.03. EXPENSES. Except as otherwise set forth in this
Agreement, each party shall bear its own expenses and costs, including the
fees of any corporate or FCC attorney retained by it, incurred in connection
with the preparation of this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 14.04. INTENTIONALLY OMITTED.
SECTION 14.05. SPECIFIC PERFORMANCE. The parties recognize and
acknowledge that in the event a party shall fail to perform its obligations
under the terms of this Agreement, money damages alone will not be adequate
to compensate the other party. The parties, therefore, agree and acknowledge
that in the event a party fails to perform its obligations under this
Agreement prior to Closing, the other party shall be entitled, in addition to
any action for monetary damages, and any other rights and remedies on account
of such failure, to specific performance of the terms of this Agreement and
of the covenants and obligations hereunder; PROVIDED, HOWEVER, that Seller
shall be entitled to compel specific performance of the terms of this
Agreement by Purchaser only in the event the "Closing" (as defined in the
Cellular 2000 Purchase Agreement) shall have occurred.
SECTION 14.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma (without
application of principles of conflicts of law).
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SECTION 14.07. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, which
consent will not be unreasonably withheld except that Purchaser shall have
the right to assign its rights, but not to delegate its duties, under this
Agreement to any institutional lender.
SECTION 14.08. SUCCESSORS AND ASSIGNS. All agreements made and entered
into in connection with this transaction shall be binding upon and inure to
the benefit of the parties hereto, their respective successors, permitted
assigns, heirs and legal representatives.
SECTION 14.09. AMENDMENTS; WAIVERS. No alteration, modification or
change of this Agreement shall be valid except by an agreement in writing
executed by the parties hereto. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder (and no course of dealing
between or among any of the parties) shall operate as a waiver of any such
right, power or privilege. No waiver of any default on any one occasion
shall constitute a waiver of any subsequent or other default. No single or
partial exercise of any such right, power or privilege shall preclude the
further or full exercise thereof.
SECTION 14.10. ENTIRE AGREEMENT. This Agreement merges all previous
negotiations and agreements between the parties hereto, either verbal or
written, and constitutes the entire agreement and understanding between the
parties with respect to the subject matter of this Agreement.
SECTION 14.11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which when so executed shall be an original, but
all of which together shall constitute one agreement. Facsimile signatures
shall be deemed original signatures.
SECTION 14.12. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law, but only as long as the continued validity, legality and enforceability
of such provision or application does not materially (a) alter the terms of
this Agreement, (b) diminish the benefits of this Agreement or (c) increase
the burdens of this Agreement, for any Person.
SECTION 14.13. SECTION HEADINGS. The section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 14.14. INTERPRETATION. As both parties have participated in
the drafting of this Agreement, any ambiguity shall not be construed against
either party as the drafter.
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SECTION 14.15. FURTHER ASSURANCES. For a period of twelve (12) months
after Closing, Seller agrees to provide to Purchaser from time to time any
information that Seller possesses with respect to the operation of the
Business and Shares prior to the Closing which Purchaser reasonably requests
in the future in connection with Purchaser's financing efforts now or in the
future or in connection with any FCC or other regulatory filing.
SECTION 14.16. THIRD PARTIES. Nothing herein, expressed or implied, is
intended to or shall confer on any person other than the parties hereto any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 14.17. WAIVER OF JURY TRIAL. THE PARTIES HERETO IRREVOCABLY
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM,
COUNTERCLAIM, OR CROSS CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
[THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized representative as of the day and year
first above written.
PURCHASER:
DOBSON CELLULAR OF CALIFORNIA, INC.
By: /s/ Everett R. Dobson
--------------------------------
Everett R. Dobson
Chairman
THE COMPANY:
RSA 339, INC.
By: /s/ William W. Hague
--------------------------------
Name: William W. Hague
Title: Vice President
SELLER:
AT&T WIRELESS SERVICES, INC.
By: /s/ William W. Hague
--------------------------------
Name: William W. Hague
Title: Vice President
33
<PAGE>
SECURITIES PURCHASE AGREEMENT
by and among
DOBSON CELLULAR OF CALIFORNIA, INC.,
SANTA CRUZ CELLULAR TELEPHONE, INC.
and
THE SHAREHOLDERS AND OPTIONHOLDERS OF
SANTA CRUZ CELLULAR TELEPHONE, INC.
WHO ARE AND WHO HEREAFTER BECOME SIGNATORIES HERETO
DATED AS OF March 25, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I PURCHASE AND SALE OF SECURITIES 2
Section 1.01 Transfer of Securities 2
ARTICLE II PURCHASE PRICE 2
Section 2.01 Purchase Price; Deposit 2
Section 2.02 Payment of Purchase Price 3
Section 2.03 Purchase Price Adjustments 3
ARTICLE III CLOSING 7
i
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS 7
Section 4.01 Organization; Qualification 7
Section 4.02 Consents; Authorization; Execution and
Delivery of Agreement 7
Section 4.03 Subsidiaries and Interests in Other Companies 8
Section 4.04 Capital Stock; Interests 8
Section 4.05 Ownership of Securities 8
Section 4.06 Real Property-Owned 8
Section 4.07 Real and Personal Property-Leased 8
Section 4.08 Existing Contracts 9
Section 4.09 Governmental Licenses 11
Section 4.10 Compliance with Law 11
Section 4.11 No Violation of Existing Agreements 11
Section 4.12 Litigation and Legal Proceedings 11
Section 4.13 Environmental Compliance 12
Section 4.14 Employees 13
Section 4.15 Employee Benefits 13
Section 4.16 Tax Matters 14
Section 4.17 Financial Statements 15
Section 4.18 Subscribers; Agents 17
Section 4.19 Insurance 17
Section 4.20 Brokers 17
Section 4.21 Undisclosed Liabilities; Guarantees 17
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Section 4.22 Pricing of Services 18
Section 4.23 Proprietary Rights 18
Section 4.24 Accounts Receivable and Bad Debts 18
Section 4.25 Product Information 19
Section 4.26 Certain Business Relationships 19
Section 4.27 Officers and Directors and Certain Authorized Persons 19
Section 4.28 Disclosure 19
ARTICLE V PURCHASER'S REPRESENTATIONS 20
Section 5.01 Organization; Qualification 20
Section 5.02 Consents; Authorization; Execution and Delivery of
Agreement 20
Section 5.03 Litigation and Legal Proceedings 20
Section 5.04 Brokers 20
Section 5.05 Investment Intent 20
Section 5.06 No Outside Reliance 21
ARTICLE VI THE COMPANY'S, SELLERS' AND PURCHASER'S COVENANTS 21
Section 6.01 Financial Statements and Cellular System Information 21
Section 6.02 Governmental Approvals 21
Section 6.03 Third Party Consents; Closing Conditions 22
Section 6.04 Access 22
Section 6.05 Conduct of Business 23
Section 6.06 No Shopping 26
Section 6.07 Employees 26
Section 6.08 Supplemental Disclosure 26
Section 6.09 Unitel 26
Section 6.10 Audit of Company's 1997 Financial Statements 26
Section 6.11 Offer to Purchase Remaining Securities 27
Section 6.12 Company's Articles and By-Laws 28
Section 6.13 Employees of Unitel 28
ARTICLE VII CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE 28
Section 7.01 Accuracy of Representations and Warranties;
Performance of this Agreement 28
Section 7.02 Directors' Resolutions 29
Section 7.03 Incumbency Certificate 29
Section 7.04 Third Party Consents; FCC; Hart-Scott Act 29
Section 7.05 Contract Termination 29
Section 7.06 No Material Adverse Change 29
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Section 7.07 Securities to Be Purchased 29
Section 7.08 Opinion of Counsel to Sellers 30
Section 7.09 Opinion of FCC Counsel to the Company 30
Section 7.10 Subscribers 30
Section 7.11 Estoppel 30
Section 7.12 Resignations of Officers and Directors 30
Section 7.13 Payment of Indebtedness 30
Section 7.14 Operating Cash Flow 30
Section 7.15 Escrow Agreement 31
Section 7.16 Management Contract 31
ARTICLE VIII CONDITIONS PRECEDENT TO THE COMPANY'S AND EACH SELLER'S
OBLIGATION TO CLOSE 31
Section 8.01 Accuracy of Representations and Warranties;
Performance of this Agreement 31
Section 8.02 Directors' Resolutions 31
Section 8.03 Incumbency Certificate 31
Section 8.04 FCC; Hart-Scott Act 32
Section 8.05 Opinion of Counsel to Purchaser 32
ARTICLE IX CASUALTY LOSSES 32
ARTICLE X INDEMNIFICATION 32
Section 10.01 Indemnification by Sellers 32
Section 10.02 Indemnification by Purchaser 33
Section 10.03 Notice of Claims; Defense of Third Party Claims 34
Section 10.04 Limitations 35
ARTICLE XI CONFIDENTIALITY AND PRESS RELEASES 36
Section 11.01 Confidentiality 36
Section 11.02 Press Releases 36
Section 11.03 Disclosures Required By Law 36
ARTICLE XII TERMINATION 36
Section 12.01 Breaches and Defaults; Opportunity to Cure 36
Section 12.02 Termination 37
ARTICLE XIII BROKERS' FEES 37
ARTICLE XIV MISCELLANEOUS 38
iii
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Section 14.01 Additional Instruments of Transfer 38
Section 14.02 Notices 38
Section 14.03 Expenses 39
Section 14.04 Sellers' Representative 39
Section 14.05 Specific Performance 40
Section 14.06 Governing Law 40
Section 14.07 Assignment 40
Section 14.08 Successors and Assigns 41
Section 14.09 Amendments; Waivers 41
Section 14.10 Entire Agreement 41
Section 14.11 Counterparts 41
Section 14.12 Severability 41
Section 14.13 Section Headings 41
Section 14.14 Interpretation 41
Section 14.15 Further Assurances 41
Section 14.16 Third Parties 41
Section 14.17 Waiver of Jury Trial; Jurisdiction 41
iv
<PAGE>
DEFINED TERMS
TERM SECTION CITE
---- ------------
Acceptance Deadline Section 6.11
Acceptance Signature Page Section 6.11
Adjustment Amount Section 2.03(h)
Adjustments Section 2.03(g)
Agreed Adjustment Amount Section 2.03(h)
Asserting Party Section 10.03
Audit Section 6.10
Audited Historical Financial Statements Section 4.17(a)
Authorizations Section 4.09(b)
Balance Sheet Date Section 4.17(a)
Base Price Section 2.01
Breaching Party Section 12.01
Budget Section 4.17(a)
Business Recitals
Capital Expenditures Adjustment Section 2.03(d)
Cellular Area Recitals
Cellular System Recitals
Cellular Authorizations Article III
CERCLA Section 4.13
Claims Article IX
Closing Article III
Closing Certificate Section 2.03(h)
Closing Date Article III
Code Section 4.15
Common Stock Recitals
Controlled Group Member Section 4.15
CPUC Section 4.09
Current Assets Section 2.03(a)
Current Financial Statement Section 4.17(a)(ii)
Current Liabilities Section 2.03(a)
Debt Adjustment Section 2.03(f)
December Balance Sheet Section 4.17(a)(ii)
Defending Party Section 10.03
Deposit Section 2.01
Deposit Escrow Agent Section 2.01
Deposit Escrow Agreement Section 2.01
Disclosing Party Section 11.01
DOJ Section 7.04
Employee Benefit Plan Section 4.15
Encumbrances Section 1.01
Environmental Laws Section 4.13
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<PAGE>
ERISA Section 4.15
Escrow Agent Section 2.02
Escrow Agreement Section 2.02
Escrow Payment Section 2.02
Existing Contracts Section 4.08(b)
FCC Authorizations Article III
Final Adjustment Amount Section 2.03(h)
Final Order Section 7.04
FTC Section 7.04
GAAP Section 2.03(a)
Hart-Scott Act Section 6.02(b)
Hazardous Substance Section 4.13
Indemnified Purchaser Parties Section 10.01
Independent Accountants Section 2.03(h)
Interim Financial Statements Section 6.01
IRS Section 4.15
Liquidated Damages Amount Section 2.01
Loss Section 10.01
Management Contract Recitals
Material Adverse Effect Section 7.01
Material Loss Section 7.01
Microwave Authorizations Article III
Non-Breaching Party Section 12.01
Objection Notice Section 6.10
OCF Calculation Section 6.10
Offer Section 6.11
Operating Budget Section 6.01
Operating Cash Flow Section 7.14
Options Recitals
Option Shares Recitals
Other Holders Section 6.11
Outside Date Section 12.02
Outstanding Shares Recitals
Ownership Percentage Section 2.02
Person Section 4.03
Phase I and II Assessments Section 6.04(b)
Purchased Percentage Recitals
Purchase Orders Section 4.08(a)
Purchase Price Section 2.01
Purchaser's Accountant Section 6.10
Purchaser's Estimate Section 2.03(g)
RCLA Section 4.13
Recipient Party Section 11.01
Response Period Section 2.03(h)
Securities Recitals
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Sellers' Accountants Section 6.10
Sellers' Estimate Section 2.03(f)
Sellers' Representative Section 14.04
Shares Recitals
Subscriber Section 2.03(a)
Subscriber Adjustment Section 2.03(c)
Survival Period Section 10.04
Target Number of Subscribers Section 2.03(a)
Tentative Subscriber Section 2.03(a)
Third Party Claim Section 10.03
Total Purchase Price Section 2.01
Total Shares Recitals
Twelve Month Income Statement Section 4.17(a)
Unitel Recitals
Working Capital Adjustment Section 2.03(b)
vii
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SCHEDULES
- ----------
1 Sellers
2.03(a) Promotional Plans
4.01 Charter
4.04 Outstanding Securities
4.07(a) Real Property Leased by Company
4.07(b) Personal Property Leased by Company
4.08 Existing Contracts
4.09 Authorizations
4.10 Violation of Laws
4.11 Violation of Existing Contracts
4.12 Litigation
4.13 Environmental Noncompliance
4.14 Employees
4.15 Employee Benefit Plans
4.16 Tax Noncompliance
4.17(a)(i) Audited Historical Financial Statements
4.17(a)(ii) Current Financial Statements
4.17(a)(iii) Capital Expenditures Plan
4.17(c) Changes since Balance Sheet Date
4.18 Subscribers; Agents
4.21 Guarantees and Certain Liabilities
4.22 Rate Plans
4.23 Proprietary Rights
4.24 Subscriber Receivables
4.25 Manufacturers of Handsets
4.26 Certain Business Relationships
4.27 Officers, Directors and Certain Authorized Persons
6.01 Operating Budget
14.04 Sellers' Expenses
EXHIBITS
- --------
A Escrow Agreement
B Opinion of Counsel for the Company and the Sellers
C Opinion of FCC Counsel for the Company and the Sellers
D Opinion of Counsel for Purchaser
E. Deposit Escrow Agreement
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<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of March 25, 1998 by and among DOBSON CELLULAR OF CALIFORNIA, INC., an
Oklahoma corporation ("Purchaser"), SANTA CRUZ CELLULAR TELEPHONE, INC., a
California corporation (the "Company") and THE SHAREHOLDERS AND OPTIONHOLDERS
OF THE COMPANY WHO ARE SIGNATORIES HERETO and THE SHAREHOLDERS AND
OPTIONHOLDERS of the Company who become parties hereto after the date hereof in
accordance with the provisions of this Agreement (individually, a "Seller" and
collectively the "Sellers").
R E C I T A L S
WHEREAS, the Company owns all right, title and interest in those certain
licenses granted by the Federal Communications Commission ("FCC") to provide
cellular radio telephone service in the FCC's Santa Cruz cellular geographic
service area in the State of California (the "Cellular Area") and owns and
operates pursuant to such licenses the non-wireline cellular telephone system
in the Cellular Area (the "Cellular System"); and
WHEREAS, the Company's only business is the ownership and operation of the
Cellular System (the "Business"); and
WHEREAS, the Company's authorized capital stock consists of (i) 10,000,000
shares of Common Stock, no par value per share (the "Common Stock"), of which
24,558.2215 shares are issued and outstanding (the "Shares") and of which the
Company has reserved 2,000 shares of Common Stock for issuance (the "Option
Shares", and together with the Shares, the "Total Shares") upon exercise of
outstanding options to purchase Common Stock (the "Options" and together with
the Shares the "Securities") and (ii) 2,000,000 shares of Preferred Stock,
$.001 par value per share (the "Preferred Stock") none of which have been
issued; and
WHEREAS, the Sellers who are executing this Agreement on the date hereof
(collectively, the "Majority Shareholders") own 68.6319% of the Shares and 64%
of the outstanding Options and each such Seller owns the number of Shares and
Options set forth on SCHEDULE 4.04(a); and
WHEREAS, it is anticipated that the Company will notify its Shareholders
and Option holders who are not currently parties to this Agreement of the offer
by Purchaser to acquire the Securities held by them to Purchaser on the same
terms and conditions as are provided for herein by their Agreement to become
bound by the terms and conditions of the Agreement as a "Seller" in accordance
with the terms hereof; and
WHEREAS, the percentage of the Total Shares to be purchased by Purchaser
under this Agreement on the Closing Date (as hereinafter defined) including by
the purchase of the Options, is referred to herein as the "Purchased
Percentage"; and
WHEREAS, Purchaser desires to purchase the Securities from Sellers, and
Sellers desire to sell the Securities to Purchaser, all subject to the terms
and conditions set forth herein; and
<PAGE>
WHEREAS, the Sellers who are currently parties to this Agreement own at
least 70.3623% of the outstanding voting membership interest of Unitel, LLC, a
California limited liability company ("Unitel"), the exclusive business of
which is the provision of management services to the Company pursuant to a
Management Agreement dated September 1, 1995 (the "Management Contract"); and
WHEREAS, the Sellers shall cause Unitel to terminate the Management
Contract at or prior to the Closing without cost or penalty to the Company and
cause Unitel to be dissolved and liquidated promptly after the Closing;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
SECTION 1.01. TRANSFER OF SECURITIES. Except as otherwise provided and
subject to the terms and conditions set forth in this Agreement, Sellers agree
to sell, convey, assign, transfer and deliver to Purchaser, and Purchaser
agrees to purchase from Sellers at the Closing, all of Sellers' right, title
and interest in and to the Securities, free and clear of all options, pledges,
obligations, security interests, liens, charges, rights of third parties,
community property rights and other encumbrances (collectively,
"Encumbrances").
ARTICLE II
PURCHASE PRICE
SECTION 2.01. PURCHASE PRICE; DEPOSIT. The total unadjusted purchase
price for 100% of the outstanding Securities shall be Thirty-six Million
Dollars ($36,000,000) (the "Base Price"), as adjusted in accordance with the
provisions of Section 2.04 hereof (as adjusted, the "Total Purchase Price").
As used in this Agreement the term "Purchase Price" shall mean the product of
Total Purchase Price and the Purchased Percentage. Simultaneously with the
execution of this Agreement, Purchaser is depositing as a good faith deposit
One Million Dollars ($1,000,000) (the "Deposit") with CoreStates Bank, N.A.
(the "Deposit Escrow Agent"), to be held, invested and disbursed pursuant to
the terms of the Deposit Escrow Agreement in the form of EXHIBIT E attached
hereto (the "Deposit Escrow Agreement"). If the Closing occurs, then the
Deposit and all earnings on the Deposit shall be paid to Sellers at Closing
pursuant to the Deposit Escrow Agreement, and the full amount shall be paid as
a portion of the Purchase Price to be paid at Closing by Purchaser for the
Securities. If Sellers terminate this Agreement in accordance with the
provisions of Section 12.02(d), at the time of such termination neither Sellers
nor the Company are in material breach (following the expiration of any
applicable cure period) of any of representations, warranties, covenants or
agreements set forth in this Agreement and the conditions set forth in Sections
7.04 and 7.06 would have been satisfied had Closing occurred on the date
Sellers terminate this Agreement, then Sellers shall be entitled to and shall
be paid the Deposit as liquidated damages (the "Liquidated Damages Amount"),
which Liquidated Damages Amount the parties agree is a fair and reasonable
measure of the damages that Sellers would sustain as a result of such
termination. Notwithstanding anything else set forth in this
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Section 2.01, Sellers' sole and exclusive recourse for Purchaser's breach of
its representations or obligations under this Agreement shall be to receive
the Liquidated Damages Amount on the terms and conditions set forth in this
Section 2.01. In any other case if the Closing does not occur, then,
pursuant to the Deposit Escrow Agreement, the Deposit and all earnings
thereon shall be paid to Purchaser. All payments by the Deposit Escrow Agent
shall be made in accordance with the procedures and other provisions set
forth in the Deposit Escrow Agreement.
SECTION 2.02. PAYMENT OF PURCHASE PRICE. On the Closing Date and subject
to the terms and conditions set forth in this Agreement, in reliance on the
representations, warranties, covenants and agreements of the parties contained
herein and in consideration of the sale, assignment, transfer and delivery of
the Securities, Purchaser shall pay to each Seller an amount equal to the
product of (a) the Purchase Price plus the aggregate exercise price of Options
being purchased on the Closing Date by Purchaser less the product of the
Purchased Percentage and Two Million Dollars ($2,000,000) (the "Escrow
Payment") and (b) the quotient determined by DIVIDING (i) the number of Total
Shares owned by such Seller (after giving effect to the exercise of outstanding
Options held by such Seller) by (ii) the Total Shares being sold by all Sellers
under this Agreement (the "Ownership Percentage"); provided, however, the
amount otherwise payable in respect of Options being sold by such Seller shall
be reduced by the sum of the aggregate exercise prices of the Options being
sold by such Seller. The Escrow Payment shall be paid by the Purchaser at the
Closing to CoreStates Bank, N.A., as escrow agent (the "Escrow Agent"), to be
held invested and disbursed pursuant to the terms of the Escrow Agreement
substantially in the form of EXHIBIT A attached hereto (the "Escrow
Agreement").
SECTION 2.03. PURCHASE PRICE ADJUSTMENTS.
(a) As used in this Section 2.03, the following terms shall have the
meaning set forth below:
"CURRENT ASSETS" means the Company's (i) accounts receivable, including
roaming revenue receivables, that are current to less than 91 days past due,
net of a reserve for bad debts, which reserve shall equal the sum of the
following amounts: zero percent (0%) of such accounts receivable that are not
past due or that are thirty (30) or fewer days past due, ten percent (10%) of
such accounts receivable that are more than thirty (30) days past due but less
than sixty-one (61) days past due and fifty percent (50%) of such accounts
receivable that are more than sixty (60) days but less than ninety-one (91)
days past due; (ii) inventory of cellular telephone handsets (excluding any
refurbished handsets) and ancillary equipment held for sale to subscribers and
which is not obsolete and will reasonably be expected based on past practices
to be consumed in the normal course of business within six months after the
Closing, reflected at net book value (the "Inventory"); provided in no event
shall the net book value of the Inventory used to determine Current Assets
exceed $150,000 and (iii) prepaid items which Purchaser will receive the
benefit of after the Closing such as prepaid rent, insurance, property taxes,
utility charges, fees and deposits paid, all determined as of 12:01 a.m. on the
Closing Date in accordance with GAAP.
"CURRENT LIABILITIES" means the Company's (i) subscriber deposits
received, (ii) deferred revenue, (iii) employee vacation and sick pay expense
(whether or not to be paid or time taken after the Closing), (iv) to the extent
not paid by the Company prior to Closing, salaries, bonuses, fringe benefits
and other remuneration payable to employees of the Company for services
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<PAGE>
rendered prior to the Closing (including any amount of stay bonuses), (v)
accrued and unpaid management fees and (vi) all trade payables and accrued
expenses incurred in the normal course of business, including, without
limitation, taxes, utility charges, special assessments, commissions and fees,
all determined as of 12:01 a.m. on the Closing Date in accordance with GAAP.
"GAAP" means generally accepted accounting principles consistently
applied.
"SUBSCRIBER" means a person or entity subscribing for cellular telephone
service on the Cellular System for at least the 30 consecutive day billing
cycle of the Cellular System ("Billing Cycle") ending on or prior to the
Closing Date who (i) pays for service under one of the Company's normal rate
plans, (ii) has paid for at least one full Billing Cycle's service and whose
account is active within the normal practices and procedures of the Company and
in no case is more than 90 days past due and (iii) was obtained as a subscriber
in the normal course of business of the Company consistent with past practice
and not as a result of (A) marketing efforts that are not customary in the
cellular telephone industry generally or which were not utilized by the Company
during 1996 and 1997 on a regular basis or (B) any other plans for which the
Company failed to obtain Purchaser's prior written consent; provided, however,
any person or entity having more than one cellular telephone number in service
on the Cellular System will be counted as a "Subscriber" for each such cellular
telephone number in service on the Closing Date if such person or entity
satisfies the requirements of this definition with respect to the service
provided by the Cellular System in respect of such cellular telephone number.
SCHEDULE 2.03(a) attached hereto sets forth all marketing and promotional plans
the Company has used or is using or proposes to use, from December 15, 1996 to
the Closing to acquire subscribers.
"TARGET NUMBER OF SUBSCRIBERS" means 14,000 plus the product of (x) 175
and (y) the number of 30-day periods elapsed from February 15, 1998 to the
earlier of (A) the Closing Date and (B) May 15, 1998 (pro rated for any partial
periods of less than 30 days).
"TENTATIVE SUBSCRIBER" means a person or entity which as of the Closing
Date meets all of the requirements for being a "Subscriber" (as defined in this
Section 2.03(a)) except for the failure to have been a cellular telephone
service customer for the full Billing Cycle immediately prior to the Closing
Date.
(b) WORKING CAPITAL ADJUSTMENT. The Base Price shall be increased (or
decreased) by an amount equal to the amount by which Current Assets exceeds (or
is less than) Current Liabilities as of the Closing Date (such increase or
decrease in the Base Price being referred to herein as the "Working Capital
Adjustment").
(c) SUBSCRIBER ADJUSTMENT. The Base Price shall be decreased (or
increased) by the product of (i) $400.00 and (ii) the excess (deficit) of the
Target Number of Subscribers over the number of Subscribers as of the Closing
Date (such increase or decrease in the Base Price being referred to herein as
the "Subscriber Adjustment"); PROVIDED, HOWEVER, for purposes of determining
the Subscriber Adjustment, a Tentative Subscriber shall be counted as a
Subscriber as of the Closing Date if as of the end of the Company's normal
Billing Cycle which commences after the Closing Date such Tentative Subscriber
is still an active cellular telephone service customer of the Cellular System
and whose account is not more than thirty (30) days past due.
4
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(d) CAPITAL EXPENDITURES ADJUSTMENT. The Base Price shall be increased
by the dollar amount of capital expenditures incurred and paid for by the
Company during the period from November 25, 1997 to the Closing Date (such
increase in the Base Price being referred to herein as the "Capital
Expenditures Adjustment"); provided that such capital expenditure is specified
(including type of equipment to be acquired) on the Capital Expenditure Plan
attached hereto as Schedule 4.17(a)(iii), or, for capital expenditures not
reflected in such Capital Expenditure Plan, Purchaser has given the Company its
prior written consent for the amount, type and purpose of each such capital
expenditure, which consent will not be unreasonably withheld by Purchaser as to
expenditures which, in the aggregate, do not exceed $200,000. Nothing herein
shall be deemed to prohibit the Company from making such capital expenditures
as the Company in its sole discretion shall deem appropriate, provided such
expenditures will not necessarily be included in the calculation of the Capital
Expenditures Adjustment.
(e) DEBT ADJUSTMENT. The Base Price shall be decreased by the sum of (A)
the amount of outstanding indebtedness of the Company for borrowed money
(including capitalized lease obligations and interest and prepayment premiums
not paid at or before Closing) as of the Closing and (B) if not included as a
Current Liability in calculating the Working Capital Adjustment, the amount of
accrued and unpaid management fees owed by the Company as of the Closing (such
decrease in the Base Price being referred to herein as the "Debt Adjustment").
(f) PURCHASER'S AND SELLERS' ESTIMATES. Sellers' Representative (as
defined in Section 14.04 below) shall prepare and submit to Purchaser, not
later than 5 business days prior to the Closing Date, a written good faith
estimate of the amount of the Working Capital Adjustment, Subscriber
Adjustment, Capital Expenditure Adjustment and Debt Adjustment (collectively,
the "Adjustments") in accordance with this Section 2.03 and Sellers' estimate
of the Purchase Price resulting from the Adjustments ("Sellers' Estimate").
Sellers' Estimate shall be accompanied by details supporting the calculation of
each Adjustment and Sellers' Estimate. The Sellers' Estimate shall be based
upon the books and records of the Company. The Sellers' Estimate shall be
accompanied by a certificate signed by the Sellers' Representative certifying
that Sellers' Estimate was calculated in good faith and in accordance with the
provisions of this Section 2.03. After the delivery of Sellers' Estimate and
prior to the Closing, Purchaser and Sellers' Representative shall attempt to
resolve any disputes between Sellers' Representative and Purchaser with respect
to Sellers' Representative's proposed Adjustments. In connection therewith,
Purchaser shall have full access to all records of the Company related to
Sellers' Representative proposed Adjustments. Prior to Closing, Purchaser
shall advise Sellers' Representative in writing as to any dispute Purchaser has
with Sellers' Estimate and provide the Sellers' Representative with Purchaser's
calculation of the Adjustments and the Purchase Price, accompanied by a
certificate signed by the President or Chief Financial Officer of Purchaser
certifying that Purchaser's calculation was made in good faith and shall be
accompanied by supporting documents and information, to the extent the same is
available to Purchaser ("Purchaser's Estimate"). In the event that (i)
Purchaser's Estimate of the Purchase Price is less than $25,000 less than
Sellers' Estimate, the Closing shall proceed with the Purchase Price for
purposes of the payment to be made at Closing based upon Sellers' Estimate; or
(ii) the Purchaser's Estimate of the Purchase Price is more than $25,000 less
than Sellers' Estimate, then the mid-point between Sellers' Estimate and
Purchaser's Estimate shall be used as the Purchase Price for purposes of the
Closing.
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(g) POST-CLOSING ADJUSTMENTS. Within 120 days after the Closing Date,
Purchaser shall deliver to the Sellers' Representative a certificate (the
"Closing Certificate") signed by the President or Chief Financial Officer of
Purchaser providing a compilation of the Adjustments to be made pursuant to
this Section 2.03, including any changes in the Adjustments used to determine
the Purchase Price at Closing, together with a statement of any additional
amount owing to either party (the "Adjustment Amount"), a copy of any
supporting documents, work papers, Subscriber records and other data relating
to such Closing Certificate and such other supporting evidence as the Sellers'
Representative may reasonably request either prior to or after delivery
thereof. If the Sellers' Representative shall conclude that the Closing
Certificate does not accurately reflect the Adjustments to be made to the Base
Price in accordance with this Section 2.03 and the Adjustment Amount, the
Sellers' Representative shall, within 30 days after their receipt of the
Closing Certificate (such 30-day period being referred to as the "Response
Period"), deliver to Purchaser a written statement of any discrepancies
believed to exist. If the Sellers' Representative fails to so notify Purchaser
of any discrepancies, then the calculation of the Purchase Price set forth in
the Purchaser's Closing Certificate shall be controlling for all purposes
hereof and, on or before the fifth (5th) day following the expiration of the
Response Period, (i) if the Purchaser is obligated to pay the Sellers the
Adjustment Amount, the Purchaser shall pay each Seller the product of (x) the
Adjustment Amount and (y) such Seller's Ownership Percentage as determined on
the Closing Date and (ii) if the Sellers are obligated to pay the Purchaser the
Adjustment Amount, the Sellers, acting through the Shareholder Representative,
shall pay the Purchaser the Adjustment Amount. On or before the fifth day
following the earlier to occur of the expiration of the Response Period and the
date Purchaser receives Sellers' Representative's statement of discrepancies,
Purchaser or the Sellers, as the case may be, shall pay the portion of the
Adjustment Amount, if any, as to which there is no discrepancy (the "Agreed
Adjustment Amount") and in accordance with each Seller's Ownership Percentage,
if the Agreed Adjustment Amount is owing from the Purchaser. Purchaser and the
Sellers' Representative shall use good faith efforts to jointly resolve their
discrepancies within 15 days of Purchaser's receipt of the Sellers'
Representative's written statement of discrepancies, which resolution, if
achieved, shall be binding upon the Sellers and Purchaser and not subject to
further dispute or review. In the event Purchaser and Sellers' Representative
are unable to resolve their differences within such fifteen (15) day period,
then either party may request that the matter be resolved by Arthur Andersen
LLP (the "Independent Accountants"). In submitting a dispute to the
Independent Accountants, each of the parties shall furnish, at its own expense,
the Independent Accountants and the other party with such documents and
information as the Independent Accountants may reasonably request. Each party
may also furnish to the Independent Accountants such other information and
documents as it deems relevant with the appropriate copies and notification
being given to the other party. The Independent Accountants may conduct a
conference concerning the disagreements between Sellers' Representative and
Purchaser at which conference each party shall have the right to present
additional documents, material and other evidence and to have present its
advisors, accountants and counsel. The Independent Accountants shall promptly
render a decision on the issues presented and shall provide the Purchaser and
the Sellers' Representative with a statement of the amount owing, taking into
account the payment of the Agreed Adjustment Amount (the "Final Adjustment
Amount"), and such decision shall be final and binding on the parties. The
fees and expenses of the Independent Accountants shall be divided equally
between Purchaser, on the one hand, and Sellers, on the other hand. Within 5
days of receipt of the Independent Accountants' decision with respect to such
dispute, (i) if Purchaser is determined to owe the Final Adjustment Amount to
the Sellers, Purchaser shall pay each Seller the product of (x) the Final
Adjustment Amount
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and (y) such Seller's Ownership Percentage and (ii) if the Sellers are
determined to owe an amount to Purchaser, Sellers, acting through the
Shareholder Representative, shall pay the Final Adjustment Amount to
Purchaser. All amounts owed by Purchaser or Sellers to the other in
accordance with this Section 2.03(g) shall be paid by wire transfer of
immediately available funds and shall not bear any interest. Any amount due
Purchaser from Sellers under this Section 2.03(g) and not paid when due may
also be paid from the funds held pursuant to the Escrow Agreement.
ARTICLE III
CLOSING
Subject to the terms and conditions hereof, the closing (the "Closing")
shall take place at the offices of Edwards & Angell, 2800 Hospital Trust Tower,
Providence, Rhode Island 02903, on the date (the "Closing Date") which is the
last day of the Company's normal subscriber billing cycle (or if not a business
day, the next business day) following (or occurring on) the later of (a) the
date that (i) the FCC granted its consent to the change of control of the
Company's licenses, including the FCC authorizations to operate a cellular
telephone system in the Cellular Area (the "Cellular Authorizations") and
microwave paths (if any) used in connection with such cellular operations (the
"Microwave Authorizations" and together with the Cellular Authorizations, the
"FCC Authorizations") to the Purchaser by a Final Order (as defined in Section
7.04) or (ii) if applicable, Sellers' Representative receives from Purchaser
the Final Waiver Notice (as defined in Section 7.04), or (b) the waiting period
under the Hart-Scott Act expires or is terminated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally (severally and not jointly with respect
to Sections 4.02, 4.05 and Section 4.12 and the third sentence of Section
4.04, as they relate to an individual Seller and not the Company), represent,
warrant, covenant and agree that:
SECTION 4.01. ORGANIZATION, QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all necessary power and authority to own and
operate its properties and to carry on its business as now being conducted or
proposed to be conducted. Neither the Company's ownership of property or the
conduct of its business requires qualification in any jurisdiction other than
the State of California. Attached hereto as SCHEDULE 4.01 is a true and
complete copy of the Certificate of Incorporation, as amended to date, of the
Company.
SECTION 4.02. CONSENTS, AUTHORIZATION, EXECUTION AND DELIVERY OF
AGREEMENT. Each Seller has full power, authority and capacity, and the Company
has full corporate power, authority and capacity to execute and deliver this
Agreement and to carry out the transactions contemplated hereby. The Board of
Directors of the Company has duly approved and authorized the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, and no other proceedings, corporate or otherwise, on the
part of Sellers or the Company are necessary to approve and authorize the
execution and delivery of this Agreement by Sellers and the Company and the
consummation by Sellers and the Company of the transactions contemplated
hereby, subject to the other governmental and third-party consents referred to
in Section 7.04. This Agreement constitutes a valid and binding agreement of
each
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Seller and the Company enforceable against Sellers and the Company in
accordance with its terms.
SECTION 4.03. SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES. The Company
has no subsidiaries, and does not own or control any shares or other securities
of, or have any other proprietary interest in, any individual, corporation,
partnership, limited liability company, joint venture, business association or
other entity (a "Person").
SECTION 4.04. CAPITAL STOCK; INTERESTS. The authorized capital stock of
the Company consists of 10,000,000 shares of Common Stock and 2,000,000 shares
of Preferred Stock, of which 24,558.2215 shares of Common Stock are issued and
outstanding and 2,000 shares of Common Stock are reserved for issuance upon
exercise of Options, and no Preferred Stock has been issued. SCHEDULE 4.04
accurately sets forth the record and beneficial owners (as reflected on the
Company's books) of the Company's Outstanding Shares and Options and the number
of Shares and Options owned by each shareholder. Except as set forth on
SCHEDULE 4.04, there are no subscriptions, options, warrants, calls, rights,
tag-along rights, drag-along rights, rights of first refusal, contracts,
commitments, voting trusts, proxies, understandings, restrictions or
arrangements relating to the issuance, voting, sale or transfer by the Sellers
or the Company of any shares of such capital stock, including rights of
conversion or exchange under any outstanding securities or other instruments.
All outstanding shares of capital stock of the Company have been duly
authorized, validly issued and are fully paid, non-assessable and free of
preemptive rights. There are no accrued dividends or other amounts due and
owing with respect to the Shares.
SECTION 4.05. OWNERSHIP OF SECURITIES. Each Seller is the record and
beneficial owner of the Shares and Options set forth opposite its name on
SCHEDULE 4.04. Each Seller has, and will convey to Purchaser at Closing, good
and marketable title to the Shares and Options, free and clear of all
Encumbrances of any kind whatsoever.
SECTION 4.06. REAL PROPERTY - OWNED. The Company does not own any real
property. The real property leased by the Company related to the Business has
never been owned by the Company.
SECTION 4.07. REAL AND PERSONAL PROPERTY - LEASED. Set forth on SCHEDULE
4.07(a) (in the case of real property) and SCHEDULE 4.07(b) (in the case of
personal property), are true and accurate listings of all real and personal
property leases to which the Company is a party (other than personal property
leases with annual payments of less than $2,000 and which leases, together with
the other contracts and agreements not required to be disclosed in the
aggregate have annual payments of less than $25,000 or which are terminable
without penalty on one month or less notice) setting forth (i) the name of the
lessor and (ii) with respect to the real property leases, a description of the
property leased and its use. Except as set forth on SCHEDULE 4.07(a) (in the
case of leased real property) and SCHEDULE 4.07(b) (in the case of leased
personal property), all of the leases set forth are in full force and effect
and are valid, binding and enforceable in accordance with their respective
terms, (ii) all accrued and currently payable rents and other payments required
by such leases have been paid, (iii) the Company and each other party thereto
have complied with all respective covenants and provisions of such leases, (iv)
neither the Company nor any other party is in default in any respect under any
such leases, (v) no party has asserted any defense, set off, or counter claim
thereunder, (vi) no waiver, indulgence or
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postponement of any obligations thereunder have been granted by any party,
and (vii) the validity or enforceability of any such lease will not be
adversely affected by the sale of the Securities to Purchaser.
SECTION 4.08. EXISTING CONTRACTS.
(a) SCHEDULE 4.08 hereto sets forth (i) all contracts, commitments and
other agreements (other than the Company's standard subscriber agreements for
cellular service) in effect on the date hereof with the Company's subscribers,
all leases to which the Company is a party (other than leases described on
SCHEDULE 4.07(a) OR (b), and (ii) all other contracts, credit agreements,
notes, debentures, instruments, mortgages, trusts, commitments and agreements
(other than leases described on SCHEDULE 4.07(a) OR (b) and agreements with
annual payments of less than $2,000 and which agreements, together with the
other leases and contracts not required to be disclosed, in the aggregate have
annual payments of less than $25,000 or which are terminable without penalty on
one month or less notice) or commitments (written or oral) to which the Company
is a party which relate to the ownership or the operation of the Business (the
"Existing Contracts") including, without limitation, the following:
(i) all purchase orders, agreements and commitments, other than
(a) roamer agreements entered into by Bay Area Cellular Telephone
Company with third parties and which govern roamer traffic on
Company's network which is switched through the facilities of Bay
Area Cellular Telephone Company, and (b) the purchase orders that are
included in the Budget ("Purchaser Orders"), for the purchase or sale
of advertising, services, materials, products or supplies which (x)
involve aggregate payments by the Company of more than $2,000 or (y)
involve aggregate payments to the Company of more than $25,000, or
(z) which were entered into other than in the ordinary course of
business of the Company;
(ii) all written employment contracts with any officer,
consultant, director or employee of the Company or any partner,
consultant or employee of the Company and any such oral contracts
which are not terminable at will by the Company;
(iii) all written and oral plans, contracts or arrangements
providing for stock options or share purchases, bonuses, pensions,
deferred or incentive compensation, retirement or severance payments,
profit-sharing, insurance or other benefit plans or programs for any
officer, consultant, director, shareholder or employee of the
Company;
(iv) all contracts for construction or for the purchase of real
estate, improvements, fixtures, equipment, machinery and other items
which under GAAP constitute capital expenditures and which
individually or in the aggregate for any related group of items
involve expenditures of the Company in excess of $2,000;
(v) all contracts relating in any way to direct or indirect
indebtedness for borrowed money or evidenced by a bond, debenture,
note or other evidence of indebtedness (whether secured or unsecured)
of or to the Company, including but
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not limited to, indebtedness by way of lease or installment purchase
arrangement, guarantee, reimbursement obligations pertaining to letters
of credit, purchase price discount obligations, undertakings on which
others rely in extending credit, or otherwise, and all mortgages, pledges,
conditional sales contracts, chattel and purchase-money mortgages and
other security arrangements with respect to any real estate,
improvements, equipment, other personal property or fixtures, used or
owned by the Company, except in each case for contracts individually
involving less than $5,000 and in the aggregate less than $25,000;
(vi) all agreements with agents, sales representatives,
suppliers, distributors, advertising agencies, insurance companies,
manufacturers, brokers and vendors involving the payment or receipt
of more than $5,000 per year;
(vii) all licenses, sublicenses, franchises, and royalty, joint
venture, partnership, profit or expense sharing or similar
agreements;
(viii) all agreements relating to the acquisition by the
Company of the assets, stock or business of another company including
any predecessor entity;
(ix) all material agreements related to the expansion of any
current product or service or the launch of any new product or
service, including those related to new markets;
(x) all material software license and servicing agreements
relating to the Company's data processing operations;
(xi) all contracts restricting the Company from engaging in any
line of business or competing with any Person or in any geographical
area, or from using or disclosing any information in its possession
(other than routine supplier and customer confidentiality
agreements);
(xii) all contracts or commitments with any affiliate of the
Company and all contracts or commitments not made in the ordinary
course of its business;
(xiii) all commitments, contracts or agreements which are
expected to result in any loss upon completion of performance thereof
in excess of $5,000;
(xiv) all other contracts, except those which are (x)
cancelable on 30 days' or less notice without any penalty or other
financial obligation or (y) if not so cancelable, involve annual
aggregate payments by or to the Company of $5,000 or less.
(b) The Sellers have heretofore delivered to Purchaser true and correct
copies of the Existing Contracts. Except as disclosed on SCHEDULE 4.08,
neither the Company nor any Seller has knowledge of any breach, anticipated
breach, or violation by the other parties to any Existing Contract. The
Existing Contracts are valid, binding, and in full force and effect and the
Company is in compliance with its obligations under such Existing Contracts.
Except for the Existing Contracts and the Purchase Orders, the Company has not
entered into any other
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contract, commitment or agreement (other than agreements with annual payments
of less than $2,000 and which agreements, together with the other leases and
contracts not required to be disclosed, in the aggregate have annual payments
of less than $25,000 or which are terminable without penalty on one month or
less notice) relating to the ownership of or the operation of the Business,
including, but not limited to, rights-of-way, rights of entry, licenses,
easements, leases, or guaranty agreements. There are no claims by third
parties that the Company is required to enter into other agreements to enable
it to continue to own and operate the Business as it is presently being
operated.
SECTION 4.09. GOVERNMENTAL LICENSES. Except as set forth on SCHEDULE
4.09, the Company holds all necessary licenses, consents, permits, approvals
and authorizations of public and governmental bodies including, without
limitation, the FCC Authorizations, authorizations from the California Public
Utilities Commission (the "CPUC") and other state, counties and municipalities
served by the Business, which are required in connection with the ownership and
operation of the Business (collectively referred to as the "Authorizations").
All Authorizations are in full force and effect. The Company has complied with
the terms of the Authorizations which it holds and there are no pending
modifications, amendments or revocations of the Authorizations which would
adversely affect the ownership or the operation of the Business. All fees due
and payable from the Company to governmental authorities pursuant to the
Authorizations have been paid. All reports required of the Company to be filed
in connection with the Authorizations have been timely filed (except such
failures to timely file which, in the aggregate, have not caused, and would not
reasonably be expected to cause, the Company to suffer a Material Loss) and are
accurate and complete. True and correct copies of the Authorizations, and all
amendments thereto to the date hereof, have been delivered by Sellers to
Purchaser and are identified on SCHEDULE 4.09 hereto. The terms and conditions
of service of the Business, the rates the Company charges for its cellular
telephone services and equipment and the transfer of the ownership of the
Business are not subject to regulation or supervision by any applicable state
public utilities commission or other similar state governmental instrumentality
other than the CPUC and pursuant to applicable state blue sky laws.
SECTION 4.10. COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE
4.10, Sellers and the Company are currently complying with and have so complied
with, and are not in default under, in violation or contravention of, any
statute, law (including environmental or employment laws), ordinance, decree,
order, rule, regulation of any governmental body applicable to the business of
the Company or the Business, including, without limitation, the rules and
regulations of the FCC and the CPUC.
SECTION 4.11. NO VIOLATION OF EXISTING AGREEMENTS. Subject to the
consents for the Existing Contracts identified on SCHEDULE 4.11, the execution,
delivery and performance of this Agreement by the Sellers and the Company and
Sellers' transfer of the Shares to Purchaser (i) will not violate any
provisions of any law or any provision of the Company's certificate of
incorporation or by-laws, (ii) will not, with or without the giving of notice
or the passage of time, or both, conflict with or result in any breach of any
of the terms or conditions of, or constitute a default under any Existing
Contracts, and (iii) will not result in the creation of any Encumbrance upon
the assets of the Company.
SECTION 4.12. LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
SCHEDULE 4.12, there is no outstanding judgment against the Company or any
Seller or any director, officer or
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stockholder of the Company affecting the Business or the Shares or which
questions the validity of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement. Except as set forth on
SCHEDULE 4.12, there is no claim, litigation, proceeding or investigation
pending, or, to the Company's or any Seller's knowledge, threatened, against
the Company or any Seller or any director, officer or stockholder of the
Company affecting the Business or which questions the validity of any action
taken or to be taken pursuant to or in connection with the provisions of this
Agreement and there is no basis for any such claim, litigation, proceeding or
investigation. Except for matters affecting the cellular telephone industry
generally or as set forth on SCHEDULE 4.12, there are no proceedings pending
to which the Company, any Seller or any director, officer or stockholder of
the Company is a party or, to the Company's or any Seller's knowledge,
threatened, nor any demands by any governmental agency, utility or other
party, to terminate, modify or adversely change the terms and conditions of
the Company's rights with respect to the Authorizations or Existing Contracts.
SECTION 4.13. ENVIRONMENTAL COMPLIANCE. (a) Except as set forth on
SCHEDULE 4.13 hereto, (i) none of the Sellers or the Company has received any
notice alleging any violation of any Environmental Law; (ii) the Company is in
compliance with all Environmental Laws; (iii) the Company has obtained and
complies with all required governmental environmental permits with respect to
its business as presently conducted; (iv) the Company has not generated, used,
transported, treated, stored, released or disposed of, or suffered or permitted
anyone else to generate, use, transport, treat, store, release or dispose of
any Hazardous Substance (as hereinafter defined) with respect to its business
in violation of any Environmental Laws (as hereinafter defined); (v) there has
not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with Company's ownership and
conduct of the Business or on, in or under any property or facility used, owned
or leased by the Company or any adjacent properties or facilities, which has
created or might reasonably be expected to create any liability under any
Environmental Laws or which would require reporting to or notification of any
governmental entity; (vi) no friable asbestos or polychlorinated biphenyl, and
no underground storage tank, is contained in or located on or under any
property or facility owned, used or leased by the Company; and (vii) any
Hazardous Substance handled or dealt with in any way with respect to the
business of the Company, or during the Company's ownership of its business, has
been and is being handled or dealt with in compliance with all Environmental
Laws.
(b) For purposes of this Agreement, the term "Hazardous Substance"
shall mean any substance which, as of the date of this Agreement, is listed as
hazardous or toxic in the regulations implementing the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Response Compensation and Liability Act ("RCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), or listed as a
hazardous substance under any applicable state environmental laws, or any
substance which has been determined by regulation, ruling or otherwise by any
agency or court to be a hazardous or toxic substance regulated under federal or
state law, and shall include petroleum and petroleum products.
(c) For purposes of this Agreement, the term "Environmental Laws"
shall mean CERCLA, RCRA, RCLA and any applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans, authorizations,
concessions, franchises and similar items of all governmental authorities and
all applicable judicial, administrative and regulatory
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decrees, judgments and orders, any of which relate to the protection of human
health or the environment from the effects of Hazardous Substances, including
but not limited to those pertaining to reporting, licensing, permitting,
investigating and remediating emissions, discharges, releases or threatened
releases of Hazardous Substances into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances.
SECTION 4.14. EMPLOYEES. SCHEDULE 4.14 sets forth a true and complete
list of the names and salaries of all employees of the Company and of Unitel.
Except as set forth on SCHEDULE 4.14, such employees are employees at will.
The Company has withheld all amounts required by law or agreement to be
withheld by it from the wages, salaries and other payments to its employees and
is not liable for any arrears of wages or any taxes for failure to comply with
any of the foregoing. There are no collective bargaining agreements covering
any of the employees of the Company or Unitel. Neither the Company nor Unitel
has breached or otherwise failed to comply with any provision of any collective
bargaining agreement or other labor union contract applicable to any of its
employees. No consent of any union (or similar group or organization) is
required in connection with the consummation of the transactions contemplated
hereby. There are no pending, or, to the Company's knowledge threatened or
anticipated, and, there is no factual basis for any (a) employment
discrimination (including age, sex, racial or handicap discrimination) charges
or complaints against or involving the Company or Unitel, before any federal,
state, or local board, department, commission or agency or (b) unfair labor
practice charges or complaints, disputes or grievances affecting the Company or
Unitel. There are no pending, or, to the Company 's knowledge threatened or
anticipated (a) union representation petitions respecting the employees of the
Company or Unitel, (b) efforts being made to organize any of the employees of
the Company or Unitel, or (c) strikes, slow downs, work stoppages, or lockouts
or threats affecting the Company or Unitel.
SECTION 4.15. EMPLOYEE BENEFITS. Except as set forth on SCHEDULE 4.15
attached hereto, neither the Company nor Unitel has any pension plan, profit
sharing plan, deferred compensation plan, stock option or stock bonus plan,
saving plan, or other benefit plan, policy, practice, or procedure or contract
concerning employee benefits or fringe benefits of any kind (collectively,
"Employee Benefit Plans"), whether or not governed by the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Except as set forth on
SCHEDULE 4.15, neither the Company nor Unitel is a party to any employment
contract. Except as set forth on SCHEDULE 4.15 attached hereto, no officer,
director or employee of the Company or Unitel participates or is eligible to
participate in a "defined benefit pension plan" as defined in Section 3(35) of
ERISA, maintained or made available by the Company. Except as set forth on
SCHEDULE 4.15 attached hereto, neither the Company or Unitel nor any Controlled
Group Member maintains or contributes to, or ever maintained or contributed to,
a plan under which any employee of the Company participates or is eligible to
participate subject to Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"). The term "Controlled Group Member" means any trade or
business (whether or not incorporated) which is, or was at any relevant time,
aggregated with the Company or Unitel pursuant to Section 414(b), (c), (m) or
(o) of the Code. Except as set forth on SCHEDULE 4.15 attached hereto, neither
the Company or Unitel nor any ERISA Affiliate has participated in or made
contributions to any "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA. The term "ERISA Affiliate" means each trade or business (whether or not
incorporated) which is, or was at any relevant time, treated as a single
employer with the Company or Unitel pursuant to Section 4001(b)(1) of ERISA.
The Sellers have furnished
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Purchaser with true, complete and accurate copies of all Employee Benefit
Plans and related trust agreements as in effect on the date hereof, all
summary plan descriptions, and the latest annual reports filed with the
Department of Labor or the Internal Revenue Service (the "IRS").
Each of the Employee Benefit Plans is in compliance with all applicable
requirements of ERISA, the Code, and other applicable law. Each of the
Employee Benefit Plans has been administered in all material respects in
accordance with its terms and with applicable legal requirements. All
"employee pension plans" (within the meaning of Section 3(2) of ERISA) have
been determined by the IRS to be qualified under Section 401(a) of the Code,
and no action or proceeding has been instituted or threatened which would
affect the qualification of any pension plan of the Company or Unitel. No
unfunded liabilities, based upon the Pension Benefit Guarantee Corporation (the
"PBGC") rates currently in effect for plan terminations, exist with respect to
any Employee Benefit Plan which is a "defined benefit plan" (within the meaning
of Section 3(35) of ERISA). There has not been any reportable event with
respect to any pension plan of the Company or Unitel. Neither Unitel nor the
Company has engaged in a "prohibited transaction" or breach of fiduciary
responsibility with respect to any Employee Benefit Plan which could subject
Purchaser or any affiliate of Purchaser to a penalty tax or other liability
under ERISA or the Code. Neither the Company or Unitel nor any ERISA Affiliate
of the Company or Unitel has ever incurred any liability under Title IV of
ERISA to the PBGC or to a multi-employer pension plan.
SECTION 4.16. TAX MATTERS. (a) Except as set forth on SCHEDULE 4.16
attached hereto, (i) the Company and each Seller has timely filed (except such
failures to timely file which, in the aggregate, have not caused, and would not
reasonably be expected to cause, the Company to suffer a Material Loss) all Tax
(as defined below) returns and statements which it is required to file with
respect to the Company; (ii) all such returns are complete and accurate and
disclose all Taxes required to be paid for the periods covered thereby; (iii)
neither the Company nor any Seller has waived any statute of limitations in
respect of Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency; (iv) no assessment of any additional Taxes for
periods for which returns have been filed has been asserted and no basis exists
therefor; (v) to the Company's and each Seller's knowledge, there are no
unresolved questions or claims raised by any Taxing authority concerning the
Tax liability of the Company, (vi) all Taxes which the Company is required by
law to withhold or to collect for payment have been duly withheld and
collected, and have been paid and (vii) the Company is not and has never made
an election to be taxed as an "S Corporation" (within the meaning of Section
1361 of the Code). The Company has paid all Taxes due prior to the date hereof
and will pay when due (or contest in good faith by appropriate proceedings) all
Taxes which may become due on or before the Closing Date.
(b) For purposes of this Section 4.16, the term "Tax" or "Taxes" means
all taxes, charges, fees, levies, imposts and other assessments including all
income, sales, use, goods and services, value added, capital, capital gains,
alternative net worth, transfer, profits, withholding, payroll, employer
health, excise, real property and personal property taxes, and any other taxes,
customs duties, stamp duties, fees, assessments or similar charges in the
nature of a tax, together with any interest, fines and penalties imposed by any
governmental authority (including federal, state, provincial, municipal and
foreign governmental authorities), and whether disputed or not.
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SECTION 4.17. FINANCIAL STATEMENTS.
(a) The Purchaser has heretofore been furnished with the following:
(i) true and complete copies of the audited balance sheets of
the Company as of December 31, 1994, December 31, 1995 and December
31, 1996 and the related audited statements of income, cash flows and
stockholders equity, for the years then ended, each of such balance
sheet and income statement being attached hereto as SCHEDULE
4.17(a)(i) (collectively, the "Audited Historical Financial
Statements");
(ii) true and complete copies of the unaudited balance sheet
(the "December Balance Sheet") of the Company at December 31, l997
(the "Balance Sheet Date") and the related unaudited statement of
income for the twelve-month period then ended (the "Twelve Month
Income Statement"; and together with the December Balance Sheet, the
"Current Financial Statements"), such balance sheet and income
statement being attached hereto as SCHEDULE 4.17(a)(ii);
(iii) the capital expenditure budget for the Company providing
for expenditure of capital items in each quarter for the period from
January 1, 1998 through December 31, 1998 and attached hereto as
SCHEDULE 4.17(a)(iii) (the "Budget").
(b) Each of the Audited Historical and Current Financial Statements
delivered under Section 4.17(a)(i) and (ii) hereof was prepared in accordance
with GAAP applied on a basis consistent with prior periods and past practices
and, with respect to the Current Financial Statements, subject to normally
recurring year-end adjustments and except for the omission of certain footnotes
and other presentation items required by GAAP with respect to audited financial
statements; each of the balance sheets included in such Audited Historical and
Current Financial Statements fairly presents the financial condition of the
Company as at the close of business on the date thereof; and each of the
statements of income included in such Audited Historical and Current Financial
Statements fairly presents the results of operations of the Company for the
fiscal period then ended.
(c) Except as set forth on SCHEDULE 4.17(c) attached hereto, since the
Balance Sheet Date, the Company has not:
(i) sold, assigned or transferred any of its assets or
properties except pursuant to existing contracts or commitments
disclosed on any Schedule to this Agreement or inventory in the
ordinary course of business consistent with past practice); or
canceled any material debts or material claims;
(ii) waived any material rights, whether or not in the ordinary
course of business;
(iii) entered into any other transaction, except in the
ordinary course of business, or entered into any transaction with any
director, officer or shareholder of the Company, or any affiliate or
family member of any such Person;
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(iv) suffered any material damage, destruction or casualty loss
with respect to its assets or properties whether or not covered by
insurance;
(v) declared or paid any dividend, made any distribution of any
of its assets to any director, officer or shareholder of the Company
or any affiliate or family member of any such Person or redeemed or
purchased any of its shares of capital stock or other equity
interest;
(vi) except as disclosed in writing by the Sellers to
Purchaser, the Company has not obligated itself or the Business to
give free or reduced price service to customers with respect to the
Business other than promotions offered in the ordinary course of
business and set forth on SCHEDULE 2.03(a);
(vii) made any increases in the base compensation, bonuses,
paid vacation time allowed or material fringe benefits for its
partners, officers, employees or consultants, except for normal
periodic increases in base compensation for employees made pursuant
to established compensation policies of the Company applied on a
basis consistent with that of prior years;
(viii) suffered to its knowledge any material adverse change in
the business relationship of the Company with any supplier;
(ix) made any capital expenditures, additions or improvements
or commitments for the same, except those which do not exceed
$100,000 in the aggregate for the Company;
(x) entered into any contract, commitment or agreement under
which it has outstanding indebtedness for borrowed money or for the
deferred purchase price of property in excess of $100,000, or has the
right or obligation to incur any such indebtedness or obligation, or
made any loan or advance to any Person other than advances to
employees for business expenses not exceeding $50,000 in the
aggregate for the Company;
(xi) paid any bonuses, deferred or otherwise, or deferred any
compensation to any of its directors, officers or employees in excess
of $25,000 to any such person for the Company's 1996 and 1997 fiscal
years, except as reflected in the Historical Financial Statements;
(xii) made any material change in accounting procedures or
practices;
(xiii) mortgaged or pledged any of its properties or assets,
tangible or intangible, or subjected them to any Encumbrances, except
Encumbrances for current property taxes not yet due and payable;
(xiv) except for the sale of inventory in the ordinary course
of business, entered into any agreement or arrangement granting any
rights to purchase or
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lease any of its assets, properties or rights or requiring the consent
of any Person to the transfer, assignment or lease of any such assets,
properties or rights;
(xv) disposed of or permitted to lapse any rights to the use of
any patent, trademark, service mark, logo, trade name or copyright
identified on SCHEDULE 4.23 hereto, or disposed of or disclosed to
any Person (other than Persons subject to confidentiality obligations
in favor of the Company) any trade secret, formula, process, method
or know-how not theretofore a matter of public knowledge;
(xvi) suffered any resignation or termination of any key
officer or key employee; or
(xvii) entered into any agreement or understanding to do any of
the foregoing.
SECTION 4.18. SUBSCRIBERS; AGENTS. SCHEDULE 4.18 attached hereto sets
forth (a) the number of subscribers receiving service from Cellular System as
of a date within 5 days prior to the date hereof and (b) a list of all agents
who sell cellular telephone equipment and/or service on behalf of the Company
as of the date hereof, together with such agent's address and the number of
gross activations produced by each agent from January 1, 1997 to December 31,
1997.
SECTION 4.19. INSURANCE. Sellers have delivered previously to Purchaser
all policies of title, liability, fire, worker's compensation and other forms
of insurance (including bonds) of the Company which insure against risks and
liabilities to an extent and in a manner customary in the cellular industry and
which are adequate to provide coverage against risks of a nature to which the
Company would normally be exposed in the operation of its business. All such
insurance policies and binders are in full force and effect. The Company has
complied in all material respects with each of such insurance policies and
binders and have not failed to give any notice or present any claim thereunder
in a due and timely manner. There are no outstanding unpaid claims under any
of such insurance policies or binders and the Company has not received any
notice of cancellation or non-renewal of any such policy or binder. There is
no inaccuracy in any application for such policies or binders which would
reasonably be expected to materially adversely affect coverage thereunder. No
insurance carrier has canceled or reduced any insurance coverage for the
Company or has given any notice or other indication of its intention to cancel
or reduce any such coverage. All premiums due and payable under any such
insurance policies or binders of the Company have been duly paid or accrued to
the extent taken into account in the Working Capital Adjustment.
SECTION 4.20. BROKERS. Except for Daniels & Associates, none of the
Sellers or the Company have engaged any agent, broker or other person acting
pursuant to its express or implied authority which is or may be entitled to a
commission or broker or finder's fee in connection with the transactions
contemplated by this Agreement or otherwise with respect to the sale of the
Shares.
SECTION 4.21. UNDISCLOSED LIABILITIES; GUARANTEES. Except as disclosed
on Schedules 4.12 and/or 4.21, the Company does not have any liabilities or
obligations of any nature, whether absolute, accrued, contingent, known or
unknown, or otherwise, which are not reflected or reserved against the December
Balance Sheet except for liabilities and obligations that have
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arisen in the ordinary and usual course of business and consistent with past
practice (none of which results from, arises out of, relates to, is in the
nature of, or caused by any breach of contract, breach of warranty, tort,
infringement or violation of law). Except as disclosed on SCHEDULE 4.21 or
in the Audited Historical and Current Financial Statements, there are no
contracts or commitments by the Company guaranteeing the payment or
performance by others, or whereby, except for the endorsement of checks in
the regular and ordinary course of its business, the Company in any way is or
will be liable with respect to the obligations of any other Person.
SECTION 4.22. PRICING OF SERVICES. SCHEDULE 4.22 sets forth a
description of all rate plans (including promotional rate plans) currently
offered to subscribers of the Cellular System.
SECTION 4.23. PROPRIETARY RIGHTS. The Company owns or has legal right to
use all patents, trademarks, tradenames, service marks and logos including
applications therefor, and all trade secrets, inventions and proprietary rights
and processes (all such items being hereinafter referred to as "Intangible
Property"), presently used in the conduct of the Business of the Company,
without any infringement upon the proprietary rights of others. All patents,
registered trademarks, trademark applications, trade names, service marks, and
registered logos used or owned by or licensed to the Company in connection with
its Business are set forth on SCHEDULE 4.23, and, in the case of any Intangible
Property owned by the Company, have been duly registered in, filed in, or
issued by the United States Patent and Trademark Office or the corresponding
offices of other jurisdictions (foreign or domestic) to the extent set forth on
SCHEDULE 4.23. All material licenses held by the Company, whether as licensee
or licensor, are also set forth on SCHEDULE 4.23. SCHEDULE 4.23 accurately
sets forth with respect to each patent, registered trademark, trademark
application, trade name, service mark, registered logo and material license
owned or used by or licensed by or to the Company in the conduct of its
business, (i) the owner thereof, (ii) the date of expiration, if any, (iii)
whether such rights are exclusive and (iv) any other licensee of the Company of
such rights. Except as otherwise set forth on SCHEDULE 4.23 hereto, no
royalties or fees are payable by the Company to any Person by reason of the
ownership or use of any of the Intangible Property. To the knowledge of the
Company, all items of Intangible Property owned by the Company are, and all
items of Intangible Property owned by a third party and used by the Company
are, (x) valid and in good standing, (y) adequate and sufficient to permit the
Company to conduct its Business as presently conducted, and (z) no other rights
of any kind in respect of the Intangible Property are required by the Company
for its operation as presently conducted. Except as set forth on SCHEDULE
4.23, the Company has not entered into any material licenses, sublicenses or
agreements relating to the use by any other Person of any Intangible Property
now used by the Company, and to the knowledge of the Company, no infringement
exists upon such Intangible Property by any other Person. Except as disclosed
on SCHEDULE 4.23, no charge or claim is pending or to the knowledge of the
Company threatened, nor has any charge or claim been made within the past three
years to the effect that, the sale of any of the services by the Company
infringe upon or conflict in any way with any rights or properties of the type
enumerated above owned or held by any other Person.
SECTION 4.24. ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of the Company shown on the December Balance Sheet or thereafter
acquired were or (to the extent not heretofore collected) are valid and
genuine, were acquired in the ordinary course of business, are subject to no
asserted counterclaims, defenses or setoffs and to the knowledge of the
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Company, should be fully collectible within 90 days of Closing (subject to
reserves therefor as will be taken into account in the determination of Current
Assets at Closing in accordance with Section 2.03). SCHEDULE 4.24 attached
hereto sets forth a true, complete and accurate list, as of the end of the most
recent normal billing cycle of the Cellular System, listing the total amounts
of subscriber receivables and the aging of such subscriber receivables based on
the following Schedule: 0-30 days, 31-60 days, 61-90 days and over 90 days,
from the date thereof.
SECTION 4.25. PRODUCT INFORMATION. The Company does not assign any value
to its inventory of refurbished telephone handsets for financial statement
purposes. SCHEDULE 4.25 sets forth a list of manufacturers of telephone
handsets presently in the Company's inventory.
SECTION 4.26. CERTAIN BUSINESS RELATIONSHIPS. Except as set forth in
SCHEDULE 4.26 attached hereto, none of the officers, directors or stockholders
of the Company and any of their affiliates or family members have been involved
in any business arrangement or relationship with the Company within the past 12
months.
SECTION 4.27. OFFICERS, DIRECTORS AND CERTAIN AUTHORIZED PERSONS.
SCHEDULE 4.27 sets forth a complete and accurate list of:
(i) the names of all directors of the Company;
(ii) the names and offices of all officers of the Company;
(iii) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of the Company;
(iv) all safes, vaults and safe deposit boxes maintained by or
on behalf of the Company or in which its property is held, and the
names of all Persons authorized to have access thereto;
(v) all bank accounts of the Company and the names of all
Persons who are authorized signatories and the terms of their
authorizations; and
(vi) the names of all Persons to which the Company has granted
its power of attorney and the terms of any such powers of attorney.
SECTION 4.28. DISCLOSURE. No provision of this Agreement relating to any
of the Sellers, the Company, the Business or the Securities or any other
document, Schedule, Exhibit or other information furnished by Sellers to
Purchaser in connection with the execution, delivery and performance of this
Agreement, or the consummation of the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated in order to make the
statement, in light of the circumstances in which it is made, not misleading.
Except for facts affecting the cellular telephone industry generally, there is
no fact, event or condition known to any of the Sellers that has had or which
is reasonably likely to have a materially adverse affect on operation,
financial condition, business or prospects of the Business which has not been
disclosed to Purchaser or set forth in the Exhibits or Schedules attached
hereto. All Schedules attached hereto are accurate and complete as of the date
hereof.
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ARTICLE V
PURCHASER'S REPRESENTATIONS
Purchaser hereby represents, warrants, covenants and agrees that:
SECTION 5.01. ORGANIZATION; QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma. Purchaser has all power and authority to (i) own and
operate its properties, (ii) carry on its business as it is now being
conducted, and (iii) carry out the transactions contemplated by this Agreement
and to own the Shares and operate the Business, subject to obtaining all
necessary consents required for the transfer by Sellers of the Shares.
SECTION 5.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF
AGREEMENT. All necessary consents and approvals shall have been obtained prior
to Closing by Purchaser for the execution and delivery of this Agreement. The
execution and delivery of this Agreement by Purchaser and the consummation of
the transactions contemplated hereby has been duly and validly authorized and
approved by all necessary corporate action. Purchaser has full power and
authority to execute and deliver and perform its obligations under this
Agreement. This Agreement is a valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms. Purchaser will have on
the Closing Date and immediately prior to Closing funds sufficient to
consummate the transactions contemplated by this Agreement.
SECTION 5.03. LITIGATION AND LEGAL PROCEEDINGS. There is no outstanding
judgment against Purchaser and there is no litigation, proceeding or
investigation pending, or, to Purchaser's knowledge, threatened, against
Purchaser or its assets which individually or in the aggregate would, if
adversely determined, result in a material adverse change in the business
condition (financial or otherwise), properties or assets of Purchaser or which
questions the validity of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement or the consummation of the
transactions contemplated hereby by the Purchaser.
SECTION 5.04. BROKERS. Purchaser has not engaged any agent, broker or
other person acting pursuant to the express or implied authority of Purchaser
which is or may be entitled to a commission or broker or finder's fee in
connection with the transactions contemplated by this Agreement or otherwise
with respect to the sale of the Shares.
SECTION 5.05. INVESTMENT INTENT. Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its purchase of the Securities. Purchaser confirms
that the Company and Sellers have made available to Purchaser the opportunity
to ask questions of the officers and management employees of the Company and to
acquire additional information about the business and financial condition of
the Company. Purchaser is acquiring the Securities for investment and not with
a view toward or for sale in connection with any distribution thereof or with
any present intention of distributing or selling the Securities. Purchaser
agrees that the Securities may not be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of without registration under the
Securities Act of 1933, as amended, except pursuant to an exemption from such
registration available under such Act, and without compliance with state and
foreign securities laws, in each case to the extent applicable.
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Section 5.06. NO OUTSIDE RELIANCE. Purchaser has not relied and is
not relying upon any statement or representation not made in this Agreement or
any Schedule or Exhibit attached hereto. It is expressly agreed that the
Sellers are making no representations or warranties whatsoever, express or
implied beyond those expressly stated in this Agreement or in the Exhibits or
Schedules hereto, including but not limited to any implied representation as to
condition, merchantability or suitability as to any of the properties or assets
of the business of the Company.
ARTICLE VI
THE COMPANY'S, SELLERS' AND PURCHASER'S COVENANTS
SECTION 6.01. FINANCIAL STATEMENTS AND CELLULAR SYSTEM INFORMATION. The
Sellers and the Company covenant and agree that during the period after the
execution of this Agreement and prior to the Closing, they shall provide
Purchaser, within 21 days of the end of each calendar month, the unaudited
balance sheet and income statement for such month for the Company ("Interim
Financial Statements"). The Interim Financial Statements will be true and
correct in all material respects, will be prepared using the same accounting
methods and procedures as used in the preparation of the Historical Financial
Statements except for the absence of footnotes, subject to normally recurring
year-end adjustments, and will present fairly the financial position of the
Company at the date indicated and the results of the Company's operations for
such period. The Sellers and the Company also shall provide Purchaser within
21 days of the end of each calendar month (i) a comparison of the results of
the Company's income from operations for such month as reflected in the Interim
Financial Statements to the amount budgeted for such month and the year to date
(as reflected in the Budget to be delivered to Purchaser as soon as practicable
following the date of this Agreement, but in no event later than March 31,
1998, a copy of which will be annexed hereto as SCHEDULE 6.01 (the "Operating
Budget")), (ii) the number of subscribers on the Cellular System at the
beginning and end of such month with a comparison to the Operating Budget,
(iii) an accounts receivable aging report for the Cellular System and (iv)
other reports generated by the Company's billing system as reasonably
requested by Purchaser.
SECTION 6.02. GOVERNMENTAL APPROVALS. (a) Purchaser covenants and
agrees that it will cooperate with the Company and Sellers, and do all things
reasonably necessary to assist them, to obtain all consents and approvals
necessary for assignment to Purchaser of the Authorizations, including the
furnishing of financial and other information specifically with respect to
Purchaser reasonably required by the person or entity whose consent or approval
is being sought. The Company and Sellers shall use all reasonable efforts to
provide adequate prior written notice to Purchaser of any meeting with
governmental authorities the purpose of which is to seek a consent or approval
to the transactions contemplated hereby, and Purchaser shall use all reasonable
efforts to furnish a representative to attend meetings with appropriate
government authorities for the purpose of obtaining such consents or approvals.
The Purchaser, the Company and each Seller have filed the necessary Form(s) 490
and 702 with the FCC transferring control of the FCC Authorizations for the
Business to Purchaser and will diligently pursue the processing of the transfer
of control of the FCC Authorizations to Purchaser and to file for all other
necessary regulatory approvals for the consummation of the transactions
contemplated by this Agreement within five business days of the date of
execution of this Agreement to the extent any such filings have not been made
prior to the date of execution of this Agreement. Sellers, on
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the one hand, and Purchaser, on the other, shall share equally all filing
fees in connection with any filings pursuant to this Section 6.02(a).
(b) The Company, Sellers and Purchaser shall each cooperate and use their
reasonable best efforts to prepare and file with the Federal Trade Commission
and the Department of Justice and other regulatory authorities as promptly as
possible all requisite applications and amendments thereto together with
related information, data and exhibits necessary to satisfy the requirements of
the Hart-Scott-Rodino Antitrust Improvements Act ("Hart-Scott Act"). Sellers,
on the one hand, and Purchaser, on the other, shall share equally all filing
fees in connection with any filings pursuant to this Section 6.02(b).
SECTION 6.03. THIRD PARTY CONSENTS; CLOSING CONDITIONS. (a) The Company
and the Sellers covenant and agree to do all things reasonably necessary (not
including the payment of money they are not otherwise obligated to pay) to
obtain all consents and approvals necessary under those Existing Contracts that
require consent to the change in control of the Company as a result of the
Purchaser's purchase of the Shares. Purchaser covenants and agrees to
cooperate with the Company and Sellers and assist the Company and the Sellers
in obtaining such consents and approvals including the furnishing of financial
and other information, reasonably required by the Person whose consent or
approval is being sought.
(b) Purchaser, the Company and the Sellers hereby covenant and agree to
use all reasonable efforts to satisfy, or assist the other party in satisfying,
the closing conditions applicable to the Purchaser in Article VII hereof and
the Company and the Sellers in Article VIII hereof prior to the Closing Date.
SECTION 6.04. ACCESS. (a) Purchaser shall have the right, itself or
through its representatives, during normal business hours, after reasonable
notice (which may be oral) to Sellers' Representative and the Company, and
without undue disruption to the Company's normal business activities, to
inspect the assets and properties of the Company and to inspect and make
abstracts and reproductions of all books and records of the Company including,
without limitation, applications and reports to the FCC and CPUC, all financial
information relevant to the Business, employee records, and engineering and
environmental reports and the Company shall furnish Purchaser with such
information respecting the assets, business and financial records of the
Company as Purchaser may, from time to time, reasonably request.
(b) The Company and the Sellers acknowledge and agree, subject to any
restrictions placed thereon by an owner or lessor of any real property involved
that Purchaser may commission, at Purchaser's cost and expense, a so-called
"Phase I" environmental site assessment of the assets of the Company (the
"Phase I Assessment"). If the Phase I Assessment indicates that a so-called
"Phase II" assessment (the "Phase II Assessment") or other additional testing
or analysis of such assets is advisable, the Purchaser may elect to cause its
agents to conduct such testing and analysis, also at Purchaser's expense. The
Company and the Sellers will comply with any reasonable request for information
made by Purchaser or its agents in connection with any such investigation. The
Company and the Sellers covenant that any response to any such request for
information will be complete and correct in all material respects. The Company
and the Sellers will afford Purchaser and its agents access to all operations
of the Company at all reasonable times and in a reasonable manner in connection
with any such investigation subject to any required approval of the Company's
landlords, which approval the Company and the Sellers
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will use their reasonable best efforts to obtain. Should Purchaser
commission such an investigation, such investigation will have no effect upon
the representations and warranties made by the Company and the Sellers to
Purchaser under this Agreement except that if any Phase I Assessment or Phase
II Assessment uncovers an environmental condition which then comprises a
breach of the Company and the Sellers' representations or warranties herein,
the Company and the Sellers shall not have breached such representation or
warranty if the Company and the Sellers cure such breach in accordance with
the provisions of this Agreement. Notwithstanding the foregoing, if the
reasonably estimated cost and expense to the Company and Sellers of curing
such breaches exceeds $500,000 and Purchaser fails to agree to bear the costs
and expense in excess thereof, the Sellers Representatives may terminate this
Agreement without penalty or cost, other than the reimbursement of
Purchaser's cost and expenses related to the transactions contemplated by
this Agreement.
(c) The Company and the Sellers shall allow Purchaser the opportunity to
conduct an engineering review of the Cellular System to confirm that the
Cellular System complies with the FCC Authorizations and the regulations of the
FCC in all material respects and are otherwise in good condition and repair,
reasonable wear and tear excepted.
SECTION 6.05. CONDUCT OF BUSINESS. From and after the date hereof the
Company and the Sellers shall cause the Company to be operated only in the
ordinary course of business consistent with past practice, and shall:
(a) operate the Cellular System in accordance with the FCC
Authorizations and all other Authorizations, and comply with all
laws, rules and regulations applicable to the Company, including the
regulations of the FCC and CPUC;
(b) except for inventory sold in the ordinary course of
business, refrain from making any sale, lease, transfer or other
disposition of any of the assets of the Company other than in
connection with replacements with assets of like use and value, or
with the prior written approval of Purchaser which approval shall not
be unreasonably withheld;
(c) refrain from modifying, amending or altering or terminating
any of the Existing Contracts other than in the ordinary course of
business consistent with past practice, and from waiving or canceling
any material default or breach or modifying, altering or terminating
any right or asset of the Company without Purchaser's prior written
approval, which approval will not be unreasonably withheld;
(d) maintain insurance on the assets and properties of the
Company comparable to that maintained prior to the date hereof, and
use the proceeds of any claims for loss under such policies, together
with such other funds as may be required, to repair, replace, or
restore to their former condition any assets or properties which may
be damaged by fire or other casualty, all as soon as reasonably
possible;
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(e) maintain its books and records in accordance with prior
practice; maintain all of its property and assets in their present
condition, ordinary wear and tear excepted; maintain supplies of
inventory and spare parts consistent with past practice; and
otherwise operate its business in the ordinary course in accordance
with past practices;
(f) except in the ordinary course of business consistent with
past practice, refrain from changing the Cellular System's agents'
commission rate, sales practices (including the quality of the credit
of subscribers contracting for cellular telephone service) or
marketing practices without Purchaser's approval;
(g) other than increases in current base salary of not greater
than 5%, refrain from increasing the compensation payable or to
become payable to any employee or agent of the Company without
Purchaser's approval;
(h) refrain from entering into any contract or renewal of any
existing contract for the employment of any employee or agent of the
Company other than "at-will" employees and agents;
(i) use its best efforts to (x) keep the business organization
of the Company intact, (y) retain the services of the key employees
of the Cellular System, and (z) maintain good relationships with its
employees, suppliers, advertisers, subscribers, agents and others
having business relations with it, in each case in accordance with
past practices;
(j) refrain from changing the Charter or by-laws of the
Company;
(k) continue to advertise, promote and market the Cellular
System and its services in a manner consistent with past practice,
and in any event from the date hereof through the Closing, spend on
advertising, marketing and promotion, on an aggregate basis from the
date hereof to the Closing, the amounts set forth in the Operating
Budget.
(l) refrain from subjecting any of the assets or properties of
the Company to any new Encumbrance;
(m) refrain from doing or omitting to do any act which will
cause a breach of, or default under, or termination of (except in
accordance with its terms), any material contract, agreement, lease,
commitment, or obligation to which the Company is a party or by which
it is bound;
(n) provide to the Purchaser, concurrently with filing thereof,
copies of all reports to and other filings with the FCC;
(o) not permit any of the Authorizations to expire or to be
surrendered or voluntarily modified in a matter adverse to the
Business, or take any action which would reasonably be expected to
cause the Authorizations or any other governmental authority to
institute proceedings for the suspension, revocation or
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limitation of rights under any of the Authorizations; or fail to
prosecute with due diligence any pending applications to any governmental
authority;
(p) notify Purchaser in writing promptly after learning of the
institution or threat of any material action against the Company in
any court, or any action against the Company before the FCC or the
CPUC or any other governmental agency, and notify Purchaser in
writing promptly upon receipt of any administrative or court order
relating to the Business;
(q) notify Purchaser of the hiring of any new employee, any
material change in job function of an employee, and the termination
of any employee;
(r) pay or cause to be paid or provide for all Taxes of or
relating to the Company, the Shares and the employees required to be
paid to city, county, state, federal and other governmental units up
to the Closing Date and refrain from extending any statute of
limitations with respect to such Taxes;
(s) refrain from taking any action not in the Company's usual
course of business without Purchaser's prior approval;
(t) cooperate with Purchaser in connection with Purchaser's
efforts to identify the current employees of the Company that
Purchaser would like to continue to hire following the Closing
consistent with all applicable federal, state and/or local employment
laws, rules and regulations;
(u) refrain from declaring or paying any dividends or making
any distribution upon, or redeeming or repurchasing any shares;
(v) refrain from creating, incurring, assuming, guaranteeing,
being or remaining liable, contingently or otherwise, with respect to
any indebtedness, other than indebtedness of the Company not to
exceed in the aggregate the amount outstanding at December 31, 1997;
(w) refrain from being a party to any merger or consolidation
or other transfer of any shares of the capital stock of the Company;
(x) refrain from increasing the amounts paid to Unitel pursuant
to the Management Contract;
(y) refrain from prepaying any indebtedness for borrowed money
(other than repayments of advances under its existing lines of credit
with financial institutions in the ordinary course of its business)
or prepaying any lease or other contractual obligations;
(z) continue to make all capital expenditures in connection
with the operation of the Business when and as required by its
capital expenditures in the Budget as set forth IN SCHEDULE 4.
17(a)(iii) as are required prior to the Closing Date; and
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(aa) change the rates charged to Subscribers except pursuant to
promotional programs approved by Purchaser, which approval will not
be unreasonably withheld.
SECTION 6.06. NO SHOPPING. None of the Sellers, the Company and any of
their affiliates, advisors or representatives shall, directly or indirectly,
solicit, encourage or initiate any contact with, negotiate with, or provide any
information to, endorse or enter into any agreement with respect to, or take
any other action to facilitate any person or group, other than Purchaser and
its representatives, concerning any inquiries or the making of any proposals
concerning any merger involving the Company, sale of all or substantially all
of the assets of the Company, acquisition of the Shares or an equity interest
in the Company or any similar transaction involving the Company.
SECTION 6.07. EMPLOYEES. Except as provided by SECTION 6.09 hereof,
Nothing contained in this Agreement shall confer upon any employee of the
Company any right (over and above existing rights, if any) with respect to
continued employment by the Company or Purchaser. No provision of this
Agreement shall create any third-party rights in any such employee, or any
beneficiary or dependent thereof, with respect to the compensation, terms and
conditions of employment and benefits that may be provided to such employee by
Purchaser or under any benefit plan that Purchaser may maintain.
SECTION 6.08. SUPPLEMENTAL DISCLOSURE. The Company and the Sellers shall
promptly from time to time prior to the Closing Date supplement in writing the
Schedules hereto with respect to any matter hereafter arising that, if existing
or known as of the date of this Agreement, would have been required to be set
forth or described in the Schedules hereto; provided, however, that no such
supplemental disclosure shall be deemed to cure any breach of any
representation or warranty of the Company or the Sellers made in this Agreement
unless Purchaser fails to object in writing to the Company and the Sellers to
any such supplemental disclosure within ten (10) business days after
Purchaser's receipt thereof.
SECTION 6.09. UNITEL. Upon Purchaser's direction, and without cost or
penalty to the Company, the Sellers covenant and agree (i) to cause the Company
and Unitel to terminate the Management Contract as of the Closing, (ii) to
cause all accrued and unpaid management fees and other obligations to Unitel to
be paid or satisfied prior to the Closing, and (iii) to cause Unitel to be
dissolved and liquidated promptly after the Closing.
SECTION 6.10. AUDIT OF COMPANY'S 1997 FINANCIAL STATEMENTS.
Purchaser and Sellers covenant and agree as follows:
(a) As soon as reasonably practical after December 31, 1997, Arthur
Andersen LLP ("Sellers' Accountants") conduct an audit (the "Audit") of the
financial statements of the Company in accordance with GAAP and generally
accepted auditing standards for the 12-month period ending December 31, 1997,
including a balance sheet, a statement of income and cash flow, and consistent
with past practices.
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(b) As soon as possible after December 31, 1997 Sellers' Accountants
shall deliver to the Oklahoma City office of Arthur Andersen LLP ("Purchaser's
Accountant"), Purchaser and Sellers (i) the Audit and, based upon such Audit, a
calculation of the Cellular System's Operating Cash Flow (as defined in Section
7.14) for the calendar year 1997 certifying the accuracy thereof (the "OCF
Calculation"). Purchaser's Accountant shall be given reasonable access to the
work papers, notes and other data compiled by Sellers' Accountant in connection
with the Audit. If the Closing has not occurred by March 31, 1997, Sellers'
Accountants shall bring forward the Audit to cover the Other Applicable Period
following the same procedures set forth in subparagraphs (a) and (b) above and
shall revise the OCF Calculation accordingly for the Other Applicable Period.
If either party objects to the OCF Calculation, such party shall within ten
(10) calendar days after receipt of the delivery of the OCF Calculation notify
the other party in writing of its objection and shall specify the basis for
such objection (the "Objection Notice"). Sellers and Purchaser shall attempt
to resolve their differences within the ten (10) day period following either
party's receipt of any Objection Notice. In the event Purchaser and Sellers
are unable to resolve their differences within such ten (10) day period, then,
either party may request that the matter be resolved by another accounting firm
mutually acceptable to Purchaser and Sellers' Representative (the "OCF
Accountant").
(c) In submitting a dispute to the OCF Accountants, each of the parties
shall furnish, at its own expense, the OCF Accountants and the other party with
such documents and information as the OCF Accountants may reasonably request.
Each party may also furnish to the OCF Accountants such other information and
documents as it deems relevant with the appropriate copies and notification
being given to the other party. The OCF Accountants may conduct a conference
concerning the disagreements between Sellers and Purchaser at which conference
each party shall have the right to present additional documents, materials and
other evidence and to have present its or their advisors, accountants or
counsel. The OCF Accountants shall promptly render a decision on the issues
presented, and such decision shall be final and binding on the parties. The
Audit shall not be considered completed for purposes of the Closing until all
disputes have been finally resolved by the parties or the OCF Accountants.
(d) Fees and expenses of the Audit shall be paid by the Company, and the
fees and expenses of the OCF Accountants relating to the matters provided for
in this Section 6.10 shall be split evenly between Sellers and Purchaser.
SECTION 6.11. OFFER TO PURCHASE REMAINING SECURITIES. Purchaser agrees
that it will offer to purchase all of the currently outstanding Securities of
the Company from those holders of Securities who are not signatories to this
Agreement on the date hereof (the "Other Holders"). Within fifteen (15) days
after the execution of this Agreement, the Company will give written notice to
each Other Holder of the opportunity to sell the Securities held by the Other
Holders to Purchaser on the terms and conditions set forth in this Agreement
(the "Offer"). The Offer shall include (i) a summary of the terms and
conditions of the sale of the Securities to Purchaser, (ii) a copy of this
Agreement including the Exhibits and Schedules hereto, (iii) the recommendation
of the Company's Board of Directors that the Offer be accepted, (iv) a
signature page to this Agreement pursuant to which the Other Holder shall
become a party to and bound by this Agreement as a "Seller" (the "Acceptance
Signature Page") and (v) such other information as the Company, Purchaser and
their respective counsel shall consider necessary or appropriate. The Offer
shall remain open for thirty (30) days unless extended in writing by Purchaser
(as it may be extended the "Acceptance Deadline"). Each Other Holder
delivering a properly executed
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Acceptance Signature Page prior to the Acceptance Deadline will thereby
become a party to and bound by this Agreement as a "Seller" as if such Other
Party executed and delivered this Agreement on the date hereof, and SCHEDULE
4.04 will be appropriate amended to reflect such Other Holders' ownership of
Securities. The Purchaser may but shall not be obligated to purchase the
Securities of any Other Holder who has not delivered a properly executed
Acceptance Signature Page prior to the Acceptance Deadline.
SECTION 6.12 COMPANY'S ARTICLES AND BY-LAWS. After the Closing the
Purchaser shall not permit the Company to modify or amend its articles of
incorporation or by-laws in a manner that would adversely affect the liability
of or scope of the indemnification provided to those individuals who are the
officers and directors of the Company as of the date hereof.
SECTION 6.13 EMPLOYEES OF UNITEL. Purchaser and Sellers agree that
effective as of the Closing, all of Unitel's employees will be hired as at will
employees by, or offered at will employment with, the Company, at pay and
benefit levels and in positions at least equivalent to those they held with
Unitel, PROVIDED, HOWEVER, that prior to Closing, Albino S. Rodrigues will be
offered employment as Market Manager at a salary commensurate with that
position within Purchaser's organization. In the event Mr. Rodrigues declines
such offer of employment, the Company will pay him at his current salary for a
three-month transition period following Closing, and upon his departure will
pay him $75,000 in full satisfaction of any remaining obligations of the
Company under his employment contract with the Company. In the event Mr.
Rodrigues declines to sign a release acknowledging that such payment discharges
all remaining liabilities of the Company under his employment contract, all
other amounts owed to Mr. Rodriques under such contract which relate to the
time period up to and including the Closing Date shall be an obligation of
Sellers.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser under this Agreement with respect to the
purchase and sale of the Shares shall be subject to the fulfillment on or prior
to the Closing of each of the following conditions, any of which may be waived
in writing by Purchaser:
SECTION 7.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
THIS AGREEMENT. All of the representations and warranties made by the Company
and the Sellers in this Agreement shall be true and correct at and as of the
Closing except for such breaches and inaccuracies therein which, in the
aggregate, have not caused and would not reasonably be expected to cause
Purchaser to suffer a Loss (as defined in Section 10.01) in excess of $300,000
in the aggregate (a "Material Loss") or otherwise result in a material adverse
effect on the assets, properties, business, operations or prospects of the
Business taken as a whole which is not due to events or circumstances
applicable to the cellular telephone industry generally (a "Material Adverse
Effect"). The Company and the Sellers shall have complied in all material
respects with and performed all of the agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing. Purchaser shall have been furnished with a certificate or
certificates of the Company's President, dated as of the Closing, certifying to
the fulfillment of the foregoing conditions.
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SECTION 7.02. DIRECTORS RESOLUTIONS. The Company shall deliver to
Purchaser copies of the resolutions of the board of directors of the Company
authorizing the execution, delivery and performance of this Agreement and all
instruments and documents to be delivered in connection herewith and the
transactions contemplated hereby, duly certified by an officer of the Company.
SECTION 7.03. INCUMBENCY CERTIFICATE. Purchaser shall have received a
certificate or certificates of an officer of the Company, certifying as to the
genuineness of the signatures of officers of the Company authorized to take
certain actions or execute any certificate, document, instrument or agreement
to be delivered pursuant to this Agreement, which incumbency certificate shall
include the true signatures of such officers.
SECTION 7.04. THIRD PARTY CONSENTS; FCC; HART-SCOTT ACT. Sellers shall
have delivered to Purchaser such instruments, consents and approvals of third
parties (the form and substance of which shall be reasonably satisfactory to
Purchaser) as are necessary for the consummation of the transactions
contemplated by this Agreement and to assign to Purchaser without modification
thereof, as of the Closing, the Existing Contracts that require consent as a
result of Purchaser's purchase of the Shares, and Purchaser shall have obtained
all FCC Authorizations and other Authorizations necessary for the consummation
of the transactions contemplated by this Agreement. Prior to Closing Date, the
FCC shall have issued a Final Order granting the FCC's consent to the change in
ownership of the FCC Authorizations to Purchaser without any material
conditions, excepting conditions applied on an industry-wide basis, which the
Purchaser reasonably deems to be adverse. In addition, all applicable waiting
periods under the Hart-Scott Act (if applicable to the transactions
contemplated by this Agreement) shall have expired or been terminated and no
objection shall have been made by the Federal Trade Commission ("FTC") or the
United States Department of Justice ("DOJ"). For the purposes of this
Agreement, the term "Final Order" shall mean action by the FCC as to which (i)
no request for stay by the FCC, as applicable, of the action is pending, no
such stay is in effect, and, if any deadline for filing any such request is
designated by statute or regulation, such deadline has passed; (ii) no petition
for rehearing or reconsideration of the action is pending before the FCC, and
the time for filing any such petition has passed; (iii) the FCC, does not have
the action under reconsideration on its own motion and the time for such
reconsideration has passed; and (iv) no appeal to a court, or request for stay
by a court, of the FCC's action, as applicable, is pending or in effect, and,
if any deadline for filing any such appeal or request is designated by statute
or rule, it has passed.
SECTION 7.05. CONTRACT TERMINATION. The Employment Agreements between
the Company and Natubhai D. Patel ("Patel") and Arvind K. Roy ("Roy") shall
have been terminated without cost, penalty or expense to the Company after
Closing and each of Patel and Roy shall have delivered to Purchaser at Closing
a release of any and all liabilities and claims against the Company.
SECTION 7.06. NO MATERIAL ADVERSE CHANGE. No Material Adverse Effect
shall have occurred, from December 31, 1997 to the Closing.
SECTION 7.07. SECURITIES TO BE PURCHASED. Sellers owning Securities
representing at least sixty-eight percent (68%) of the Total Shares shall be
parties to this Agreement and shall tender such Securities at the Closing.
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SECTION 7.08. OPINION OF COUNSEL TO SELLERS. Purchaser shall have been
furnished with an opinion of Young, Vogl, Harlick, Wilson & Simpson, LLP,
counsel to the Majority Shareholders and the Company, dated as of the Closing
and addressed to Purchaser, and to any institution designated by Purchaser
which has provided financing in connection with the transactions contemplated
by this Agreement in substantially the form of EXHIBIT B hereto.
SECTION 7.09. OPINION OF FCC COUNSEL TO THE COMPANY. Purchaser shall
have been furnished with opinions of Rosenman & Colin, FCC counsel for the
Company and the Sellers, dated as of the Closing and addressed to Purchaser,
and to any financial institution designated by Purchaser which has provided the
financing in connection with the transactions contemplated by this Agreement,
in substantially the form of EXHIBIT C attached hereto.
SECTION 7.10. SUBSCRIBERS. The aggregate number of "Subscribers" (as
defined in Section 2.04(a) on the Company's Cellular System as of Closing shall
be at least 13,000.
SECTION 7.11. ESTOPPEL. The Company and Sellers shall have obtained a
consent from each lessor of the real property identified on SCHEDULE 4.07(b)
consenting to the change in ownership of the Company if necessary in connection
with the sale of the Shares to Purchaser.
SECTION 7.12. RESIGNATIONS OF OFFICERS AND DIRECTORS. The Company and
the Sellers shall have provided to Purchaser, in a form satisfactory to
Purchaser, the resignations of each officer of the Company and each member of
the Company's Board of Directors other than those persons designated in writing
by Purchaser to the Company as persons who shall continue in office.
SECTION 7.13. PAYMENT OF INDEBTEDNESS. The Company and the Sellers shall
have provided to Purchaser, in a form satisfactory to Purchaser, a payoff
letter from every lender to the Company stating that the outstanding principal
balance of all existing indebtedness, all interest accrued on such indebtedness
and all prepayment premiums and other amounts due in order to pay all such
indebtedness as of the Closing Date.
SECTION 7.14. OPERATING CASH FLOW. The "Operating Cash Flow" of the
Company for the year ended December 31, 1997 shall be at least $3.6 million.
For purposes of this Section 7.15 the term "Operating Cash Flow" means (without
duplication) (i) the total operating revenue of the Company and Unitel
(including management fees received from the Company and long distance and
reciprocal trade revenue) less (ii) all expenses (other than interest expense,
income taxes, depreciation, amortization, management fees (including amounts
paid to Unitel under the Management Contract), executive expense and directors
fees) related to the ownership and operation of the Company and Unitel for the
calendar year ending December 31, 1997, determined in accordance with GAAP,
PROVIDED, HOWEVER, notwithstanding anything in this Agreement or GAAP to the
contrary (A) employee bonuses related to performance in 1997 shall be accrued
in 1997 notwithstanding that they may be payable in 1998, (B) employee vacation
pay shall be accrued in accordance with GAAP during the period earned
notwithstanding that vacation pay is paid or vacation days are taken in a
subsequent period, (C) the cost and expense needed to cause the assets of the
Company to be in good working order and repair consistent with past practices
at December 31, 1997 shall be accrued as an expense even if such expenditure is
deferred, (D) all subscriber acquisition costs, subscriber handset costs and
marketing costs shall be accrued as an expense in the period incurred (but in
no case later than 90 days) and not capitalized, (E) any reciprocal trade
expenses, such as the provision of cellular service in
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exchange for advertising shall be accrued as an expense, (F) an accrual for
the normal accounting fees consistent with past practices, (G) any expenses
related to the normal operations of the Company (including insurance, legal,
accounting, payroll and fringe benefits) borne by Unitel or other affiliate
of the Company and related to the management or operation of the Company
shall be accrued as an expense (H) all expenses directly related to the
transactions contemplated by this Agreement (including legal expenses) which
would not have otherwise been incurred shall not be accrued as an expense)
and (I) all accounting practices used by the Company (except as modified by
clauses (A-H) above) shall be consistent with the practices used in preparing
the financial statements of the Company as of and from the 1997 fiscal year
of the Company through October 31, 1997, which were provided by the Sellers
to Purchaser. The Operating Cash Flow of the Cellular System shall be
determined pursuant to the Audit as provided for in Section 6.10 hereof.
SECTION 7.15. ESCROW AGREEMENT. Sellers' Representative shall have
executed and delivered the Escrow Agreement to Purchaser.
SECTION 7.16. MANAGEMENT CONTRACT; CERTIFICATE. Upon Purchaser's
direction and without cost or penalty to the Company, the Company and Unitel
shall have terminated the Management Contract and the Company shall have
received a release of all liabilities and obligations to Unitel, the form
thereof to be satisfactory to Purchaser. In addition, upon Purchaser's
direction and at Purchaser's cost, Unitel shall have assigned to an affiliate
of Purchaser designated by Purchaser in writing prior to Closing Unitel's
competitive local carrier certificate.
ARTICLE VIII
CONDITIONS PRECEDENT TO
THE COMPANY AND EACH SELLER'S OBLIGATION TO CLOSE.
The obligations of the Company and the Sellers under this Agreement with
respect to the sale of the Shares shall be subject to the fulfillment on or
prior to the Closing of each of the following conditions, any of which may be
waived in writing by the Company and the Sellers holding a majority of the
Shares:
SECTION 8.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
THIS AGREEMENT. All of the representations and warranties by Purchaser
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing. Purchaser shall have complied with and performed in
all material respects all of the agreements and covenants required by this
Agreement to be performed and complied with by it on or prior to the Closing.
The Company and the Sellers shall have been furnished with a certificate of an
officer of Purchaser, dated as of the Closing, certifying to the fulfillment of
the foregoing conditions.
SECTION 8.02. DIRECTORS' RESOLUTIONS. Purchaser shall deliver to the
Company and the Sellers copies of the resolutions of its Board of Directors
authorizing the execution, delivery and performance of this Agreement and all
instruments and documents to be delivered in connection herewith and the
transactions contemplated hereby, duly certified by an authorized officer of
Purchaser.
SECTION 8.03. INCUMBENCY CERTIFICATE. The Company and the Sellers shall
have received a certificate of a secretary of Purchaser, certifying as to the
genuineness of the signatures of
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representatives of Purchaser authorized to take certain actions or execute
any certificate, document, instrument or agreement to be delivered pursuant
to this Agreement, which incumbency certificate shall include the true
signatures of such representatives.
SECTION 8.04. FCC; HART-SCOTT ACT. The FCC shall have issued a Final
Order granting the FCC's consent to the change in ownership of the FCC
Authorizations to Purchaser. In addition, all applicable waiting periods under
the Hart-Scott Act (if applicable to the transactions contemplated by this
Agreement) shall have expired or been terminated and no objection shall have
been made by the FTC or DOJ.
SECTION 8.05. OPINION OF COUNSEL TO PURCHASER. The Company and the
Sellers shall have been furnished with an opinion of Edwards & Angell, counsel
to Purchaser, dated as of the Closing and addressed to the Company and the
Sellers in substantially the form of EXHIBIT D hereto.
ARTICLE IX
CASUALTY LOSSES
In the event that there shall have been suffered between the date hereof
and the Closing any casualty loss relating to the assets or properties of the
Company the Company and the Sellers will promptly notify Purchaser of such
event. The Sellers shall, at their option, cause the Company to (i) repair,
rebuild or replace the portion of the assets, properties or Business damaged,
destroyed or lost prior to the Closing Date, or (ii) obtain all insurance
proceeds or other rights of the Company against third parties arising from such
casualty loss (the "Claims"); PROVIDED, HOWEVER that if such insurance proceeds
are or will not be sufficient in Purchaser's reasonable judgment to cover the
entire casualty loss, then Purchaser may request that Sellers pay at Closing an
amount equal to the product of (a) the shortfall in insurance proceeds and (b)
the Purchased Percentage. If Sellers decline such request, Purchaser may
terminate this Agreement and neither party shall be deemed in default.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. INDEMNIFICATION BY SELLERS. (a) Notwithstanding the
Closing, and regardless of any investigation made at any time by or on behalf
of Purchaser or any information Purchaser may have, but subject to the terms of
this Article X, each Seller jointly and severally (except with respect to any
misrepresentation or omission with respect to Sections 4.02, 4.05 and Section
4.12 and the third sentence of Section 4.04 as they relate to an individual
Seller and not the Company) which shall be several and not joint) agrees to
indemnify and to hold Purchaser, its shareholders, officers, directors, and
employees (the "Indemnified Purchaser Parties") harmless from and against and
in respect of any losses (including lost revenues), damages, costs, expenses
(including costs of investigations and reasonable attorney fees arising out of
Third Party Claims), claims, suits, demands, judgments and diminutions in value
suffered or incurred (each a "Loss" and collectively "Losses") by Purchaser
resulting from any of the following; provided, however that for purposes of
this Article X the Losses of Purchaser resulting from the matters referred to
in clause (i) or clause (iv) below shall be the amount of such Losses
multiplied by the Purchased Percentage:
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(i) Any obligation or liability of the Company for Taxes,
whether or not known or asserted at or prior to the Closing, to the
extent that such liability did not result in a reduction in the
Purchase Price at the Closing pursuant to Section 2.03 hereof;
(ii) Any misrepresentation or breach of warranty of the Company
or any Seller in this Agreement, the Schedules or Exhibits hereto, or
the Escrow Agreement, or in any closing certificate delivered by the
Company or any Seller to Purchaser pursuant to Article VII hereof;
(iii) Any breach or non-fulfillment of any covenant or
agreement on the part of the Company or any Seller under this
Agreement to be performed on or following the Closing Date;
(iv) Any and all amounts owed to Bay Area Cellular Telephone
Company which are not included as a liability in the Working Capital
Adjustment that related to the period prior to the Closing Date,
including amounts payable in respect of interconnect fees (the "BAC
Obligation"); and
(v) All costs and expenses (including reasonable attorneys'
fees) incurred by Purchaser in connection with any action, suit,
proceeding, demand, assessment or judgment incident to any of the
matters Purchaser is indemnified against by the Company and the
Sellers in this Agreement.
SECTION 10.02. INDEMNIFICATION BY PURCHASER. Notwithstanding the
Closing, and regardless of any investigation made at any time by or on behalf
of the Company or any Seller or any information the Company or any Seller may
have, but subject to the terms of this Article X, Purchaser agrees to
indemnify and to hold each of the Company and the Sellers, and their
directors, officers, stockholders, employees, representatives and agents
harmless from and against and in respect of any Losses incurred by the
Company and the Sellers, and after the Closing the Purchaser, the Company
and, if Dobson Communication Corporation or another subsidiary then holds the
Cellular Authorizations now held by the Company, such company will indemnify
and hold each of the Sellers and any director, officer, stockholder,
employee, representative and agent of a Seller harmless from and against and
in respect of any Losses incurred by any of them, resulting from any of the
following:
(i) Any misrepresentation or breach of warranty in, or omission
from, any representation or warranty of Purchaser, in this Agreement,
the schedules or exhibits hereto, including the Escrow Agreement or
in any closing certificate delivered by Purchaser to the Company and
the Sellers pursuant to Article VIII hereof;
(ii) Any breach or non-fulfillment of any covenant or agreement
on the part of Purchaser under this Agreement to be performed on or
following the Closing Date;
(iii) Any claims made against a Seller by a third party arising
from the operations of the Company after the Closing Date and are not
claims for which
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Purchaser Indemnified Parties are entitled to indemnity from Sellers
under Section 10.01 hereof;
(iv) Any violation of federal or state securities laws
resulting from Purchaser's misrepresentations in, or omission of
material information from, the Offer to the Other Holders pursuant to
Section 6.11 hereof, other than (x) any such misrepresentations in or
omissions from information provided to Purchaser by the Company or
Sellers or (y) the Company's or a Seller's omission to provide
Purchaser information the Company or a Seller was obligated to
provide or disclose to Purchaser pursuant to this Agreement; and
(v) All reasonable costs and expenses (including reasonable
attorneys' fees) incurred by the Company and the Sellers in
connection with any action, suit, proceeding, demand, assessment or
judgment incident to any of the matters for which the Company and the
Sellers are indemnified against by Purchaser in this Agreement.
SECTION 10.03. NOTICE OF CLAIMS; DEFENSE OF THIRD PARTY. A party
claiming indemnification under this Article X (the "Asserting Party") must
notify (in writing and in reasonable detail) the party from which
indemnification is sought (the "Defending Party") of the nature and basis of
such claim for indemnification. If such claim relates to a claim, suit,
litigation or other action by a third party against the Asserting Party or
any fixed or contingent liability to a third party (a "Third Party Claim"),
the Defending Party may elect to assume and control the defense of the Third
Party Claim at its own expense with counsel selected by the Defending Party
from and after such time as the Defending Party unconditionally agrees in
writing to accept, as against the Asserting Party, all liabilities on account
of such Third Party Claim. Assumption of such liability, as against the
Asserting Party, shall not be deemed an admission of liability as against any
such third party. Notwithstanding the foregoing, the Defending Party may not
assume or control the defense if the named parties to the Third Party Claim
(including any impleaded parties) include both the Defending Party and the
Asserting Party and representation of both parties by the same counsel (in
such counsel's reasonable determination) would be inappropriate due to actual
or potential differing interests between them, in which case the Asserting
Party shall have the right to defend the Third Party Claim and to employ
counsel reasonably approved by the Defending Party, and to the extent the
matter is determined to be subject to indemnification hereunder, the
Defending Party shall reimburse the Asserting Party for the reasonable costs
of its counsel. If the Defending Party assumes liability for the Third Party
Claim as against the Asserting Party and assumes the defense and control of
the Third Party Claim pursuant to this Section 10.03, the Defending Party
shall not be liable for any fees and expenses of counsel for the Asserting
Party incurred thereafter in connection with the Third Party Claim (except in
the case of actual or potential differing interests, as provided in the
preceding sentence), but shall not agree to any settlement of such Third
Party Claim which does not include an unconditional release of the Asserting
Party by the third party claimant on account thereof, PROVIDED that such
requirement shall be deemed waived to the extent that the Asserting Party
does not undertake to provide and promptly execute and, concurrently with the
delivery of any such release, deliver a corresponding release of the third
party claimant with respect to such Third Party Claim. If the Defending
Party does not assume liability for and the defense of the Third Party Claim
pursuant to this Section 10.03, the Asserting Party shall have the right (i)
to control the defense thereof and (ii), if the Asserting Party shall have
notified the
34
<PAGE>
Defending Party of the Asserting Party's intention to negotiate a settlement
of the Third Party Claim (at the Defending Party's expense to the extent the
matter is determined to be subject to indemnification hereunder), which
notice shall include the material terms of any proposed settlement in
reasonable detail, to settle the Third Party Claim (at the Defending Party's
expense to the extent the matter is determined to be subject to
indemnification hereunder) on terms not materially inconsistent with those
set forth in such notice, unless the Defending Party shall have notified the
Asserting Party in writing of the Defending Party's election to assume
liability for and the defense of the Third Party Claim pursuant to this
Section 10.03 within ten days after receipt of such notice, and the Defending
Party promptly thereafter shall have taken appropriate action to implement
such defense. The Asserting Party shall not be entitled to settle any such
Third Party Claim pursuant to the preceding sentence unless such settlement
includes an unconditional release of the Defending Party by the Third party
claimant on account thereof, PROVIDED that such requirement shall be deemed
waived to the extent that the Defending Party does not undertake to provide
and promptly execute and, concurrently with delivery of any such release,
deliver a corresponding release of the third party claimant with respect to
such Third Party Claim. The Asserting Party and the Defending Party shall
use all reasonable efforts to cooperate fully with respect to the defense and
settlement of any Third Party Claim covered by this Article X.
SECTION 10.04. LIMITATIONS. The Defending Party's obligations to
indemnify the Asserting Party pursuant to this Article X shall be subject to
the following limitations:
(a) No indemnification shall be required to be made by the Defending
Party until the aggregate amount of the Asserting Party's Losses exceeds
$200,000 (the "Deductible") and then indemnification shall only be required
to be made by the Defending Party to the extent of such Losses that exceed
the Deductible; PROVIDED, HOWEVER, the Deductible shall not be applicable to
(i) adjustments to the Purchase Price provided for in Section 2.03, (ii) a
breach by any Seller or the Company of its representations set forth in
Section 4.02, Section 4.04, Section 4.05 and Section 4.16, (iii) the BAC
Obligation or (iv) losses resulting from fraud by the Defending Party.
(b) All representations and warranties contained in this Agreement
shall survive the Closing for twenty (20) months after the Closing Date;
PROVIDED, HOWEVER, that notwithstanding the foregoing, (x) the
representations and warranties contained in Section 4.02, Section 4.04,
Section 4.05 and Section 4.16 shall survive the Closing for an unlimited
duration and (y) the representations and warranties contained in Sections
4.13 and 4.10 (as it may relate to Environmental Laws) shall survive the
Closing until the fourth anniversary thereof (the applicable period of
survival being referred to as the "Survival Period"). To the extent a claim
is made in respect of a representation or warranty within the applicable
Survival Period, such representation or warranty shall survive after the
Survival Period for purposes of such claim until such claim is finally
determined or settled.
(c) The maximum liability of any Seller for indemnification under this
Article X (other than Losses resulting from such Seller's fraud) shall be the
portion of the Purchase Price paid to such Seller.
35
<PAGE>
ARTICLE XI
CONFIDENTIALITY AND PRESS RELEASES
SECTION 11.01. CONFIDENTIALITY. Each party (in such capacity, a
"Recipient Party") shall hold in strict confidence all documents and
information concerning the other (in such capacity, a "Disclosing Party")
and its business and properties and, if the transaction contemplated hereby
should not be consummated, such confidence shall be maintained, and all such
documents and information (in written form) shall immediately thereafter be
returned to the Disclosing Party. In furtherance of the foregoing, without
the express prior written consent of the Disclosing Party, the Recipient
Party shall not, directly or indirectly, disclose, disseminate, publish,
reproduce, retain, use (for its benefit or for the benefit of others) or
otherwise make available in any manner whatsoever, any such documents or
information to anyone except as provided in Section 11.03. If the Recipient
Party breaches, or threatens to commit a breach of, any of the provisions of
this Article XI, the Disclosing Party shall have the right (in addition to
any other rights and remedies available at law or in equity) to equitable
relief (including injunctions) against such breach or threatened breach, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable harm to the Disclosing Party and that money damages would
not be an adequate remedy.
SECTION 11.02. PRESS RELEASES. No press release or public disclosure,
either written or oral, of the existence or terms of this Agreement shall be
made by either Purchaser or any Seller without the consent of each party
subject to the provisions of Section 11.03, and Purchaser, the Company and
Sellers shall each furnish to the other advance copies of any release which
it proposes to make public concerning this Agreement or the transactions
contemplated hereby and the date upon which Purchaser, the Company or any
Seller, as the case may be, proposes to make such press release.
SECTION 11.03. DISCLOSURES REQUIRED BY LAW. This Article XI shall not,
however, be construed to prohibit any party from making any disclosures to
any governmental authority that it is required to make by law or from filing
this Agreement with, or disclosing the terms of this Agreement to, any
institutional lender to such party, or prohibit the Company, any Seller,
Purchaser or any of their affiliates from disclosing to its investors,
partners, accountants, auditors, attorneys, parent company and broker/dealers
such terms of this transaction as are customarily disclosed to them in
connection with the sale or acquisition of a cellular telephone system;
PROVIDED, HOWEVER, that any such party shall be informed of the confidential
nature of such information and shall agree to keep such information
confidential; and PROVIDED, HOWEVER, that each party shall provide to the
other reasonable advance copies of any public release except where the
provision of such advance notice is not permissible.
ARTICLE XII
TERMINATION
SECTION 12.01. BREACHES AND DEFAULTS; OPPORTUNITY TO CURE. Prior to
the exercise by a party of any termination rights afforded under this
Agreement, if either party (the "Non-Breaching Party") believes the other
(the "Breaching Party") to be in breach hereunder, the Non-Breaching Party
shall provide the Breaching Party with written notice specifying in
reasonable detail the nature of such breach, whereupon the Breaching Party
shall have 15 days from the receipt of such notice to cure such breach to the
reasonable satisfaction of the Non-Breaching
36
<PAGE>
Party; PROVIDED, HOWEVER, that if such breach is curable but is not capable
of being cured within such period and if the Breaching Party shall have
commenced action to cure such breach within such period and is diligently
attempting to cure such breach, then the Breaching Party shall be afforded an
additional twenty (20) days to cure such breach, PROVIDED, HOWEVER, that the
cure period for a breach shall in no event extend beyond the Outside Date (as
defined in Section 12.02(e) below). If the breach is not cured within such
time period, then the Breaching Party shall be in default hereunder and the
Non-Breaching Party shall be entitled to terminate this Agreement (as
provided in Section 12.02). This right of termination shall be in addition
to, and not in lieu of, any legal or equitable remedies available to the
Non-Breaching Party.
SECTION 12.02. TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned, by written notice given to
the other party hereto, at any time prior to the Closing:
(a) by written consent of each of the Company, the Sellers'
Representative, and Purchaser;
(b) by either Purchaser or the Sellers' Representative, if any court of
competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise permanently
prohibiting the sale of the Shares to Purchaser (which Sellers and Purchaser
shall have used all reasonable efforts to have lifted or reversed) and such
order, decree, ruling or other action shall have become final and
nonappealable;
(c) subject to Section 12.01, by Purchaser, if either the Company or
the Sellers shall have breached any of their representations herein and such
breaches, in the aggregate, would reasonably be expected to have a Material
Adverse Effect or if the Company or the Sellers shall have materially
breached any of their covenants;
(d) subject to Section 12.01, by the Sellers, if Purchaser shall have
materially breached any of its representations or covenants herein;
(e) by either Sellers or Purchaser if the Closing shall not have
occurred on or before December 31, 1998, (the "Outside Date"), unless the
failure to have the Closing shall be due to the failure of the party seeking
to terminate this Agreement to perform in any material respect its
obligations under this Agreement required to be performed by it at or prior
to the Closing.
(f) by Sellers pursuant to the provisions of Section 6.04(b); and
(g) by Purchaser pursuant to Article IX.
37
<PAGE>
ARTICLE XIII
BROKERS' FEES
Each party represents and warrants to the other that it shall be solely
responsible for the payment of any fee or commission due to any broker or
finder it has engaged with respect to this transaction and the other party
hereto shall be indemnified for any liability with respect thereto pursuant
to Article X hereof.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. ADDITIONAL INSTRUMENTS OF TRANSFER. (a) From time to
time after the Closing, each party shall, if requested by another party,
make, execute and deliver such additional stock assignments, other
assignments, bills of sale, deeds and other instruments, as may be reasonably
necessary or proper to carry out the specific provisions of this Agreement,
including transfer to Purchaser all of Sellers' right, title and interest in
and to the Securities. Such efforts and assistance shall be at the cost of
the requesting party.
SECTION 14.02. NOTICES. All notices and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered, sent by telecopier, recognized overnight
delivery service or registered or certified mail, return receipt requested,
postage prepaid, to the following addresses:
(i) If to Purchaser:
13439 N. Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
Attention: Everett Dobson
Facsimile No.: (405) 391-8515
with a required copy to:
Edwards & Angell
2800 Hospital Trust Tower
Providence, Rhode Island 02903
Attention: Joseph A. Kuzneski, Jr., Esq.
Facsimile No.: (401) 276-6602
(ii) If to Sellers:
N.D. Patel
1819 Montecito Way
Burlingame, CA 94010
with a required copy to:
David M. Wilson, Esq.
38
<PAGE>
Young, Vogl, Harlick, Wilson & Simpson LLP
425 California St., Suite 2500
San Francisco, CA 94104
Facsimile No.: (415) 291-1984
Notices delivered personally shall be effective upon delivery against
receipt. Notices transmitted by telecopy shall be effective when received
during regular business hours, provided that the burden of proving notice
when notice is transmitted by telecopy shall be the responsibility of the
party providing such notice. Notices delivered by overnight delivery
service shall be effective when received. Notices delivered by registered or
certified mail shall be effective on the date set forth on the receipt of
registered or certified mail, or 72 hours after mailing, whichever is earlier.
SECTION 14.03. EXPENSES. Each party shall bear its own expenses and
costs, including the fees of any corporate or FCC attorney retained by it,
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby; provided that Sellers
and Purchaser shall bear equally FCC, Hart-Scott Act and other governmental
filing fees.
SECTION 14.04. SELLERS' REPRESENTATIVE. Each of the Sellers hereby
designates N.D. Patel to be the initial agent, attorney in fact and
representative of all Sellers (the "Sellers' Representative"). The Sellers'
Representative may be removed, and a new Sellers' Representative designated,
at any time and from time to time, only by a written notice to Purchaser and
the then Sellers' Representative from Sellers whose Securities represent a
majority of the Total Shares as of such date (or if after the Closing, as of
the date immediately prior to the Closing Date). In furtherance of the
foregoing designation of Sellers' Representative, each of the Sellers, by his
execution hereof, hereby makes, constitutes and appoints the Sellers'
Representative (and any successor Sellers' Representative designated in
accordance with the terms hereof), to be his true, sufficient and lawful
attorney, for him and in his name, place and stead, for the purpose of (a)
collecting and disbursing to Sellers any and all amounts due and payable to
Sellers after the Closing and enforcing, waiving and compromising any and all
rights of Sellers under this Agreement and all other agreements, instruments
and documents contemplated by or required to be delivered in connection with
the transactions contemplated by this Agreement, (b) amending, modifying and
interpreting the provisions of this Agreement, the Deposit Escrow Agreement,
the Escrow Agreement and all other instruments and documents contemplated to
be delivered in connection with the transactions contemplated by this
Agreement; provided that no such amendment or modification shall
disproportionately affect any Seller, (c) making, agreeing to, compromising
and otherwise dealing with the Adjustments to the Purchase Price as
contemplated by Article II hereof and claims for indemnifications (whether
asserted by or against Purchaser) under Article X hereof, (d) executing and
delivering on behalf of Sellers all stock powers, endorsements, assignments,
stock certificates, receipts and all other instruments, documents and
agreements as shall be necessary or appropriate, in the good faith judgment
of the Sellers' Representative, to consummate and carry out the transactions
contemplated by this Agreement, the Deposit Escrow Agreement and the Escrow
Agreement and (e) acting as Sellers' Representative under this Agreement, and
the Escrow Agreement, and to do and perform all necessary acts contemplated
of the Sellers' Representative under this Agreement, the Escrow Agreement and
the Deposit Escrow Agreement both prior to, at and subsequent to the Closing
Date (including the performance and prosecution of this Agreement both prior
to, at and subsequent to the Closing Date), in as full and ample a manner as
such Seller might do if such
39
<PAGE>
Seller were personally present. The Purchaser shall not be responsible or
liable in any manner for any actions taken or omitted to be taken by the
Sellers' Representative, including but not limited to, any actions with
respect to any amounts paid to the Sellers' Representative pursuant hereto,
and the Purchaser shall be indemnified and held harmless against any loss,
expense or damage arising therefrom. Upon the execution of this Agreement,
each Seller shall deliver to Sellers' Representative, to hold in escrow until
the Closing pending satisfaction or waiver by the Sellers' Representative of
the conditions precedent to Sellers' obligations set forth in Article VIII
hereof, original certificates or agreements evidencing the Securities owned
by him together with such executed stock powers or other instruments of
transfer as may be required pursuant to the terms hereof. The Sellers'
Representative is authorized to receive at Closing, and the Sellers hereby
irrevocably direct Purchaser to pay to Sellers' Representative or his
designees at Closing from the cash portion of the Purchase Price that would
have otherwise been paid to Sellers at Closing pursuant to the first sentence
of Section 2.03, a sum not to exceed $850,000 (the "Sellers' Expense
Reserve"). The Sellers' Representative is hereby authorized by Sellers to
utilize the Sellers' Expense Reserve for (w) the purposes of carrying out
Sellers' Representative's obligations and responsibilities under this
Agreement, including, without limitation, the expenses of accountants,
attorneys and other professionals as the Sellers' Representative deems
necessary or appropriate to hire, (x) paying all out-of-pocket expenses of
the Sellers' Representative relating to the performance of his duties, (y)
paying reasonable compensation to the Sellers' Representative for his
services and (z) paying the legal fees and expenses of Young, Vogl, Harlick,
Wilson & Simpson LLP, the brokers fee to Daniels & Associates and the other
amounts specified on SCHEDULE 14.04.
The Sellers' Representative agrees to faithfully perform his duties and
responsibilities to the Sellers, but shall have no personal liability to the
Sellers except for fraud or bad faith proven by clear and convincing
evidence. The Sellers' Representative shall be indemnified and held harmless
by Sellers for any claim, loss or expense (including reasonable attorneys
fees) arising from or related to the performance of his duties and
responsibilities hereunder and any and all costs of investigation and defense
of any claim incurred by the Sellers' Representative shall be advanced from
the Sellers' Expense Reserve.
At such time as the Sellers' Representative determines that all or any
portion of the Sellers' Expense Reserve is no longer necessary, the Sellers'
Representative will disburse such amounts to the Sellers pro rata in
proportion to their respective share of the Purchase Price.
SECTION 14.05. SPECIFIC PERFORMANCE. The parties recognize and
acknowledge that in the events any or all Sellers shall fail to perform its
obligations under the terms of this Agreement, money damages alone will not
be adequate to compensate the Purchaser. The parties, therefore, agree and
acknowledge that in the event any Seller fails to perform its obligations
under this Agreement prior to Closing, the Purchaser shall be entitled, in
addition to any action for monetary damages, in addition to any other rights
and remedies on account of such failure, to specific performance of the terms
of this Agreement as to such Seller and of the covenants and obligations
hereunder.
SECTION 14.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California (without
application of principles of conflicts of law).
40
<PAGE>
SECTION 14.07. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, which
consent will not be unreasonably withheld except that Purchaser shall have
the right to assign its rights under this Agreement to any institutional
lender.
SECTION 14.08. SUCCESSORS AND ASSIGNS. All agreements made and entered
into in connection with this transaction shall be binding upon and inure to
the benefit of the parties hereto, their successors and permitted assigns.
SECTION 14.09. AMENDMENTS; WAIVERS. No alteration, modification or
change of this Agreement shall be valid except by an agreement in writing
executed by the parties hereto. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder (and no course of dealing
between or among any of the parties) shall operate as a waiver of any such
right, power or privilege. No waiver of any default on any one occasion
shall constitute a waiver of any subsequent or other default. No single or
partial exercise of any such right, power or privilege shall preclude the
further or full exercise thereof.
SECTION 14.10. ENTIRE AGREEMENT. This Agreement merges all previous
negotiations and agreements between the parties hereto, either verbal or
written, and constitutes the entire agreement and understanding between the
parties with respect to the subject matter of this Agreement.
SECTION 14.11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which when so executed shall be an original, but
all of which together shall constitute one agreement. Facsimile signatures
shall be deemed original signatures.
SECTION 14.12. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law, but only as long as the continued validity, legality and enforceability
of such provision or application does not materially (a) alter the terms of
this Agreement, (b) diminish the benefits of this Agreement or (c) increase
the burdens of this Agreement, for any person.
SECTION 14.13. SECTION HEADINGS. The section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 14.14. INTERPRETATION. As both parties have participated in
the drafting of this Agreement, any ambiguity shall not be construed against
either party as the drafter.
SECTION 14.15. FURTHER ASSURANCES. For a period of twelve (12) months
after Closing, each Seller agrees to provide to Purchaser from time to time
any information that such Seller possesses with respect to the operation of
the Business and Shares prior to the Closing which the Purchaser reasonably
requests in the future in connection with the Purchaser's financing efforts
now or in the future or in connection with any FCC or other regulatory filing.
41
<PAGE>
SECTION 14.16. THIRD PARTIES. Nothing herein, expressed or implied, is
intended to or shall confer on any person other than the parties hereto any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 14.17. WAIVER OF JURY TRIAL; JURISDICTION. THE PARTIES HERETO
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
CLAIM, COUNTERCLAIM, OR CROSS CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT. THE PARTIES HERETO SUBMIT AND AGREE, IN THE EVENT OF A DISPUTE
UNDER THIS AGREEMENT, TO SUBMIT ANY SUCH DISPUTE TO THE JURISDICTION OF THE
COURTS IN AND OF THE STATE OF CALIFORNIA AND TO THE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA AND TO
THE COURTS TO WHICH AN APPEAL OF THE DECISIONS OF SUCH COURTS MAY BE TAKEN,
AND CONSENT THAT SERVICE OF PROCESS WITH RESPECT TO ALL SUCH COURTS MAY BE
MADE BY REGISTERED MAIL TO THEIR RESPECTIVE ADDRESSES SET FORTH IN SECTION
14.02 HEREOF OR THE SIGNATURE PAGES HERETO.
[THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY.]
42
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized representative as of the day and year
first above written.
PURCHASER:
DOBSON CELLULAR OF CALIFORNIA, INC.
By: /s/ Everett Dobson
----------------------------------------------
Everett Dobson
Chairman
THE COMPANY:
SANTA CRUZ CELLULAR TELEPHONE, INC.
By: /s/ Natubhai D. Patel
----------------------------------------------
Title: President
SELLERS:
/s/ Natubhai D. Patel
--------------------------------------------------
Natubhai D. Patel
1819 Montecito Way
--------------------------------------------------
Burlingame, California 94010
--------------------------------------------------
Address:
94-3078725
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 10,773.36290
-------------------------------------
Options Owned: -0-
------------------------------------
/s/ Natubhai D. Patel
--------------------------------------------------
Natubhai D. Patel
1819 Montecito Way
--------------------------------------------------
Burlingame, California 94010
--------------------------------------------------
Address:
###-##-####
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 1,756.90960
-------------------------------------
Options Owned: 695
------------------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
43
<PAGE>
/s/ Manubhai P. Patel
--------------------------------------------------
Manubhai P. Patel
c/o Natubhai Patel, 1819 Montecito Way
--------------------------------------------------
Burlingame, CA 94010
--------------------------------------------------
Address:
###-##-####
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 1999.08805
-------------------------------------
Options Owned: -0-
------------------------------------
Vipui Patel Trust
By: /s/ Raju Patel
Raju Patel, Trustee
c/o Natubhai Patel, 1819 Montecito Way
--------------------------------------------------
Burlingame, CA 94010
--------------------------------------------------
Address:
94-6638719
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 121.54130
-------------------------------------
Options Owned: -0-
------------------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
44
<PAGE>
Radha Patel Trust
By: /s/ Raju Patel
--------------------------------------------
Raju Patel, Trustee
c/o Natubhai Patel, 1819 Montecito Way
--------------------------------------------------
Burlingame, CA 94010
--------------------------------------------------
Address:
94-6638718
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 350.20825
-------------------------------------
Options Owned: -0-
------------------------------------
/s/ Arvind Roy
--------------------------------------------------
Arvind Roy
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
###-##-####
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 767.0000
-------------------------------------
Options Owned: 585
------------------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
45
<PAGE>
/s/ Ashis Roy
--------------------------------------------------
Ashis Roy
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
###-##-####
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 62.83090
-------------------------------------
Options Owned: -0-
------------------------------------
Ashis Roy Trust
By: /s/ Ronald Tate
--------------------------------------------
Ronald Tate, Trustee
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
77-6070371
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 310.95805
-------------------------------------
Options Owned: -0-
------------------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
46
<PAGE>
/s/ Bina Roy
--------------------------------------------------
Bina Roy
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
###-##-####
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 62.83090
-------------------------------------
Options Owned: -0-
------------------------------------
Bina Roy Trust
By: /s/ Ronald Tate
--------------------------------------------
Ronald Tate, Trustee
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
77-6070373
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 310.95815
-------------------------------------
Options Owned: -0-
------------------------------------
/s/ Seema Roy
--------------------------------------------------
Seema Roy
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
###-##-####
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 28.12900
-------------------------------------
Options Owned: -0-
------------------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
47
<PAGE>
Seema Roy Trust
By: /s/ Ronald Tate
--------------------------------------------
Ronald Tate, Trustee
6016 Crossview Circle
--------------------------------------------------
San Jose, CA 96120
--------------------------------------------------
Address:
77-6070372
--------------------------------------------------
Social Security Number/Taxpayer Identification No.
Shares Owned: 310.95815
-------------------------------------
Options Owned: -0-
------------------------------------
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
48
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
1,756.90960 Shares
--------------
695 Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Natubhai D. Patel
------------------------------------------------
(Signature)
Natubhai D. Patel
------------------------------------------------
Print Name
1819 Montecito Way, Burlingame, California 94010
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
49
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
10,773.36290 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Natubhai D. Patel
------------------------------------------------
(Signature)
Natubhai D. Patel (A.R.A.P. Partners Nominee)
------------------------------------------------
Print Name
1819 Montecito Way, Burlingame, California 94010
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
50
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
1999.08805 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Manubhai P. Patel
------------------------------------------------
(Signature)
Manubhai P. Patel
------------------------------------------------
Print Name
1819 Montecito Way, Burlingame, California 94010
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
51
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
121.54130 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Raju Patel
------------------------------------------------
(Signature)
Raju Patel (Vipul Patel Trust)
------------------------------------------------
Print Name
1819 Montecito Way, Burlingame, California 94010
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
52
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
350.20825 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Raju Patel
------------------------------------------------
(Signature)
Raju Patel (Radha Patel Trust)
------------------------------------------------
Print Name
1819 Montecito Way, Burlingame, California 94010
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
53
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
767.0000 Shares
--------------
585 Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Arvind Roy
------------------------------------------------
(Signature)
Arvind Roy
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
54
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
62.83090 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Ashis Roy
------------------------------------------------
(Signature)
Ashis Roy
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
55
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
310.95805 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Ron Tate
------------------------------------------------
(Signature)
Ron Tate (Ashis Roy Trustee)
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
56
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
62.83090 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Bina Roy
------------------------------------------------
(Signature)
Bina Roy
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
57
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
310.95815 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Ron Tate (Bina Roy Trustee)
------------------------------------------------
(Signature)
Ron Tate
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
58
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
28.12900 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Seema Roy
------------------------------------------------
(Signature)
Seema Roy
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
59
<PAGE>
ACCEPTANCE SIGNATURE PAGE
Reference is made to that certain Securities Purchase Agreement dated [ ],
1998 by and among Dobson Cellular of California, Inc., as Purchaser, Santa
Cruz Cellular Telephone Company, Inc., and the Shareholders and Optionholders
of Santa Cruz Cellular Telephone Company (the "Agreement"). All capitalized
terms used herein and not otherwise defined have the meaning given such term
in the Agreement.
The undersigned acknowledges receipt of the Offer, including a copy of
the Agreement and all Exhibits and Schedules thereto and that the undersigned
has read and understands same. By the execution of this Acceptance Signature
Page the undersigned hereby agrees to become a party to and bound by the
Agreement as a "Seller", including without limitation the Sections of the
Agreement providing for the representations and warranties to, and
indemnification of, Purchaser. The undersigned covenants and certifies to
the Company in connection with the Agreement and to Young, Vogl, Harlick,
Wilson and Simpson in connection with their opinion to be delivered pursuant
to Section 7.08 of the Agreement that such securities are held free and clear
of all encumbrances and that the undersigned owns of record and beneficially:
310.95815 Shares
--------------
-0- Options
--------------
IN WITNESS WHEREOF, the undersigned has executed this Acceptance
Signature Page this __________ day of ______________________________, 1998.
/s/ Ron Tate
------------------------------------------------
(Signature)
Ron Tate (Seema Roy Trustee)
------------------------------------------------
Print Name
6016 Crossview Circle, San Jose, CA 96120
------------------------------------------------
Address
* Note: If Securities are held jointly, both parties must sign. If
Securities are held in trust, the trustee or other authorized person must
sign. If a California resident or resident of any community property state,
both spouses must sign. [CONSULT YOUR ATTORNEY AS TO THE PROPER SIGNATURE
REQUIREMENTS.]
60
<PAGE>
OFFICE OF THE SECRETARY OF STATE
STATE OF OKLAHOMA
[GREAT SEAL OF THE STATE OF OKLAHOMA -- 1907]
RESTATED
CERTIFICATE OF INCORPORATION
WHEREAS, the Restated Certificate of Incorporation of
DOBSON COMMUNICATIONS CORPORATION
has been filed in the office of the Secretary of State as provided by the laws
of the State of Oklahoma.
NOW THEREFORE, I, the undersigned, Secretary of State of the State of Oklahoma,
by virtue of the powers vested in me by law, do hereby issue this certificate
evidencing such filing.
IN TESTIMONY WHEREOF, I hereunto set my hand and cause to be affixed the Great
Seal of the State of Oklahoma.
[Great Seal of the State Filed in the City of Oklahoma City
of Oklahoma -- 1907] this 21st day of January, 1998.
TOM COLE
Secretary of State
By: BETH GARNER
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOBSON COMMUNICATIONS CORPORATION
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
The undersigned, Everett R. Dobson and Stephen T. Dobson, certify that they
are the President and Secretary, respectively, of DOBSON COMMUNICATIONS
CORPORATION, a corporation organized and existing under the laws of the State of
Oklahoma (the "Corporation"), and do hereby further certify as follows:
1. The name of this Corporation is "Dobson Communications Corporation".
2. The name under which this Corporation was originally incorporated was
"Dobson Holdings Corporation".
3. The original Certificate of Incorporation of this Corporation was filed
with the Oklahoma Secretary of State on February 3, 1997.
4. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 1080 of the General
Corporation Act of Oklahoma (the "Act"), after being approved by a Consent to
Action of the Board of Directors Without a Meeting and a Consent to Action of
the Shareholders Without a Meeting, in the manner prescribed in Section 1077 of
the Act. The written consent of shareholders, which was unanimous, was given in
accordance with the provisions of Section 1073 of the Act.
5. The text of the Certificate of Incorporation of the Corporation is
amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is Dobson Communications Corporation.
SECOND: The address of the Corporation's registered office in the State of
Oklahoma is 13439 North Broadway Extension, Oklahoma City, Oklahoma, 73114. The
name of the Corporation's registered agent at such address is Everett R. Dobson.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the general corporation
law of the State of Oklahoma. The Corporation is authorized to exercise and
enjoy all powers, rights, and privileges which corporations organized under the
Act may have as in force from time to time, including, without limitation, all
powers, rights and privileges necessary or convenient to carry out the purposes
of the Corporation.
<PAGE>
FOURTH: CAPITAL STOCK.
A. The total number of shares of capital stock which the Corporation has
authority to issue is one million eight hundred eighty-one thousand (1,881,000),
to be divided into two classes consisting of (i) one million thirty one thousand
(1,031,000) shares of Common Stock, of which one million (1,000,000) shares will
be Class A Common Stock, $1.00 par value per share ("Class A Common Stock") and
thirty-one thousand (31,000) shares will be Class B Non-Voting Common Stock,
$1.00 par value per share ("Class B Common Stock"), and (ii) eight hundred
fifty thousand (850,000) shares of Preferred Stock with a $1.00 par value per
share.
B. Except as otherwise required by the Oklahoma General Corporation Act,
the holders of Class B Common Stock shall have no voting powers whatsoever, and
no holder of Class B Common Stock shall vote on or otherwise participate in any
proceedings in which actions shall be taken by the Corporation or the
shareholders thereof or be entitled to notification as to any meeting of the
Board of Directors of the shareholders.
C. The Board of Directors of the Corporation (the "Board") is expressly
authorized at any time, and from time to time, to provide for the issuance of
shares of Preferred Stock in one or more classes or series, with such voting
powers, full or limited, or without voting powers, and with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, expressed in the resolution or resolutions providing for the
issue thereof adopted by the Board, and as are not stated and expressed in this
Certificate of Incorporation, or any amendment thereto, including (but without
limiting the generality of the foregoing) the following:
(1) The designation of and number of shares constituting such class or
series;
(2) The dividend rate of such class or series, the conditions and dates
upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other
series of the same class or of any other class or series of any class of
capital stock and whether such dividends shall be cumulative or
noncumulative;
(3) Whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if made subject to such redemption, the
times, prices, and other terms and conditions of such redemption;
(4) The terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such class or series;
-2-
<PAGE>
(5) Whether or not the shares of such class or series shall be convertible
into or exchangeable for shares of any other class or of any other series
of any class or classes of capital stock of the Corporation, and if
provision be made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(6) Whether or not the shares of such class or series shall have voting
rights, in addition to the voting rights provided by law, and, if so, the
terms and conditions of such voting rights;
(7) The restrictions, if any, on the issue or reissue of any additional
Preferred Stock;
(8) The rights of the holders of the shares of such class or series upon
the dissolution of, or upon the distribution of assets of, the Corporation;
and
(9) Such other powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations, and
restrictions thereof, as the board shall determine.
FIFTH: A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for damages for breach of fiduciary duty as a
director, except for personal liability for (i) acts or omissions by such
director not in good faith or which involve intentional misconduct or a knowing
violation of law; (ii) the payment of dividends or the redemption or purchase
of stock in violation of Section 1041 or Section 1052 of the Act; (iii) any
breach of such director's duty of loyalty to the Corporation or its
shareholders; or (iv) any transaction from which such director derived an
improper personal benefit.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To adopt, amend or repeal the Bylaws of the Corporation; but the
powers of such directors in this regard shall at all times be subject to
the rights of the shareholders to alter or repeal such Bylaws at any
meeting of shareholders;
(b) To authorize and cause to be executed or granted mortgages,
security interests and liens upon the real and personal property of the
Corporation;
(c) To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any
-3-
<PAGE>
proper purpose and to abolish any such reserve in the manner in which it
was created;
(d) By a majority of the whole Board of Directors, to designate one
or more committees, each committee to consist of one (1) or more of the
directors of the Corporation. The board may designate one (1) or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution or in the Bylaws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers
which may require it; provided, however, the Bylaws may provide that in the
absence or disqualification of any member of such committee or committees,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member; and
(e) When and as authorized by the affirmative vote of the holders of
a majority of the stock issued and outstanding having voting power given at
a shareholders' meeting duly called upon such notice as is required by law,
or when authorized by the written consent of the holders of a majority of
the voting stock issued and outstanding, to sell, lease or exchange all or
substantially all of the property and assets of the Corporation, including
its goodwill and its corporate franchises, upon such terms and conditions
and for such consideration, which may consist in whole or in part of other
securities of, any other corporation or corporations, as its Board of
Directors shall deem expedient and for the best interests of the
Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its shareholders or any class of them, any court of equitable
jurisdiction within the State of Oklahoma, on the application in a summary way
of this corporation or of any creditor or shareholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 1106 of Title 18 of the Oklahoma Statutes or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 1100 of Title 18 of the
Oklahoma Statutes order a meeting of the creditors or class of creditors, and/or
of the shareholders or class of shareholders of this corporation, as the case
may be, to be summoned in such manner as the court directs. If a majority in
number representing three-fourths (3/4ths) in value of the creditors or class of
creditors, and/or of the shareholders or class
-4-
<PAGE>
of shareholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the compromise or arrangement
and the reorganization shall, if sanctioned by the court to which the
application has been made, be binding on all the creditors or class of
creditors and/or on all the shareholders or class of shareholders of this
corporation, as the case may be, and also this corporation.
EIGHTH: Meetings of shareholders may be held within or without of the
State of Oklahoma, as the Bylaws may provide. The books of the Corporation may
be kept (subject to applicable law) inside or outside the State of Oklahoma at
such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the Corporation. Elections of directors need not
be by written ballot unless the Bylaws of the Corporation shall so provide.
NINTH: To the extent permitted by law, no contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the directors or officers are present at or
participate in the meeting of the board or committee thereof which authorized
the contract or transaction, or solely because the directors or officers or
their votes are counted for such purpose.
TENTH: INDEMNIFICATION.
A. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, or other enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in the best interest
of the Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe that his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent shall not itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
-5-
<PAGE>
Corporation and with respect to any criminal action or proceeding had reasonable
cause to believe that his conduct was unlawful.
B. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought shall determine, upon application, that despite
the adjudication of liability, but in the view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
C. Expenses, including fees and expenses of counsel, incurred in defending
a civil, criminal, administrative or investigative action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized herein.
D. The Corporation may purchase (upon resolution duly adopted by the Board
of Directors) and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability.
E. To the extent that a director, officer, employee or agent of, or any
other person entitled to indemnity hereunder by, the Corporation has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to herein or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorney's fees)
actually and reasonably incurred by him in connection therewith.
-6-
<PAGE>
F. Every such person shall be entitled, without demand by him upon the
Corporation or any action by the Corporation, to enforce his right to such
indemnity in an action at law against the Corporation. The right of
indemnification and advancement of expenses hereinabove provided shall not be
deemed exclusive of any rights to which any such person may now or hereafter be
otherwise entitled and specifically, without limiting the generality of the
foregoing, shall not be deemed exclusive of any rights pursuant to statute or
otherwise, of any such person in any such action, suit or proceeding to have
assessed or allowed in his favor against the Corporation or otherwise, his costs
and expenses incurred therein or in connection therewith or any part thereof.
ELEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Oklahoma, the Board of Directors is expressly
authorized to adopt, amend, repeal or rescind the Bylaws of the Corporation. In
addition, the Bylaws of the Corporation may be adopted, repealed, altered,
amended, or rescinded by the affirmative vote of the holders of a majority of
each class of the outstanding capital stock of the Corporation entitled to vote
thereon.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by law, and all rights
conferred upon the shareholders herein are granted subject to this reservation.
By: EVERETT R. DOBSON
--------------------------
Everett R. Dobson
Attest: President
STEPHEN T. DOBSON
- ---------------------------
Stephen T. Dobson
Secretary
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<PAGE>
OFFICE OF THE SECRETARY OF STATE
STATE OF OKLAHOMA
[GREAT SEAL OF THE STATE OF OKLAHOMA -- 1907]
CERTIFICATE OF DESIGNATION
WHEREAS, the Certificate of Designation of
DOBSON COMMUNICATIONS CORPORATION
has been filed in the office of the Secretary of State as provided by the laws
of the State of Oklahoma.
NOW THEREFORE, I, the undersigned, Secretary of State of the State of Oklahoma,
by virtue of the powers vested in me by law, do hereby issue this certificate
evidencing such filing.
IN TESTIMONY WHEREOF, I hereunto set my hand and cause to be affixed the Great
Seal of the State of Oklahoma.
[Great Seal of the State Filed in the City of Oklahoma City
of Oklahoma -- 1907] this 21st day of January, 1998.
TOM COLE
Secretary of State
By: BETH GARNER
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE AND OTHER SPECIAL RIGHTS,
AND QUALIFICATIONS, LIMITATIONS, AND
RESTRICTIONS OF CLASS A PREFERRED STOCK
____________________________
Pursuant to Title 18, Section 1032(G) of the
General Corporation Act of the State of Oklahoma
____________________________
DOBSON COMMUNICATIONS CORPORATION (the "Corporation"), a corporation
organized and existing under the General Corporation Act of the State of
Oklahoma, does hereby certify that pursuant to the authority vested in the Board
of Directors of the Corporation by its Certificate of Incorporation, and
pursuant to the provisions of Title 18, Section 1032(G) of the General
Corporation Act of the State of Oklahoma, said Board of Directors, by unanimous
written consent, adopted the following resolution which remains in full force
and effect as of the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by its Certificate of
Incorporation (hereinafter referred to as the "Certificate of Incorporation"),
and as authorized by the unanimous consent of the holders of all classes and
series of the Corporation's capital stock, the Board of Directors does hereby
amend and restate the designations, preferences and relative and other special
rights, qualifications, limitations and restrictions of the Corporation's
authorized Class A Preferred Stock, $1.00 par value per share, consisting of
100,000 shares, as follows:
1. DESIGNATION. The designation of such class is "Class A 5% Non-
Cumulative, Non-Voting, Non-Convertible Preferred Stock" (hereinafter in this
Certificate of Designation called the "Class A Preferred Stock"), and the number
of shares constituting such class shall be 100,000, which number may not be
decreased or increased by the Board of Directors without a vote of stockholders.
All capitalized terms used in this Certificate of Designation and not otherwise
defined shall have the meaning given to such terms in Section 10 hereof.
2. DIVIDENDS. (a) The holders of shares of Class A Preferred Stock
shall be entitled to receive, out of funds at the time legally available for the
payment of dividends in the State of Oklahoma, a non-cumulative dividend at the
rate of 5% of the Liqui-
<PAGE>
dation Value per annum per share, if and when declared and paid by the Board
of directors.
3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, either voluntarily
or involuntarily, each holder of Class A Preferred Stock shall be entitled,
after provision for the payment of the Corporation's debts and other
liabilities, to be paid in cash, before any distribution is made on any Junior
Securities but after any distribution to the holders of Senior Securities, the
aggregate Liquidation Value of all shares of Class A Preferred Stock held by
such holder. If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the net assets of the corporation distributable
among the holders of all outstanding shares of the Class A Preferred Stock shall
be insufficient to permit the payment in full to such holders of the
preferential amounts to which they are entitled under the Certificate of
Incorporation, then the entire net assets of the Corporation remaining after the
provision for the payment of the Corporation's debts and other liabilities shall
be distributed among the holders of the Class A Preferred Stock ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(b) Holders of Class A Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or winding
up of the affairs of the Corporation in excess of the preferential amount
referred to in Section 3(a) above.
(c) The assets available for distribution pursuant to the Section 3 shall
be determined by applicable law.
4. VOTING. Except as otherwise required by law, the holders of the Class
A Preferred Stock shall have no voting powers whatsoever, and no holder of Class
A Preferred Stock shall vote on or otherwise participate in any proceedings in
which actions shall be taken by the Corporation or the shareholders thereof or
be entitled to notification as to any meeting of the Board of Directors of the
shareholders.
5. CONVERSION RIGHTS. Except as otherwise required by law, the holders
of Class A Preferred Stock shall have no rights of conversion of the Class A
Preferred Stock into any other class of preferred or common stock.
6. REDEMPTION. (a) At any time, the Class A Preferred Stock may be
redeemed, in whole or in part, at the option of the Corporation by vote of its
Board of Directors, at any time or from time to time, at the Liquidation Value
thereof. In case of the redemption of a part of the outstanding Class A
Preferred Stock, such redemption shall be allocated among the holders of the
Class A Preferred Stock in proportion to each holders ownership.
-2-
<PAGE>
(b) At least 30 days prior to the date fixed for redemption, a written
notice shall be provided to each holder of record of Class A Preferred Stock to
be redeemed. Such notice shall provide the date fixed for redemption, and call
upon such holder to surrender to the Corporation on such date fixed the
certificate or certificates representing the number of shares to be redeemed.
On the date fixed for redemption, each holder of Class A Preferred Stock to be
redeemed shall present and surrender the certificate or certificates
representing such shares to the Corporation. In case less than all of the
shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
7. STATUS OF REACQUIRED SHARES. Shares of Class A Preferred Stock which
have been issued and reacquired in any manner shall have the status of
authorized and unissued shares of Class A Preferred Stock.
8. RANK. The Class A Preferred Stock shall rank senior upon liquidation,
dissolution or winding up to all Junior Securities, whenever issued. The Class
A Preferred Stock shall rank junior as to dividends and upon liquidation,
dissolution or winding up to all Senior Securities, whenever issued.
9. CERTIFICATES. So long as any shares of the Class A Preferred Stock
are outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement that the Corporation shall
furnish without charge to each shareholder who so requests, a full statement of
the designation and relative rights, preferences and limitations of each class
of stock or series thereof that the Corporation is authorized to issue and of
the authority of the Board of Directors to designate and fix the relative
rights, preferences and limitations of each series.
10. DEFINITIONS.
"Certificate of Designation" means this Amended and Restated Certificate of
Designations, Preferences and Relative and Other Special Rights and
Qualifications, Limitations and Restrictions of the Class A Preferred Stock.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company.
"Class A Common Stock" means the Corporation's Class A Common Stock, $1.00
par value per share.
"Class A Preferred Stock" means the Corporation's Class A 5% Non-Cumulative
Preferred Stock, $1.00 par value per share.
"Class B Common Stock" means the Corporation's Class B Common Stock, $1.00
par value per share.
-3-
<PAGE>
"Class B Preferred Stock" means the Corporation's Class B Preferred Stock,
$1.00 par value per share.
"Class C Preferred Stock" means the Corporation's Class C 8% Cumulative,
Non-Voting, Non-Convertible Preferred Stock, $1.00 par value per share, as in
effect the date hereof.
"Common Stock" means the Class A Common Stock and Class B Common Stock.
"Junior Securities" means any of the Corporation's Common Stock and all
other equity securities of the Corporation other than Senior Securities.
"Liquidation Value" of any share of Class A Preferred Stock shall be
seventy dollars per share. ($70.00).
"Person" means an individual, partnership, corporation, association, trust,
joint venture, unincorporated organization and any government, governmental
department or agency or political subdivision thereof.
"Senior Exchangeable Preferred Stock" means the Corporation's 12 1/4%
Cumulative, Senior Exchangeable Preferred Stock Mandatorily Redeemable 2008,
$1.00 par value per share.
"Senior Securities" means the Senior Exchangeable Preferred Stock and each
class or series of preferred stock of the Corporation which is established by
the Board of Directors after the date this Certificate of Designation is filed
with the Secretary of State of the State of Oklahoma, the terms of which
expressly provide that such class or series shall rank senior to the Class B
Preferred Stock as to dividend distributions and distributions upon liquidation,
dissolution or winding up of the Corporation.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association, or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses
-4-
<PAGE>
or shall be or control the managing general partner of such partnership,
association or other business entity.
11. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Class A Preferred Stock set forth in this Resolution (as such Resolution may
be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule, law or public policy, all other rights,
preferences and limitations set forth in this Resolution (as so amended) which
can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other right, preference or limitation unless so expressed
herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Everett R. Dobson, its President, and attested to by Stephen T.
Dobson, its Secretary this 20th day of January, 1998.
By: EVERETT R. DOBSON
--------------------------
Everett R. Dobson
President
ATTEST:
STEPHEN T. DOBSON
- -----------------------------
Stephen T. Dobson
Secretary
-5-
<PAGE>
OFFICE OF THE SECRETARY OF STATE
STATE OF OKLAHOMA
[GREAT SEAL OF THE STATE OF OKLAHOMA -- 1907]
CERTIFICATE OF DESIGNATION
WHEREAS, the Certificate of Designation of
DOBSON COMMUNICATIONS CORPORATION
has been filed in the office of the Secretary of State as provided by the laws
of the State of Oklahoma.
NOW THEREFORE, I, the undersigned, Secretary of State of the State of Oklahoma,
by virtue of the powers vested in me by law, do hereby issue this certificate
evidencing such filing.
IN TESTIMONY WHEREOF, I hereunto set my hand and cause to be affixed the Great
Seal of the State of Oklahoma.
[Great Seal of the State Filed in the City of Oklahoma City
of Oklahoma -- 1907] this 21st day of January, 1998.
TOM COLE
Secretary of State
By: BETH GARNER
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE AND OTHER SPECIAL RIGHTS,
AND QUALIFICATIONS, LIMITATIONS, AND
RESTRICTIONS OF CLASS B CONVERTIBLE
PREFERRED STOCK
----------------------------
Pursuant to Title 18, Section 1032(G) of the
General Corporation Act of the State of Oklahoma
----------------------------
DOBSON COMMUNICATIONS CORPORATION (the "Corporation"), a corporation
organized and existing under the General Corporation Act of the State of
Oklahoma, does hereby certify that pursuant to the authority vested in the Board
of Directors of the Corporation by its Certificate of Incorporation, and
pursuant to the provisions of Title 18, Section 1032(G) of the General
Corporation Act of the State of Oklahoma, said Board of Directors, by unanimous
written consent, adopted the following resolution which remains in full force
and effect as of the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by its Certificate of
Incorporation (hereinafter referred to as the "Certificate of Incorporation"),
and as authorized by the unanimous consent of the holders of all classes and
series of the Corporation's capital stock, the Board of Directors does hereby
amend and restate the designations, preferences and relative and other special
rights, qualifications, limitations and restrictions of the Corporations
authorized Class B Convertible Preferred Stock, $1.00 par value per share,
consisting of 100,000 shares, as follows:
1. DESIGNATION. The designation of such class is "Class B Convertible
Preferred Stock" (hereinafter in this Certificate of Designation called the
"Class B Preferred Stock"), and the number of shares constituting such class
shall be 100,000, which number may be decreased (but not increased) by the Board
of Directors without a vote of stockholders; PROVIDED, HOWEVER, that such number
may not be decreased below the number of then currently outstanding shares of
Class B Preferred Stock and shares of Class B Preferred Stock subject to
outstanding rights and options, if any. All capitalized terms used in this
Certificate of Designation and not otherwise defined shall have the meaning
given to such terms in Section 9 hereof.
<PAGE>
2. DIVIDENDS. (a) The holders of shares of Class B Preferred Stock, in
preference to the holders of the Junior Securities, shall be entitled to
receive, out of funds legally available for the purpose, cumulative dividends as
provided in this Section 2. Dividends on each share of Class B Preferred Stock
shall accrue on a daily basis at the Applicable Rate on the sum of (i) the
Liquidation Value and (ii) all accumulated and unpaid dividends thereon from the
date of issuance to the end of the immediately preceding calendar year and shall
be payable as provided in subparagraph (b) of this Section 2. Accrued but
unpaid dividends will be compounded annually on December 31 of each year (each a
"dividend date") (the initial such calculation to be made at the Applicable Rate
for the number of days elapsed from the date of issue of the Class B Preferred
Stock to and including the 31st day of December, 1997). Such dividends shall
commence to accrue on each share of Class B Preferred Stock from the date of
issuance thereof whether or not declared by the Board of Directors, and whether
or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends, and shall continue to accrue thereon
until the date the Liquidation Value of such share (plus all accrued and unpaid
dividends thereon) is paid. For purposes of determining the amount of dividends
accrued on the Class B Preferred Stock pursuant to this Section 2 in connection
with the sale, redemption or repurchase of any Class B Preferred Stock which may
occur prior to December 31 of any year, the Applicable Rate for such period
shall be multiplied by a fraction, the numerator of which is the actual number
of days elapsed in the then current year and the denominator of which is 365.
(b) Subject to any applicable prohibition on the payment of dividends in
the Financing Agreement, dividends accrued on each outstanding share of Class B
Preferred Stock may be paid when, as and if declared by the Board of Directors.
Further, upon the earliest to occur of (i) the conversion of Class B Preferred
Stock into Class A Common Stock pursuant to Section 5 hereof, (ii) a voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, (iii) a merger or consolidation of the Corporation into or with
another corporation in which the shareholders of this Corporation shall own less
than 50% of the voting securities of the surviving corporation or its parent,
(iv) the sale, transfer or lease (but not including a transfer or lease by
pledge or mortgage to a bona fide lender) of all or substantially all of the
assets of the Corporation, and (v) the consummation of a Public Offering of the
Corporation's Common Stock, each holder of Class B Preferred Stock shall be
entitled to receive dividends on each share of the Class B Preferred Stock then
held by such holder (including shares of Class B Preferred Stock to be converted
to Common Stock effective upon such Public Offering) in an amount equal to the
accumulated and unpaid dividends on such Class B Preferred Stock from the date
of issuance to the date of such payment (as used in this Section 2, the "Accrued
Dividend"). The Accrued Dividend shall be paid in cash.
-2-
<PAGE>
(c) Except as otherwise provided herein, if at any time the Corporation
pays less than the total amount of dividends then accrued with respect to the
Class B Preferred Stock, such payment shall be distributed ratably among the
holders thereof based upon the aggregate accrued but unpaid dividends on the
Class B Preferred Stock held by each holder.
(d) Except as otherwise may be specifically provided in this Certificate
of Designation, the Purchase Agreement or the Shareholders' Agreement, so long
as any shares of Class B Preferred Stock are outstanding, the Corporation will
not declare, pay or set apart for payment any dividends or make any other
distribution on or redeem any Junior Securities and will not permit any
Subsidiary or other Affiliate to redeem, purchase or otherwise acquire for
value, or set apart for any sinking or other analogous fund for the redemption
or purchase of, any Junior Securities.
3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, either voluntarily
or involuntarily, each holder of Class B Preferred Stock shall be entitled,
after provision for the payment of the Corporation's debts and other
liabilities, to be paid in cash, before any distribution is made on any Junior
Securities but after any distribution to the holders of Senior Securities, the
aggregate Liquidation Value of all shares of Class B Preferred Stock held by
such holder plus an amount equal to the sum of all accrued and unpaid dividends
thereon, whether or not declared to the date of such payment. If, upon any such
liquidation, dissolution or other winding up of the affairs of the Corporation,
the net assets of the corporation distributable among the holders of all
outstanding shares of the Class B Preferred Stock shall be insufficient to
permit the payment in full to such holders of the preferential amounts to which
they are entitled under the Certificate of Incorporation, then the entire net
assets of the Corporation remaining after the provision for the payment of the
Corporation's debts and other liabilities shall be distributed among the holders
of the Class B Preferred Stock ratably in proportion to the full amounts to
which they would otherwise be respectively entitled.
(b) Holders of Class B Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or winding
up of the affairs of the Corporation in excess of the preferential amount
referred to in Section 3(a) above.
(c) The assets available for distribution pursuant to this Section 3 shall
be determined by applicable law and prior to payment of any liquidation
preference the Corporation shall first satisfy its outstanding obligations
concerning rights, if any, of holders of Class B Preferred Stock which have been
exercised to have purchased, redeemed or otherwise retired any capital stock.
-3-
<PAGE>
(d) The merger or consolidation of the Corporation into or with another
corporation in which the shareholders of this Corporation shall own less than
50% of the voting securities of the surviving corporation or its parent or the
sale, transfer or lease (but not including a transfer or lease by pledge or
mortgage to a bona fide lender) of all or substantially all of the assets of the
Corporation may be deemed by the holders of the Class B Preferred Stock to be a
liquidation, dissolution or winding up of the Corporation as those terms are
used in this Section 3. In the event of such merger, consolidation or sale of
substantially all of the Company's assets, the holders of shares of Class B
Preferred Stock shall have the right to preference in the merger or
consolidation or upon the distribution of assets as provided in this Section 3,
or alternatively at such holder's election, shall have the right to convert to
shares of Class A Common Stock and receive distribution of assets as holders of
Class A Common Stock as provided in Section 5 hereof.
(e) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
person or other transaction which is effected in such a manner that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets (other than solely cash and/or publicly
traded securities) with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Corporation shall make appropriate provisions (in form and substance
reasonably satisfactory to the holders of a majority of the Class B Preferred
Stock then outstanding voting separately) to ensure that each of the holders of
Class B Preferred Stock shall thereafter have the right to acquire and receive,
in lieu of or in addition to (as the case may be) the shares of Class A Common
Stock immediately theretofore acquirable and receivable upon the conversion of
such holder's Class B Preferred Stock, such shares of stock, securities or
assets as such holder would have received in connection with such Organic Change
if such holder had converted its Class B Preferred Stock into Class A Common
Stock immediately prior to the Organic Change or, if the Organic Change is to be
deemed a liquidation pursuant to subsection 3(d), the preference upon
distribution of assets as provided in this Section 3. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
reasonably satisfactory to the holders of a majority of the Class B Preferred
Stock then outstanding) to ensure that the provisions of Section 5 hereof shall
thereafter be applicable to the Class B Preferred Stock and to the shares of
stock, securities or assets received by each holder upon such Organic Change
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Class A Common
Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Class A
-4-
<PAGE>
Common Stock acquirable and receivable upon conversion of Class B Preferred
Stock, if the value so reflected is less than the Conversion Price in effect
immediately prior to such consolidation, merger or sale). The Corporation
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Corporation) resulting from consolidation or merger or the corporation
purchasing such assets assumes by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the Class B Preferred
Stock then outstanding voting separately), the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
(f) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the Corporation shall within ten (10) days
after the date the Board of Directors approves such action, or twenty (20) days
prior to any shareholders' meeting called to approve such action, or twenty (20)
days after the commencement of an involuntary proceeding, whichever is earliest,
give each holder of shares of Class B Preferred Stock initial written notice of
the proposed action. Such initial written notice shall describe the material
terms and conditions of such proposed action, including a description of the
stock, cash and property to be received by the holders of shares of Class B
Preferred Stock upon consummation of the proposed action and the date of
delivery thereof. If any material change in the facts set forth in the initial
notice shall occur, the Corporation shall promptly give written notice to each
holder of shares of Class B Preferred Stock of such material change.
(g) The Corporation shall not consummate any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation before the expiration
of thirty (30) days after the mailing of the initial notice referred to in
subparagraph (f) above or ten (10) days after the mailing of any subsequent
written notice, whichever is later; provided, that any such 30-day or 10-day
period may be shortened upon the written consent of the holders of a majority of
the outstanding shares of the Class B Preferred Stock voting as a single class.
(h) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation which will involve the distribution of assets
other than cash, the Corporation shall promptly engage competent independent
appraisers to determine the value of the assets to be distributed to the holders
of shares of Class B Preferred Stock and the holders of shares of Common Stock
(it being understood that with respect to such valuation, the Corporation shall
engage such appraiser as shall be approved by the holders of a majority of
shares of the Corporation's outstanding Common Stock and Class B Preferred Stock
voting separately). The Corporation shall, upon receipt of such appraiser's
valuation, give
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prompt written notice to each holder of shares of Common Stock and Class B
Preferred Stock of the appraiser's valuation.
4. VOTING. (a) Except as otherwise required by law or as set forth
herein and subject to the rights of any class or series of preferred stock which
may from time to time come into existence hereafter, the shares of the Class B
Preferred Stock shall vote together with the shares of the Corporation's Class A
Common Stock at any annual or special meeting of shareholders of the
Corporation, or may act by written consent in the same manner as the
Corporation's Class A Common Stock, upon the following basis: each holder of
shares of Class B Preferred Stock shall be entitled to such number of votes for
the Class B Preferred Stock held by him on the record date fixed for such
meeting, or on the effective date of such written consent, as shall be equal to
the whole number of shares of the Corporation's Class A Common Stock into which
his shares of Class B Preferred Stock are convertible, in accordance with the
terms of Section 5 hereof, immediately after the close of business on the record
date fixed for such meeting or the effective date of such written consent.
(b) In the election of directors, two (2) directors shall be elected by
the holders of the Class B Preferred Stock voting as a separate class, subject
to compliance with any applicable provisions of the Shareholders' Agreement.
(c) As long as at least 50% of the shares of Class B Preferred Stock
purchased pursuant to the Purchase Agreement remain outstanding, the holders of
shares of Class B Preferred Stock also shall have the following voting rights:
(i) The affirmative vote of the holders of a majority of the outstanding
shares of Class B Preferred Stock, voting separately as a single class, in
person or by proxy, at a special or annual meeting of stockholders called
for the purpose, shall be necessary to (t) authorize or increase the
authorized number of shares of, or issue, any class or series of the
Corporation's capital stock ranking prior to, or on a parity with, the
Class B Preferred Stock, including shares of Class B Preferred Stock
authorized pursuant to this Certificate of Designation and issued after the
date of original issuance of the Class B Preferred Stock, or (u) amend,
repeal or change, directly or indirectly, any of the provisions of the
Certificate of Incorporation of the Corporation, as amended, in any manner
which would alter or change the powers, preferences or special rights of
the shares of Class B Preferred Stock so as to affect them adversely, or
(v) authorize or effect the sale of all or substantially all of the assets
of the Corporation, or (w) authorize or effect the merger or consolidation
of the Corporation with any other Person as the result of which the
shareholders of the Corporation shall own less than 50.1% of the voting
securities of the surviving corporation or its parent,
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or (x) authorize or effect the liquidation (whether complete or partial),
dissolution or winding up of the Corporation, or (y) amend the Bylaws of
the Corporation to change the authorized number of directors, or (z) amend
this Section 4.
(ii) The rights of holders of shares of Class B Preferred Stock to vote or
take any other actions as provided in this Section 4 may be exercised at
any annual meeting of stockholders or at a special meeting of stockholders
held for such purpose. At each meeting of stockholders at which the
holders of shares of Class B Preferred Stock shall have the right, voting
separately as a single series, to take any action as provided in this
Section 4, the presence in person or by proxy of the holders of record of a
majority of the total number of shares of Class B Preferred Stock then
outstanding and entitled to vote on the matter shall be necessary and
sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof, in the absence of a quorum of the holders of shares of
Class B Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Class B Preferred Stock
from time to time and place to place without notice other than announcement
at the meeting until a quorum shall be present.
5. CONVERSION RIGHTS.
(a) CONVERSION PROCEDURE.
(i) At any time and from time to time, any holder of Class B
Preferred Stock may convert all or any portion of the Class B Preferred Stock
(including any fraction of a share) held by such holder into a number of shares
of Class A Common Stock equal to the product of (x) the number of shares of
Class B Preferred Stock to be converted into Class A Common Stock and (y) a
fraction the numerator of which is $100.00 and the denominator is the Conversion
Price then in effect.
(ii) Each conversion of Class B Preferred Stock shall be deemed to
have been effected as of the close of business on the date on which the
certificate or certificates representing the Class B Preferred Stock to be
converted have been surrendered at the principal office of the Corporation or at
such other place as may be designated by the Corporation. At such time as such
conversion has been effected, the rights of the holder of such Class B Preferred
Stock as such holder shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Class A Common Stock are to
be issued upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Class A Common Stock represented thereby.
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(iii) The conversion rights of any share of Class B Preferred Stock
repurchased by the Corporation pursuant to the Shareholders' Agreement shall
terminate on the date the repurchase price for such share is paid in full.
(iv) Notwithstanding any other provision hereof, if a conversion of
shares is to be made in connection with a Public Offering, the conversion of
such shares may, at the election of the holder thereof, be conditioned upon the
consummation of the Public Offering, in which case such conversion shall not be
deemed to be effective until the consummation of the Public Offering.
(v) As soon as possible after a conversion has been effected (but in
any event within five business days in the case of subparagraph (y) below), the
Corporation shall deliver to the converting holder:
(y) a certificate or certificates representing, in the aggregate, the
number of shares of Class A Common Stock issuable by reason of such
conversion, in the same name or names as the certificates representing the
converted shares and in such denomination or denominations as the
converting holder has specified; and
(z) a certificate representing any shares which were represented by the
certificate or certificates delivered to the Corporation in connection with
such conversion but which were not converted.
(vi) The issuance of certificates of shares of Class A Common Stock
upon conversion of Class B Preferred Stock shall be made without charge to the
holders of such Class B Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Class A Common Stock. Upon conversion of any
shares of Class B Preferred Stock, the Corporation shall take all such actions
as are necessary in order to ensure that the Class A Common Stock issuable with
respect to such conversion shall be validly issued, fully paid and
nonassessable.
(vii) The Corporation shall not close its books against the transfer
of Class B Preferred Stock or of Class A Common Stock issued or issuable upon
conversion of Class B Preferred Stock in any manner which interferes with the
timely conversion of Class B Preferred Stock. The Corporation shall assist and
cooperate with any holder of shares of Class B Preferred Stock required to make
any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of shares of Class B Preferred Stock hereunder
(including, without limitation, making any filings required to be made by the
Corporation).
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<PAGE>
(viii) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Class A Common Stock, solely for
the purpose of issuance upon the conversion of the Class B Preferred Stock, such
number of shares of Class A Common Stock as are issuable upon the conversion of
all outstanding Class B Preferred Stock. All shares of Class A Common Stock
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges. The Corporation
shall take all such actions as may be necessary to assure that all such shares
of Class A Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Class A Common Stock may be listed (except for
official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance).
(b) CONVERSION PRICE.
(i) The initial conversion price shall be $100.00, which may be
adjusted from time to time hereafter (the "Conversion Price"). If and whenever
on or after the original date of issuance of the Class B Preferred Stock the
Corporation issues or sells, or in accordance with Section 5(c) is deemed to
have issued or sold, any shares of its Common Stock or other capital stock
convertible into Common Stock (other than Permitted Issuances) for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then forthwith upon such issue or sale
the Conversion Price shall be reduced to the Conversion Price determined by
dividing (a) the sum of (1) the product derived by multiplying the Conversion
Price in effect immediately prior to such issue or sale times the number of
shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale, plus (2) the consideration, if any, received (or deemed received pursuant
to Section 5(c) below) by the Corporation upon such issue or sale, (b) the
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale. Notwithstanding the foregoing, if a Texas 2 Event occurs prior to
March 19, 1999, the then Conversion Price shall be adjusted to an amount equal
to 100.45% of the then Conversion Price.
(c) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 5(b), the following
shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner
grants any rights or options, other than Permitted Issuances, to subscribe
for or to purchase Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES")and the price per
share for which Common Stock is issuable upon the exercise
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of such Options or upon conversion or exchange of such Convertible
Securities is less than the conversion Price in effect immediately prior
to the time of the granting of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of
such convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the corporation at the time of the granting
of such Options for such price per share. For purposes of this
paragraph, the "PRICE PER SHARE FOR WHICH COMMON STOCK IS ISSUABLE"
shall be determined by dividing (a) the total amount, if any, received
or receivable by the Corporation as consideration for the granting of
such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof (such
amount is the consideration "deemed received" for purposes of Section
5(b) above), by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options. No further adjustment of the Conversion Price shall be
made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock is actually issued upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any manner
issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less
than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed
to be outstanding and to have been issued and sold by the Corporation at
the time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this paragraph, the "PRICE PER SHARE
FOR WHICH COMMON STOCK IS ISSUABLE" shall be determined by dividing (a) the
total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof (such amount is the
consideration "deemed received" for purposes of Section 5(b) above), by (b)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. No further
adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the conversion or exchange
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of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of the Conversion Price had been or are to be made pursuant
to other provisions of this Section 5, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION PRICE. If the purchase price
provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or exchangeable
for Common Stock change at any time, the Conversion Price in effect at the
time of such change shall be readjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that if such adjustment would
result in an increase of the Conversion Price then in effect, such
adjustment shall not be effective until 30 days after written notice
thereof has been given by the Corporation to all holders of the Class B
Preferred Stock.
(d) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise), one or more classes of its outstanding shares of Common Stock into a
greater number of shares, or if the Corporation at any time combines (by reverse
stock split or otherwise), one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such subdivision or combination shall be proportionately
adjusted.
(e) CERTAIN EVENTS. If an event not specifically enumerated in this
Section 5 occurs which has substantially the same economic effect on the Class B
Preferred Stock as those specifically enumerated shall occur, then this Section
5 shall be construed liberally, MUTATIS MUTANDIS, in order to give the Class B
Preferred Common Stock the benefit of the protections provided under this
Section 5. The Corporation's Board of Directors shall make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders of
Class B Preferred Stock; provided, that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 5 or decrease
the number of shares of Class A Common Stock issuable upon conversion of each
share of Class B Preferred Stock.
(f) NOTICES.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all
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holders of Class B Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of
Class B Preferred Stock at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders
of Class B Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
6. STATUS OF REACQUIRED SHARES. Shares of Class B Preferred Stock which
have been issued and reacquired in any manner shall have the status of
authorized and unissued shares of Class B Preferred Stock.
7. RANK. The Class B Preferred Stock shall rank senior as to dividends
and upon liquidation, dissolution or winding up to all Junior Securities,
whenever issued. The Class B Preferred Stock shall rank junior as to dividends
and upon liquidation dissolution or winding up, to all Senior Securities,
whenever issued.
8. CERTIFICATES. So long as any shares of the Class B Preferred Stock
are outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement that the Corporation shall
furnish without charge to each shareholder who so requests, a full statement of
the designation and relative rights, preferences and limitations of each class
of stock or series thereof that the Corporation is authorized to issue and of
the authority of the Board of Directors to designate and fix the relative
rights, preferences and limitations of each series.
9. DEFINITIONS.
"Affiliate" shall have the meaning given such term in the Purchase
Agreement.
"Applicable Rate" means 8% per annum, except during any period a
Noncompliance Event exists, the Applicable Rate shall mean 15% per annum.
"Certificate of Designation" means this Amended and Restated
Certificate of Designations, Preferences and Relative and Other Special Rights
and Qualifications, Limitations and Restrictions of the Class B Preferred Stock.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Corporation, as amended.
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"Class A Common Stock" means the Corporation's Class A Common Stock,
$1.00 par value per share.
"Class A Preferred Stock" means the Corporation's Class A 5%
Non-Cumulative, Non-Voting, Non-Convertible Preferred Stock, $1.00 par value
per share.
"Class B Common Stock" means the Corporation's Class B Common Stock,
$1.00 par value per share.
"Class B Preferred Stock" means the Corporation's Class B Preferred
Stock, $1.00 par value per share.
"Class C Preferred Stock" means the Corporation's Class C 8%
Cumulative, Non-Voting, Non-Convertible Preferred Stock, $1.00 par value per
share.
"Common Stock" means the Class A Common Stock and Class B Common
Stock.
"Conversion Price" shall have the meaning set forth in Section 5(b)
hereof.
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock issuable upon conversion of the Class B Preferred Stock,
plus the number of shares of Common Stock deemed to be outstanding with respect
to Options or Convertible Securities whether or not the Options are actually
exercisable at such time.
"DCC" means Dobson CC Limited Partnership, an Oklahoma limited
partnership.
"Financing Agreement" means that certain Second Amended and Restated
Credit Agreement dated as of February 26, 1997, between CoreStates Bank, N.A.,
in its capacity as Administrative Agent and a Bank, the other Banks listed
therein, the Corporate Borrowers listed therein or any credit agreement
evidencing a senior debt facility which replaces the facility evidenced by such
Second Amended and Restated Credit Agreement.
"Junior Securities" means any of the Corporation's Common Stock and
all other equity securities of the Corporation other than Senior Securities.
"Liquidation Value" of any share of Class B Preferred Stock shall be
One Hundred Dollars ($100.00).
"Noncompliance Event" shall have the meaning given such term in the
Purchase Agreement.
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"Organic Change" shall have the meaning set forth in Section 3(e)
hereof.
"Permitted Issuances" means the issuance to key employees of the
Corporation or any Subsidiary acceptable to the holders of Class B Preferred
Stock of options to purchase an aggregate of 30,166 shares of Class B Common
Stock in the amounts, at the price and on other terms and conditions acceptable
to the holders of Class B Preferred Stock and the issuance of Class B Common
Stock pursuant to the exercise of such options.
"Person" means an individual, partnership, corporation, association,
trust, joint venture, unincorporated organization and any government,
governmental department or agency or political subdivision thereof.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act of 1933 or any comparable statement under any similar federal
statute then in force, other than an offering of shares being issued as
consideration in a business acquisition or combination or an offering in
connection with an employee benefit plan.
"Purchase Agreement" means that certain Securities Purchase Agreement
dated as of March 19, 1996, among the purchasers named therein and Dobson
Operating Company (formerly known as Dobson Communication Corporation), as
amended by that certain Amendment No.1 to Securities Purchase Agreement dated as
of February 26, 1997, as it may be amended from time to time.
"Senior Exchangeable Preferred Stock" means the Corporation's 12 1/4%
Cumulative, Senior Exchangeable Preferred Stock Mandatorily Redeemable 2008,
$1.00 par value per share.
"Senior Securities" means the Senior Exchangeable Preferred Stock and
each class or series of preferred stock of the Corporation which is established
by the Board of Directors after the date this Certificate of Designation is
filed with the Secretary of State of the State of Oklahoma, the terms of which
expressly provide that such class or series shall rank senior to the Class B
Preferred Stock as to dividend distributions and distributions upon liquidation,
dissolution or winding up of the Corporation.
"Shareholders' Agreement" means that certain Shareholders' Agreement
dated as of February 24, 1997 among this Corporation and the shareholders of
this Corporation, as it may be amended from time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of
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shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association, or other business entity if
such Person or Persons shall be allocated a majority of partnership,
association or other business entity gains or losses or shall be or control
the managing general partner of such partnership, association or other
business entity.
"Texas 2 Event" shall have the meaning set forth in the Securities
Purchase Agreement.
10. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Class B Preferred Stock set forth in this Resolution (as such Resolution may
be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule, law or public policy, all other rights,
preferences and limitations set forth in this Resolution (as so amended) which
can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other right, preference or limitation unless so expressed
herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Everett R. Dobson, its President, and attested to by Stephen T.
Dobson, its Secretary this 20th day of January, 1998.
By: EVERETT R. DOBSON
--------------------------------
Everett R. Dobson
President
ATTEST:
STEPHEN T. DOBSON
- -------------------------------
Stephen T. Dobson
Secretary
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OFFICE OF THE SECRETARY OF STATE
STATE OF OKLAHOMA
[GREAT SEAL OF THE STATE OF OKLAHOMA -- 1907]
CERTIFICATE OF DESIGNATION
WHEREAS, the Certificate of Designation of
DOBSON COMMUNICATIONS CORPORATION
has been filed in the office of the Secretary of State as provided by the laws
of the State of Oklahoma.
NOW THEREFORE, I, the undersigned, Secretary of State of the State of Oklahoma,
by virtue of the powers vested in me by law, do hereby issue this certificate
evidencing such filing.
IN TESTIMONY WHEREOF, I hereunto set my hand and cause to be affixed the Great
Seal of the State of Oklahoma.
[Great Seal of the State Filed in the City of Oklahoma City
of Oklahoma -- 1907] this 21st day of January, 1998.
TOM COLE
Secretary of State
By: BETH GARNER
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE AND OTHER SPECIAL RIGHTS,
AND QUALIFICATIONS, LIMITATIONS, AND
RESTRICTIONS OF CLASS C PREFERRED STOCK
----------------------------
Pursuant to Title 18, Section 1032(G) of the
General Corporation Act of the State of Oklahoma
----------------------------
DOBSON COMMUNICATIONS CORPORATION (the "Corporation"), a corporation
organized and existing under the General Corporation Act of the State of
Oklahoma, does hereby certify that pursuant to the authority vested in the
Board of Directors of the Corporation by its Certificate of Incorporation,
and pursuant to the provisions of Title 18, Section 1032(G) of the General
Corporation Act of the State of Oklahoma, said Board of Directors, by
unanimous written consent, adopted the following resolution which remains in
full force and effect as of the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") by its Certificate of
Incorporation (hereinafter referred to as the "Certificate of
Incorporation"), and as authorized by the unanimous consent of the holders of
all classes and series of the Corporation's capital stock, the Board of
Directors does hereby amend and restate the designations, preferences and
relative and other special rights, qualifications, limitations and
restrictions of the Corporations authorized Class C Preferred Stock, $1.00
par value per share, consisting of 100,000 shares, as follows:
1. DESIGNATION. The designation of such class is "Class C 8%
Cumulative, Non-Voting, Non-Convertible Preferred Stock" (hereinafter in this
Certificate of Designation called the "Class C Preferred Stock"), and the
number of shares constituting such class shall be 100,000, which number may
not be decreased or increased by the Board of Directors without a vote of
stockholders. All capitalized terms used in this Certificate of Designation
and not otherwise defined shall have the meaning given to such terms in
Section 10 hereof.
2. DIVIDENDS. (a) The holders of shares of Class C Preferred Stock,
in preference to the holders of the Junior Securities, shall be entitled to
receive, out of funds legally available for the purpose, cumulative dividends
as provided in this Section 2.
<PAGE>
Dividends on each share of Class C Preferred Stock shall accrue on a daily
basis at the Applicable Rate on the sum of (i) the Liquidation Value and (ii)
all accumulated and unpaid dividends thereon from the date of issuance to the
end of the immediately preceding calendar year and shall be payable as
provided in subparagraph (b) of this Section 2. Accrued but unpaid dividends
will be compounded annually on December 31 of each year (each a "dividend
date") (the initial such calculation to be made at the Applicable Rate for
the number of days elapsed from the date of issue of the Class C Preferred
Stock to and including the 31st day of December, 1997). Such dividends shall
commence to accrue on each share of Class C Preferred Stock from the date of
issuance thereof whether or not declared by the Board of Directors, and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends, and shall continue to accrue
thereon until the date the Liquidation Value of such share (plus all accrued
and unpaid dividends thereon) is paid. For purposes of determining the
amount of dividends accrued on the Class C Preferred Stock pursuant to this
Section 2 in connection with the sale, redemption or repurchase of any Class
C Preferred Stock which may occur prior to December 31 of any year, the
Applicable Rate for such period shall be multiplied by a fraction, the
numerator of which is the actual number of days elapsed in the then current
year and the denominator of which is 365.
(b) Subject to any applicable prohibition on the payment of dividends
in the Financing Agreement, dividends accrued on each outstanding share of
Class C Preferred Stock may be paid when, as and if declared by the Board of
Directors. Further, upon the earliest to occur of (i) a voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, (ii) a merger or consolidation of the Corporation into or with
another corporation in which the shareholders of this Corporation shall own
less than 50% of the voting securities of the surviving corporation or its
parent, (iii) the sale, transfer or lease (but not including a transfer or
lease by pledge or mortgage to a bona fide lender) of all or substantially
all of the assets of the Corporation, and (iv) the consummation of a Public
Offering of the Corporation's Common Stocks (each a "Trigger Event"), each
holder of Class C Preferred Stock shall be entitled to receive dividends on
each share of the Class C Preferred Stock then held by such holder in an
amount equal to the accumulated and unpaid dividends on such Class C
Preferred Stock from the date of issuance to the date of such payment (as
used in this Section 2, the "Accrued Dividend"). The Accrued Dividend shall
be paid in cash.
(c) Except as otherwise provided herein, if at any time the Corporation
pays less than the total amount of dividends then accrued with respect to the
Class C Preferred Stock, such payment shall be distributed ratably among the
holders thereof based upon the aggregate accrued but unpaid dividends on the
Class C Preferred Stock held by each holder.
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3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, either
voluntarily or involuntarily, each holder of Class C Preferred Stock shall be
entitled, after provision for the payment of the Corporation's debts and
other liabilities, to be paid in cash, before any distribution is made on any
Junior Securities but after any distribution to the holders of Senior
Securities, the aggregate Liquidation Value of all shares of Class C
Preferred Stock held by such holder plus an amount equal to the Accrued
Dividend, whether or not declared to the date of such payment. If, upon any
such liquidation, dissolution or other winding up of the affairs of the
Corporation, the net assets of the corporation distributable among the
holders of all outstanding shares of the Class C Preferred Stock shall be
insufficient to permit the payment in full to such holders of the
preferential amounts to which they are entitled under the Certificate of
Incorporation, then the entire net assets of the Corporation remaining after
the provision for the payment of the Corporation's debts and other
liabilities shall be distributed among the holders of the Class C Preferred
Stock ratably in proportion to the full amounts to which they would otherwise
be respectively entitled.
(b) Holders of Class C Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation in excess of the preferential
amount referred to in Section 3(a) above.
(c) The assets available for distribution pursuant to the Section 3
shall be determined by applicable law.
(d) The merger or consolidation of the Corporation into or with another
corporation in which the shareholders of this Corporation shall own less than
50% of the voting securities of the surviving corporation or its parent or
the sale, transfer or lease (but not including a transfer or lease by pledge
or mortgage to a bona fide lender) of all or substantially all of the assets
of the Corporation may be deemed by the holders of the Class C Preferred
Stock to be a liquidation, dissolution or winding up of the Corporation as
those terms are used in this Section 3. In the event of such merger,
consolidation or sale of substantially all of the Company's assets, the
holders of shares of Class C Preferred Stock shall have the right to
preference in the merger or consolidation or upon the distribution of assets
as provided in this Section.
(e) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall within
ten (10) days after the date of the Board of Directors approves such action,
or twenty (20) days prior to any shareholders' meeting called to approve such
action, or twenty (20) days after the commencement of an involuntary
proceeding, whichever is earliest, give each holder of shares of Class C
Preferred Stock initial written notice of the proposed action. Such initial
written notice
-3-
<PAGE>
shall describe the material terms and conditions of such proposed action,
including a description of the stock, cash and property to be received by the
holders of shares of Class C Preferred Stock upon consummation of the
proposed action and the date of delivery thereof. If any material change in
the facts set forth in the initial notice shall occur, the Corporation shall
promptly give written notice to each holder of shares of Class C Preferred
Stock of such material change.
(f) The Corporation shall not consummate any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation before the
expiration of thirty (30) days after the mailing of the initial notice
referred to in subparagraph (e) above or ten (10) days after the mailing of
any subsequent written notice, whichever is later; provided, that any such
30-day or 10-day period may be shortened upon the written consent of the
holders of a majority of the outstanding shares of the Class B Preferred
Stock voting as a single class.
(g) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involve distribution
of assets other than cash, the Corporation shall promptly engage competent
independent appraisers to determine the value of the assets to be distributed
to the holders of shares of Class B Preferred Stock, Class C Preferred Stock
and the holders of shares of Common Stock (it being understood that with
respect to such valuation, the Corporation shall engage such appraiser as
shall be approved by the holders of a majority of shares of the Corporation's
outstanding Common Stock and by the holders of a majority of the outstanding
shares of Class B Preferred Stock voting as separate classes). The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Common Stock, Class B Preferred
Stock and Class C Preferred Stock of the appraiser's valuation.
4. VOTING. Except as otherwise required by law, the holders of the
Class C Preferred Stock shall have no voting powers whatsoever, and no holder
of Class C Preferred Stock shall vote on or otherwise participate in any
proceedings in which actions shall be taken by the Corporation or the
shareholders thereof or be entitled to notification as to any meeting of the
Board of Directors of the shareholders.
5. CONVERSION RIGHTS. Except as otherwise required by law, the
holders of Class C Preferred Stock shall have no rights of conversion of the
Class C Preferred Stock into any other class of preferred or common stock.
6. REDEMPTION. (a) At any time, the Class C Preferred Stock may be
redeemed, in whole or in part, at the option of the Corporation by vote of
its Board of Directors, at any time or from time to time, at the Liquidation
Value thereof plus an amount equal to the
-4-
<PAGE>
sum of the Accrued Dividends thereon, whether or not declared to the date of
such payment. In case of the redemption of a part of the outstanding Class C
Preferred Stock, such redemption shall be allocated among the holders of the
Class C Preferred Stock in proportion to each holders ownership.
(b) Upon the earlier to occur of a Trigger Event or February 28, 2002,
the Corporation shall redeem all the outstanding shares of Class C Preferred
Stock at the Liquidation Value thereof plus an amount equal to the sum of the
Accrued Dividend thereof, whether or not declared to the date of payment.
(c) At least 30 days prior to the date fixed for redemption, a written
notice shall be provided to each holder of record of Class C Preferred Stock
to be redeemed. Such notice shall provide the date fixed for redemption, and
call upon such holder to surrender to the Corporation on such date fixed the
certificate or certificates representing the number of shares to be redeemed.
On the date fixed for redemption, each holder of Class C Preferred Stock to
be redeemed shall present and surrender the certificate or certificates
representing such shares to the Corporation. In case less than all of the
shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
7. STATUS OF REACQUIRED SHARES. Shares of Class C Preferred Stock
which have been issued and reacquired in any manner shall have the status of
authorized and unissued shares of Class C Preferred Stock.
8. RESTRICTIONS. So long as any shares of Class C Preferred Stock are
outstanding, no dividends or distributions shall be made on or in respect of
any Junior Securities and no Junior Securities shall be purchased or redeemed
directly or indirectly by the Corporation or any Subsidiary without the prior
written consent of the holders of a majority of the outstanding shares of
Class C Preferred Stock.
9. RANK. The Class C Preferred Stock shall rank senior upon
liquidation, dissolution or winding up to all Junior Securities, whenever
issued. The Class C Preferred Stock shall rank junior, as to dividends and
upon liquidation, dissolution or winding up, to all Senior Securities
whenever issued.
10. CERTIFICATES. So long as any shares of the Class C Preferred Stock
are outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement that the Corporation shall
furnish without charge to each shareholder who so requests, a full statement
of the designation and relative rights, preferences and limitations of each
class of stock or series thereof that the Corporation is authorized to issue
and of the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of each series.
-5-
<PAGE>
11. DEFINITIONS.
"Applicable Rate" means 8% per annum.
"Certificate of Designation" means this Amended and Restated
Certificate of Designations, Preferences and Relative and Other Special
Rights and Qualifications, Limitations and Restrictions of the Class C
Preferred Stock.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company.
"Class A Common Stock" means the Corporation's Class A Common
Stock, $1.00 par value per share.
"Class B Common Stock" means the Corporation's Class B Common
Stock, $1.00 par value per share.
"Class B Preferred Stock" means the Corporation's Class B Preferred
Stock, $1.00 par value per share.
"Class C Preferred Stock" means the Corporation's Class C 8%
Cumulative, Non-Voting, Non-Convertible Preferred Stock, $1.00 par value per
share, as in effect the date hereof.
"Common Stock" means the Class A Common Stock and Class B Common
Stock.
"Financing Agreement" means that certain Second Amended and
Restated Credit Agreement dated as of February 26, 1997, between CoreStates
Bank, N.A., in its capacity as Administrative Agent and a Bank, the other
Banks listed therein, and the Corporate Borrowers listed therein, or any
credit agreement evidencing a senior debt facility which replaces the
facility evidenced by such Second Amended and Restated Credit Agreement.
"Junior Securities" means any of the Corporation's Common Stock and
all other equity securities of the Corporation other than Senior Securities.
"Liquidation Value" of any share of Class C Preferred Stock shall
be $16.23329.
"Person" means an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization and any
government, governmental department or agency or political subdivision
thereof.
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933 or any comparable statement under
any similar federal statute then in
-6-
<PAGE>
force, other than an offering of shares being issued as consideration in a
business acquisition or combination or an offering in connection with an
employee benefit plan.
"Senior Exchangeable Preferred Stock" means the Corporation's
12 1/4% Cumulative, Senior Exchangeable Preferred Stock Mandatorily Redeemable
2008, $1.00 par value per share.
"Senior Securities" means the Senior Exchangeable Preferred Stock
and each class or series of preferred stock of the Corporation which is
established by the Board of Directors after the date this Certificate of
Designation is filed with the Secretary of State of the State of Oklahoma,
the terms of which expressly provide that such class or series shall rank
senior to the Class C Preferred Stock as to dividend distributions and
distributions upon liquidation, dissolution or winding up of the Corporation.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof, or (ii) if a
partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
partnership, association, or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing general partner of
such partnership, association or other business entity.
12. SEVERABILITY OF PROVISIONS. If any right, preference or limitation
of the Class C Preferred Stock set forth in this Resolution (as such
Resolution may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule, law or public policy, all
other rights, preferences and limitations set forth in this Resolution (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set
forth shall be deemed dependent upon any other right, preference or
limitation unless so expressed herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Everett R. Dobson, its President, and attested to by Stephen T.
Dobson, its Secretary this 20th day of January, 1998.
-7-
<PAGE>
By: EVERETT R. DOBSON
-----------------------
Everett R. Dobson
President
ATTEST:
STEPHEN T. DOBSON
- -------------------------
Stephen T. Dobson
Secretary
<PAGE>
OFFICE OF THE SECRETARY OF STATE
STATE OF OKLAHOMA
[GREAT SEAL OF THE STATE OF OKLAHOMA -- 1907]
CERTIFICATE OF DESIGNATION
WHEREAS, the Certificate of Designation of
DOBSON COMMUNICATIONS CORPORATION
has been filed in the office of the Secretary of State as provided by the
laws of the State of Oklahoma.
NOW THEREFORE, I, the undersigned, Secretary of State of the State of
Oklahoma, by virtue of the powers vested in me by law, do hereby issue this
certificate evidencing such filing.
IN TESTIMONY WHEREOF, I hereunto set my hand and cause to be affixed the
Great Seal of the State of Oklahoma.
[Great Seal of the State Filed in the City of Oklahoma City
of Oklahoma -- 1907] this 21st day of January, 1998.
TOM COLE
Secretary of State
By: BETH GARNER
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS
OF 12 1/4% SENIOR EXCHANGEABLE
PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
-----------------------------------------
Pursuant to Title 18, Section 1032(G) of the
General Corporation Act of the State of Oklahoma
-----------------------------------------
Dobson Communications Corporation, a corporation organized and
existing under the General Corporation Act of the State of Oklahoma (the
"Company"), does hereby certify that, pursuant to authority conferred upon
the board of directors of the Company (or any committee of such board of
directors, the "Board of Directors") by its Amended and Restated Certificate
of Incorporation, as amended (hereinafter referred to as the "Certificate of
Incorporation"), and pursuant to the provisions of Title 18, Section 1032(G)
of the General Corporation Act of the State of Oklahoma, said Board of
Directors with full power and authority to act on behalf of the Board of
Directors, acting by written consent dated January 20, 1998, duly approved
and adopted the following resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors does
hereby create, authorize and provide for the issue of 12 1/4% Senior
Exchangeable Preferred Stock, par value $1.00 per share, with a liquidation
preference of $1,000 per share, consisting of 550,000 shares, having the
designations, voting power, preferences and relative, participating, optional
and other special rights, qualifications, limitations and restrictions
thereof that are set forth in the Certificate of Incorporation and in this
Resolution as follows (the terms used herein, unless otherwise defined
herein, are used herein as defined in paragraph (n) hereof):
(a) DESIGNATION. There is hereby created out of the authorized
and unissued shares of preferred stock of the Company a series of preferred
stock designated as the "12 1/4% Senior Exchangeable Preferred Stock". The
number of shares constituting such series shall be 550,000 shares of 12 1/4%
Senior Exchangeable Preferred Stock, consisting of an initial issuance of
175,000 shares of 12 1/4% Senior Exchangeable Preferred Stock plus additional
shares of such Preferred Stock which may be issued to pay dividends on such
Preferred Stock if the Company elects to pay dividends in additional shares
of such Preferred Stock (collectively, the "Original Preferred Stock"), plus
registered shares of 12 1/4% Senior Exchangeable Preferred Stock which may be
issued in the Preferred Stock Exchange
<PAGE>
-2-
Offer (the "Registered Preferred Stock") plus additional shares of Preferred
Stock which may be issued to pay dividends on the Registered Preferred Stock
(collectively, with the Original Preferred Stock and the Registered Preferred
Stock, the "Preferred Stock"). The liquidation preference of the Preferred
Stock shall be $1,000 per share.
(b) RANK. The Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, rank (i) senior to (A) all classes of common
stock of the Company, (B) the Class A Preferred Stock, the Class B Preferred
Stock and the Class C Preferred Stock and to (C) each other class of capital
stock or series of preferred stock hereafter created by the Board of
Directors, the terms of which do not expressly provide that it ranks senior
to or on a parity with the Preferred Stock as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company
(collectively referred to herein, together with all classes of common stock
of the Company, as the "Junior Securities"); (ii) subject to certain
conditions, on a parity with any class of capital stock or series of
preferred stock hereafter created by the Board of Directors, the terms of
which expressly provide that such class or series will rank on a parity with
the Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred
to as "Parity Securities"); (iii) subject to certain conditions, junior to
each class of capital stock or series of preferred stock hereafter created by
the Board of Directors, the terms of which have been approved by the Holders
of the Preferred Stock in accordance with subparagraph (f)(ii) hereof and
which expressly provide that such class or series will rank senior to the
Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Company (collectively referred
to as "Senior Securities").
(c) DIVIDENDS. (i) Beginning on the Closing Date, the Holders of
the outstanding shares of Preferred Stock shall be entitled to receive, when,
as and if declared by the Board of Directors, out of funds legally available
therefor, dividends on each share of Preferred Stock at a rate per annum
equal to 12 1/4% of the liquidation preference per share, payable quarterly.
All dividends shall be cumulative, whether or not earned or declared, on a
daily basis from the date of issuance of the Preferred Stock and shall be
payable quarterly in arrears on each Dividend Payment Date, commencing on the
first Dividend Payment Date after the Closing Date. On and before January
15, 2003, the Company may pay dividends, at its option, in cash or in
additional fully paid and nonassessable Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. After January
15, 2003, dividends may be paid only in cash. If any dividend (or portion
thereof) payable on any Dividend Payment Date after January 15, 2003 is not
declared or paid in full in cash (or on or prior to
<PAGE>
-3-
January 15, 2003, in cash or Preferred Stock) on such Dividend Payment Date,
the amount of accrued and unpaid dividends will bear interest at the dividend
rate on the Preferred Stock, compounding quarterly, until declared and paid
in full. Each distribution in the form of a dividend (whether in cash or in
additional shares of Preferred Stock) shall be payable to Holders of record
as they appear on the stock books of the Company on such record date, not
less than 10 nor more than 60 days preceding the relevant Dividend Payment
Date, as shall be fixed by the Board of Directors. Dividends shall cease to
accumulate in respect of shares of the Preferred Stock on the Exchange Date
(as defined in paragraph (g)(i)(A) hereof) or on the date of their earlier
redemption unless the Company shall have failed to issue the appropriate
aggregate principal amount of Exchange Debentures in respect of the Preferred
Stock on the Exchange Date or shall have failed to pay the relevant
redemption price on the date fixed for redemption.
(ii) Notwithstanding anything else provided herein, if the Company
fails to consummate a Preferred Stock Exchange Offer and cause a shelf
registration statement with respect to resales of the Preferred Stock to
become effective in accordance with the Registration Rights Agreement dated
the Closing Date on or prior to six months after the Closing Date, the
dividend rate on the Preferred Stock will increase 0.5% per annum to 12 3/4%
per annum of liquidation preference per share of Preferred Stock from July
22, 1998, payable in additional shares of Preferred Stock quarterly in
arrears on each Dividend Payment Date, commencing October 15, 1998 until (i)
such Preferred Stock Exchange Offer is consummated or (ii) such shelf
registration statement with respect to resales of the Preferred Stock is
declared effective in accordance with the Registration Rights Agreement dated
the Closing Date.
(iii) All dividends paid with respect to shares of the Preferred
Stock pursuant to paragraph (c)(i) hereof shall be paid pro rata to the
Holders entitled thereto.
(iv) Dividends that are in arrears and unpaid for any past
Dividend Period and dividends in connection with any optional redemption
pursuant to paragraph (e)(i) hereof may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to Holders of record
on such date, not more than 45 days prior to the payment thereof, as may be
fixed by the Board of Directors.
(v) No full dividends shall be declared by the Board of Directors
or paid or funds set apart for payment of dividends by the Company on any
Parity Securities for any period unless full cumulative dividends shall have
been or contemporaneously shall be declared and paid in full or declared and,
if payable in cash, a sum in cash shall be set apart sufficient for such
payment on the Preferred Stock for all Dividend Periods terminating on or
prior to the date of payment of such full dividends on such Parity
Securities. If full dividends are not paid, as aforesaid, upon the shares
<PAGE>
-4-
of the Preferred Stock, all dividends declared upon shares of the Preferred
Stock and any other Parity Securities shall be declared PRO RATA so that the
amount of dividends declared per share on the Preferred Stock and such Parity
Securities shall in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock and such Parity Securities bear to
each other.
(vi) (A) Holders of shares of Preferred Stock shall be entitled to
receive the dividends provided for in paragraph (c)(i) hereof in preference
to and in priority over any dividends upon any of the Junior Securities.
(B) So long as any shares of Preferred Stock are outstanding, the
Company shall not declare, pay or set apart for payment any dividend on any
of the Junior Securities (other than distributions or dividends in Junior
Securities to the holders of Junior Securities) or make any payment on
account of, or set apart for payment money for a sinking or other similar
fund for, the repurchase, redemption or other retirement of any of the Junior
Securities or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Securities (other than the repurchase,
redemption or other acquisition or retirement for value of Junior Securities
(or options, warrants or other rights to acquire such Junior Securities)
permitted under clause (ii) of the second paragraph in subparagraph (m)(4)
hereof), and shall not permit any corporation or other entity directly or
indirectly controlled by the Company to purchase or redeem any of the Junior
Securities or any such warrants, rights, calls or options, unless full
cumulative dividends determined in accordance herewith have been paid in full
on the Preferred Stock.
(C) So long as any shares of the Preferred Stock are outstanding,
the Company shall not make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the repurchase,
redemption or other retirement of any of the Parity Securities or any
warrants, rights, calls or options exercisable for or convertible into any of
the Parity Securities, and shall not permit any corporation or other entity
directly or indirectly controlled by the Company to purchase or redeem any of
the Parity Securities or any such warrants, rights, calls or options, unless
full cumulative dividends determined in accordance herewith on the Preferred
Stock have been paid in full.
(vii) Dividends payable on shares of the Preferred Stock for any
period less than a year shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in the period for
which dividends are payable. If any Dividend Payment Date occurs on a day
that is not a Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding Business Day.
<PAGE>
-5-
(d) LIQUIDATION PREFERENCE. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Company, Holders
of Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its stockholders, $1,000
per share of Preferred Stock, plus an amount in cash equal to accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up (including an amount equal to a prorated dividend for the period
from the last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding-up), before any payment shall be made on or any assets
distributed to the holders of any of the Junior Securities, including,
without limitation, the Class A Preferred Stock, the Class B Preferred Stock,
the Class C Preferred Stock and common stock of the Company. If, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Preferred Stock and all
other Parity Securities are not paid in full, the holders of the Preferred
Stock and the Parity Securities shall share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference and accumulated and unpaid dividends to which each is entitled.
After payment of the full amount of the liquidation preferences and
accumulated and unpaid dividends to which they are entitled, the Holders of
Preferred Stock shall not be entitled to any further participation in any
distribution of assets of the Company. However, a merger, consolidation or
sale, of all or substantially all of the assets of the Company that complies
with the provisions under subparagraph (m)(9) shall not be deemed to be a
liquidation, dissolution or winding-up of the Company.
(e) REDEMPTION. (i) OPTIONAL REDEMPTION. (A) The Preferred
Stock may be redeemed (subject to contractual and other restrictions with
respect thereto and the legal availability of funds therefor) at any time on
or after January 15, 2003, at the Company's option, in whole or in part, in
the manner provided in subparagraph (e)(iii), at the redemption prices
(expressed as a percentage of the liquidation preference thereof) set forth
below, plus an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date, but subject to the right of Holders of Preferred Stock on a
record date to receive dividends on a Dividend Payment Date), if redeemed
during the 12-month period beginning January 15 of each of the years set
forth below.
<TABLE>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 106.125%
2004 104.084%
2005 102.042%
2006 and thereafter 100.000%
</TABLE>
<PAGE>
-6-
PROVIDED that no optional redemption pursuant to this subparagraph (e)(i)(A)
shall be authorized or made unless prior thereto full unpaid cumulative
dividends for all Dividend Periods terminating on or prior to the Redemption
Date, and for an amount equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date, shall have been, or immediately prior to the Redemption Date
are, declared and paid in cash or declared and a sum set apart sufficient for
such cash payment on the Redemption Date on the outstanding shares of such
Preferred Stock.
(B) In addition, on or prior to January 15, 2001, the Company may
redeem Preferred Stock having an aggregate liquidation preference of up to
35% of the aggregate liquidation preference of all Preferred Stock originally
issued on the Closing Date, at a redemption price equal to 112.250% of the
liquidation preference, plus an amount in cash equal to all accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend
for the period from the Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date, but subject to the right of Holders
of Preferred Stock on a record date to receive dividends due on a Dividend
Payment Date), with the proceeds of any sale of its common stock; PROVIDED
that such Redemption Date occurs within 180 days after consummation of such
sale and at least $113 million aggregate liquidation preference of Preferred
Stock remains outstanding after each such redemption, and PROVIDED FURTHER
that no optional redemption pursuant to this subparagraph (e)(i)(B) shall be
authorized or made unless prior thereto full unpaid cumulative dividends for
all Dividend Periods terminating on or prior to the Redemption Date and for
an amount equal to a prorated dividend for the period from the Dividend
Payment Date immediately prior to the Redemption Date to the Redemption Date
shall have been, or immediately prior to the Redemption Date are, declared
and paid in full in cash or declared and a sum set apart sufficient for such
payment in full in cash on the Redemption Date on the outstanding shares of
the Preferred Stock.
(C) In the event of a redemption pursuant to paragraph (e)(i)
hereof of only a portion of the then outstanding shares of the Preferred
Stock, the Company shall effect such redemption as it determines, PRO RATA
according to the number of shares held by each Holder of Preferred Stock,
PROVIDED that the Company may redeem such shares held by any Holder of fewer
than 100 shares of Preferred Stock without regard to such PRO RATA redemption
requirement, or by lot, in each case, as may be determined by the Company in
its sole discretion.
(ii) MANDATORY REDEMPTION. On January 15, 2008, the Company shall
redeem from any source of funds legally available therefor, in the manner
provided in paragraph (e)(iii) hereof, all
<PAGE>
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of the shares of the Preferred Stock then outstanding at a redemption price
equal to 100% of the liquidation preference per share, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
per share (including an amount equal to a prorated dividend for the period
from the Dividend Payment Date immediately prior to the Redemption Date to
the Redemption Date).
(iii) PROCEDURES FOR REDEMPTION. (A) At least 30 days and not
more than 60 days prior to the date fixed for any redemption of the Preferred
Stock, written notice (the "Redemption Notice") shall be given by first-class
mail, postage prepaid, to each Holder of record on the record date fixed for
such redemption of the Preferred Stock at such Holder's address as the same
appears on the stock register of the Company, PROVIDED that no failure to
give such notice nor any deficiency therein shall affect the validity of the
procedure for the redemption of any shares of Preferred Stock to be redeemed
except as to the Holder or Holders to whom the Company has failed to give
said notice or except as to the Holder or Holders whose notice was defective.
The Redemption Notice shall state:
(1) whether the redemption is pursuant to subparagraph (e)(i)(A),
(e)(i)(B) or (e)(ii) hereof;
(2) the redemption price;
(3) whether all or less than all the outstanding shares of the
Preferred Stock are to be redeemed and the total number of shares of the
Preferred Stock being redeemed;
(4) the number of shares of Preferred Stock held, as of the
appropriate record date, by the Holder that the Company intends to redeem;
(5) the date fixed for redemption;
(6) that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Preferred Stock are to be
surrendered for redemption, in the manner and at the price designated, its
certificate or certificates representing the shares of Preferred Stock to
be redeemed; and
(7) that dividends on the shares of the Preferred Stock to be
redeemed shall cease to accrue on such Redemption Date unless the Company
defaults in the payment of the redemption price.
(B) Each Holder of Preferred Stock shall surrender the certificate
or certificates representing such shares of Preferred Stock to the Company,
duly endorsed, in the manner and at the place designated in the Redemption
Notice and on the Redemption Date. The full redemption price for such shares
of Preferred Stock shall be
<PAGE>
-8-
payable in cash to the Person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(C) Unless the Company defaults in the payment in full of the
applicable redemption price, dividends on the Preferred Stock called for
redemption shall cease to accumulate on the Redemption Date, and the Holders
of such redeemed shares shall cease to have any further rights with respect
thereto from and after the Redemption Date, other than the right to receive
the redemption price, without interest.
(f) VOTING RIGHTS. (i) The Holders of shares of the Preferred
Stock, except as otherwise required under Oklahoma law or as set forth in
paragraphs (f)(ii), (f)(iii) and (f)(iv) hereof, shall not be entitled or
permitted to vote on any general corporate matters.
(ii) (A) So long as any shares of the Preferred Stock are
outstanding, the Company shall not authorize any class of Senior Securities
without the affirmative vote or, notwithstanding any contrary provision of
the Amended and Restated By-Laws of the Company (the "By-Laws"), written
consent of Holders of at least a majority of the outstanding shares of
Preferred Stock, voting or consenting, as the case may be, separately as one
class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting, except that, without the approval of
Holders of the Preferred Stock, the Company may issue shares of Senior
Securities in exchange for, or the proceeds of which are used to redeem or
repurchase (1) all (but not less than all) shares of Preferred Stock then
outstanding or (2) indebtedness of the Company.
(B) So long as any shares of the Preferred Stock are outstanding,
the Company shall not amend this Certificate of Designation so as to affect
adversely the specified rights (including, without limitations, the covenants
described in paragraph (m)), preferences, privileges or voting rights of
Holders of Preferred Stock, or authorize the issuance of any additional
shares of Preferred Stock, without the affirmative vote or, notwithstanding
any contrary provisions of the By-Laws, written consent of Holders of at
least a majority of the outstanding shares of Preferred Stock, voting or
consenting, as the case may be, separately as one class, given in person or
by proxy, either in writing or by resolution adopted at an annual or special
meeting. The Holders of at least a majority of the outstanding shares of
Preferred Stock, voting or consenting, as the case may be, separately as one
class, whether voting in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting, may waive compliance with
any provision of this Certificate of Designation.
<PAGE>
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(C) Except as set forth in subparagraph (f)(ii) hereof, (1) the
creation, authorization or issuance of any shares of any Junior Securities,
Parity Securities or Senior Securities, or (2) the increase or decrease in
the amount of authorized capital stock of any class, including any preferred
stock, shall not require the consent of Holders of Preferred Stock and shall
not, unless not complying with subparagraph (f)(ii) hereof, be deemed to
affect adversely the rights, preferences, privileges or voting rights of
Holders of shares of Preferred Stock.
(iii) (A) If (1) dividends on the Preferred Stock are in arrears
and unpaid (and, with respect to dividends that become payable after January
15, 2003, are not paid in cash) for four quarterly periods (whether or not
consecutive); (2) the Company fails to discharge any redemption obligation
with respect to the Preferred Stock; (3) the Company fails to make an Offer
to Purchase (and complete such purchase of) all of the outstanding shares of
Preferred Stock following a Change of Control, if such Offer to Purchase is
required to be made pursuant to paragraph (h) hereof; (4) the Company
breaches or violates one of the provisions set forth in paragraph (m) hereof
and the breach or violation continues for a period of 30 consecutive days or
more after notice thereof to the Company by Holders of 25% or more of the
shares of the Preferred Stock then outstanding; or (5) there occurs with
respect to any issue or issues of Indebtedness of the Company and/or any
Significant Subsidiary having an outstanding principal amount of $10 million
or more in the aggregate for all such issues of the Company and/or any
Significant Subsidiary, whether such Indebtedness now exists or shall
hereafter be created, (i) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default,
then the number of directors constituting the Board of Directors shall be
adjusted to permit the Holders of the majority of the then outstanding shares
of Preferred Stock, voting separately as one class, to elect two directors.
For the purpose of determining the number of quarterly periods for which
accrued dividends have not been paid, any accrued and unpaid dividend that is
subsequently paid shall not be treated as unpaid. Each event described in
clauses (1), (2), (3), (4) and (5) of this subparagraph (f)(iii)(A) is a
"Voting Rights Triggering Event." Within 15 days of the time the Company
becomes aware of the occurrence of any default referred to in clause (4) or
(5) of this subparagraph (f)(iii)(A), the Company shall give written notice
thereof to the Holders.
(B) The right of the Holders of Preferred Stock voting separately
as one class to elect two directors as described in subparagraph (f)(iii)(A)
shall continue until such time as (1) in
<PAGE>
-10-
the event such right arises due to a default referred to in clause (1) of the
preceding paragraph, all accumulated dividends that are in arrears on the
Preferred Stock and that gave rise to such default are paid in full (and, in
the case of dividends payable after January 15, 2003, paid in cash); and (2)
in the event such right arises due to any default referred to in clause (2),
(3), (4) or (5) of the preceding paragraph, the Company remedies any such
failure, breach or default, at which time the term of any directors elected
pursuant to subparagraph (f)(iii)(A) hereof shall terminate and the number of
directors constituting the board of directors shall be reduced to the number
necessary to reflect the termination of the right of the Holders of the
Preferred Stock to elect directors, subject always to the same provisions for
the renewal and divestment of such special voting rights in the case of any
future Voting Rights Triggering Event.
At any time after voting power to elect directors shall have become
vested and be continuing in the Holders of shares of the Preferred Stock
pursuant to subparagraph (f)(iii)(A) hereof, or if vacancies shall exist in
the offices of directors elected by the Holders of shares of the Preferred
Stock, a proper officer of the Company may, and upon the written request of
the Holders of record of at least 25% of the shares of Preferred Stock then
outstanding addressed to the Secretary of the Company shall, call a special
meeting of the Holders of Preferred Stock for the purpose of electing the
directors which such Holders are entitled to elect. If such meeting shall
not be called by the proper officer of the Company within 30 days after
personal service of said written request upon the Secretary of the Company,
or within 30 days after mailing the same within the United States by
certified mail, addressed to the Secretary of the Company at its principal
executive offices, then the Holders of record of at least 25% of the
outstanding shares of the Preferred Stock may designate in writing one of
their number to call such meeting at the expense of the Company, and such
meeting may be called by the Person so designated upon the notice required
for the annual meetings of stockholders of the Company and shall be held at
the place for holding the annual meetings of stockholders or such other place
in the United States as shall be designated in such notice. Notwithstanding
the provisions of this subparagraph (f)(iii)(B), no such special meeting
shall be called if any such request is received less than 40 days before the
date fixed for the next ensuing annual or special meeting of stockholders of
the Company. Any Holder of shares of the Preferred Stock so designated shall
have, and the Company shall provide, access to the lists of Holders of shares
of the Preferred Stock for purposes of calling a meeting pursuant to the
provisions of this subparagraph (f)(iii)(B).
(C) At any meeting held for the purpose of electing directors at
which the Holders of Preferred Stock shall have the right, voting separately
as one class, to elect directors as aforesaid, the presence in person or by
proxy of the Holders of at least
<PAGE>
-11-
a majority of the outstanding Preferred Stock shall be required to constitute
a quorum of such Preferred Stock.
(D) Any vacancy occurring in the office of a director elected by
the Holders of the Preferred Stock may be filled by the remaining director
elected by such Holders unless and until such vacancy shall be filled by such
Holders.
(iv) In any case in which the Holders of shares of the Preferred
Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to
Oklahoma law, each Holder of shares of the Preferred Stock shall be entitled
to one vote for each share of Preferred Stock held. Any action that may be
taken hereunder by the Holders of the Preferred Stock at a meeting may be
taken by written consent of a majority of the Holders of such Preferred Stock.
(g) EXCHANGE. (i) REQUIREMENTS. (A) The Company may, at the
sole option of the Board of Directors (subject to the legal availability of
funds therefor), exchange all, but not less than all, of the outstanding
Preferred Stock, including any Preferred Stock issued as payment for
dividends, into Exchange Debentures, subject to the conditions set forth in
this subparagraph (g)(i)(A). In order to effect such exchange, the Company
shall (a) if necessary to satisfy the condition set forth in clause (II) of
this subparagraph (g)(i)(A) based upon the written advice of counsel to the
Company, file a registration statement with the Commission relating to the
exchange, and (b) if a registration statement is filed with the Commission
pursuant to clause (a), use its best efforts to cause such registration
statement to be declared effective as soon as practicable by the Commission
unless the opinion referred to in clause (II) of this subparagraph (g)(i)(A)
shall have been subsequently delivered. In order to effectuate such
exchange, the Company shall send a written notice (the "Exchange Notice") of
exchange by mail to each Holder of record of shares of Preferred Stock, which
notice shall state: (v) that the Company is exchanging the Preferred Stock
into Exchange Debentures pursuant to this Certificate of Designation; (w) the
date fixed for exchange (the "Exchange Date"), which date shall not be less
than 15 days nor more than 60 days following the date on which the Exchange
Notice is mailed (except as provided in the last sentence of this
subparagraph (g)(i)(A)); (x) that the Holder is to surrender to the Company,
at the place or places where certificates for shares of Preferred Stock are
to be surrendered for exchange, in the manner designated in the Exchange
Notice, such Holder's certificate or certificates representing the shares of
Preferred Stock to be exchanged; (y) that dividends on the shares of
Preferred Stock to be exchanged shall cease to accrue on the Exchange Date
whether or not certificates for shares of Preferred Stock are surrendered for
exchange on the Exchange Date unless the Company shall default in the
delivery of Exchange Debentures; and (z) that interest on the Exchange
Debentures shall accrue from the Exchange Date whether or not certificates
for shares of Preferred Stock are surrendered for exchange on
<PAGE>
-12-
the Exchange Date. On the Exchange Date, if the conditions set forth in
clauses (I) through (VI) of this subparagraph (g)(i)(A) are satisfied and the
exchange is permitted under the Company's then outstanding indebtedness, the
Company shall issue Exchange Debentures in exchange for the Preferred Stock
as provided in subparagraph (g)(ii)(A), PROVIDED that on the Exchange Date:
(I) there shall be legally available funds sufficient therefor (including,
without limitation, legally available funds sufficient therefor under Title
18, Sections 1032(B) and 1041 (or any successor provisions) of the Oklahoma
General Corporation Act); (II) either (x) a registration statement relating
to the Exchange Debentures shall have been declared effective under the
Securities Act of 1933, as amended (the "Securities Act") prior to such
exchange and shall continue to be in effect on the Exchange Date or (y)(i)
the Company shall have obtained a written opinion of counsel that an
exemption from the registration requirements of the Securities Act is
available for such exchange and that upon receipt of such Exchange Debentures
pursuant to such exchange made in accordance with such exemption, each Holder
that is not an Affiliate of the Company will not be subject to any
restrictions imposed by the Securities Act upon the resale thereof and (ii)
such exemption is relied upon by the Company for such exchange; (III) the
Exchange Indenture shall have been duly executed by the Company and the
trustee thereunder (the "Trustee") with irrevocable instructions to
authenticate the Exchange Debentures necessary for such exchange, (IV) the
Exchange Indenture and the Trustee shall have been qualified under the Trust
Indenture Act of 1939, as amended; (V) immediately after giving effect to
such exchange, no Default or Event of Default (each as defined in the
Exchange Indenture) would exist under the Exchange Indenture; and (VI) the
Company shall have delivered to the Trustee a written opinion of counsel,
dated the date of the exchange, regarding the satisfaction of the conditions
set forth in clauses (I), (II), (III) and (IV). In the event that the
issuance of the Exchange Debentures is not permitted on the Exchange Date or
any of the conditions set forth in clauses (I) through (VI) of the preceding
sentence are not satisfied on the Exchange Date, the Company shall use its
best efforts to satisfy such conditions and effect such exchange as soon as
practicable.
(B) Upon any exchange pursuant to subparagraph (g)(i)(A) hereof,
the Holders of outstanding Preferred Stock shall be entitled to receive a
principal amount of Exchange Debentures for Preferred Stock, the liquidation
preference of which, plus the amount of accumulated and unpaid dividends
(including a prorated dividend for the period from the immediately preceding
Dividend Payment Date to the Exchange Date) with respect to which, equals
such amount; PROVIDED that the Company at its option may pay cash for any or
all accrued and unpaid dividends in lieu of issuing Exchange Debentures in
respect of such dividends and PROVIDED FURTHER that the Company may, at the
sole option of the Board of Directors, subject to the restrictions in the
Senior Note Indenture and any of its other then-
<PAGE>
-13-
existing Indebtedness, pay cash in lieu of issuing an Exchange Debenture in a
principal amount less than $1,000.
(ii) PROCEDURE FOR EXCHANGE. (A) On or before the Exchange Date,
each Holder of Preferred Stock shall surrender the certificate or
certificates representing such shares of Preferred Stock, in the manner and
at the place designated in the Exchange Notice. The Company shall cause the
Exchange Debentures to be executed on the Exchange Date and, upon surrender
in accordance with the Exchange Notice of the certificates for any shares of
Preferred Stock so exchanged (properly endorsed or assigned for transfer, if
the notice shall so state), such shares shall be exchanged by the Company
into Exchange Debentures. The Company shall pay interest on the Exchange
Debentures at the rate and on the dates described in the Memorandum.
(B) If notice has been mailed as aforesaid, and if before the
Exchange Date (1) the Exchange Indenture shall have been duly executed and
delivered by the Company and the Trustee and (2) all Exchange Debentures
necessary for such exchange shall have been duly executed by the Company and
delivered to the Trustee with irrevocable instructions to authenticate the
Exchange Debentures necessary for such exchange, then dividends will cease to
accrue on the Preferred Stock on and after the Exchange Date and the rights
of the Holders of the Preferred Stock as stockholders of the Company shall
cease on and after the Exchange Date (except the right to receive Exchange
Debentures, an amount in cash, to the extent applicable, equal to the accrued
and unpaid dividends to the Exchange Date, and, if the Company so elects,
cash in lieu of any Exchange Debenture which is in an amount that is less
than $1,000), and the Person or Persons entitled to receive the Exchange
Debentures issuable upon exchange shall be treated for all purposes as the
registered Holder or Holders of such Exchange Debentures as of the Exchange
Date.
(h) CHANGE OF CONTROL. (i) Upon the occurrence of a Change of
Control, the Company shall be required (subject to any contractual and other
restrictions with respect thereto existing on the Closing Date and the legal
availability of funds therefor) to make an Offer to Purchase (the "Change of
Control Offer") to each Holder of Preferred Stock to repurchase all or any
part of such Holder's Preferred Stock at a cash purchase price equal to 101%
of the liquidation preference thereof, plus an amount in cash equal to all
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the date of purchase to the date of purchase) (the "Change of
Control Payment"). Notwithstanding the foregoing, the Company shall not be
required to make a Change of Control Offer if any Indebtedness outstanding on
the Closing Date which would prohibit such Change of Control Offer or any
Indebtedness outstanding under the New Credit Facility Agreement or the New
DOC Facility Agreement as such agreements are contemplated by the New Credit
Facility Commitment Letter and the New DOC Facility
<PAGE>
-14-
Commitment Letter, respectively, is outstanding upon the occurrence of a
Change of Control until such Indebtedness is repaid, redeemed or repurchased
in full, in which case the date on which all such Indebtedness is so repaid,
redeemed or repurchased will, under this Certificate of Designation, be
deemed to be the date on which such Change of Control shall have occurred.
(ii) Within 30 days following any Change of Control, the Company
shall mail a notice to such Holder stating: (A) that the Change of Control
Offer is being made pursuant to this Certificate of Designation and that, to
the extent lawful, all shares of Preferred Stock tendered will be accepted
for payment; (B) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such notice is
mailed (the "Change of Control Payment Date"); (C) that any shares of
Preferred Stock not tendered will continue to accrue dividends in accordance
with the terms of this Certificate of Designation; (D) that, unless the
Company defaults in the payment of the Change of Control Payment, all shares
of Preferred Stock accepted for payment pursuant to the Offer to Purchase
shall cease to accrue dividends on and after the Change of Control Payment
Date and all rights of the Holders of such Preferred Stock shall terminate on
and after the Change of Control Date; and (E) a description of the procedures
to be followed by such Holder in order to have its shares of Preferred Stock
repurchased.
(iii) On the Change of Control Payment Date, (A) the Company
shall, to the extent lawful, (1) accept for payment shares of Preferred Stock
tendered pursuant to the Offer to Purchase and (2) promptly mail to each
Holder of shares of Preferred Stock so accepted payment in an amount equal to
the Change of Control Payment for such shares and (B) unless the Company
defaults in the payment for the shares of Preferred Stock tendered pursuant
to the Offer to Purchase, dividends shall cease to accrue with respect to the
shares of Preferred Stock tendered and all rights of Holders of such tendered
shares shall terminate, except for the right to receive payment therefor, on
the Change of Control Payment Date. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
(iv) The Company shall comply with Rule 14e-1 under the Exchange
Act and any securities laws and regulations to the extent such laws and
regulations are applicable to the repurchase of shares of the Preferred Stock
in connection with a Change of Control.
(i) CONVERSION OR EXCHANGE. The Holders of shares of Preferred
Stock shall not have any rights hereunder to convert such shares into or
exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Company.
<PAGE>
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(j) PREEMPTIVE RIGHTS. No shares of Preferred Stock shall have
any rights of preemption whatsoever as to any securities of the Company, or
any warrants, rights or options issued or granted with respect thereto,
regardless of how such securities or such warrants, rights or options may be
designated, issued or granted.
(k) REISSUANCE OF PREFERRED STOCK. Shares of Preferred Stock that
have been issued and reacquired in any manner, including shares purchased or
redeemed or exchanged, shall (upon compliance with any applicable provisions
of the laws of Oklahoma) have the status of authorized but unissued shares of
preferred stock of the Company undesignated as to series and may be
designated or redesignated and issued or reissued, as the case may be, as
part of any series of preferred stock of the Company, PROVIDED that any
issuance of such shares as Preferred Stock must be in compliance with the
terms hereof.
(l) BUSINESS DAY. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately
succeeding Business Day.
(m) CERTAIN ADDITIONAL PROVISIONS. (1) LIMITATION ON
INDEBTEDNESS. (a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than Indebtedness
existing on the Closing Date); PROVIDED that the Company and any Restricted
Subsidiary may Incur Indebtedness, if, after giving effect to the Incurrence
of such Indebtedness and the receipt and application of the proceeds
therefrom, the Consolidated Leverage Ratio would be less than 8 to 1, for
Indebtedness Incurred on or prior to December 31, 1998, or 7 to 1, for
Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed $250 million; (ii) Indebtedness (A) to the Company
evidenced by a promissory note or (B) to any of its Restricted Subsidiaries;
PROVIDED that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii); (iii) Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund,
then outstanding Indebtedness, other than Indebtedness Incurred under clause
(i), (ii), (iv), (vi) or (ix) of this paragraph, and any refinancings thereof
in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, accrued dividends, fees and expenses); PROVIDED
that such new Indebtedness, determined as of the date of Incurrence of such
<PAGE>
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new Indebtedness, does not mature or have a mandatory redemption or
repurchase date prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and PROVIDED FURTHER that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary
course of business, (B) under Currency Agreements and Interest Rate
Agreements; PROVIDED that such agreements (a) are designed solely to protect
the Company or its Subsidiaries against fluctuations in foreign currency
exchange rates or interest rates and (b) do not increase the Indebtedness of
the obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; or (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in an amount not to exceed the gross proceeds actually received
by the Company or any Restricted Subsidiary in connection with such
disposition; (v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Preferred Stock tendered in an
Offer to Purchase made as a result of a Change in Control or (B) deposited to
defease the Senior Notes; (vi) Guarantees of Indebtedness of the Company by
any Restricted Subsidiary; (vii) Indebtedness Incurred to finance the cost
(including the cost of design, development, construction, installation or
integration) of telecommunications network assets, equipment or inventory
acquired by the Company or a Restricted Subsidiary after the Closing Date;
(viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (x) the Net Cash Proceeds received by the
Company on or after the Closing Date from the issuance and sale of its
Capital Stock (other than Disqualified Stock), including the Preferred Stock,
to a Person that is not a Subsidiary of the Company to the extent such Net
Cash Proceeds have not been used pursuant to clause (C) (2) of the first
paragraph, or clause (ix) of the second paragraph, of subparagraph (m)(4) to
make a Restricted Payment and (y) 80% of the fair market value of property
other than cash received by the Company after the Closing Date from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to a
Person that is not a Subsidiary of the Company; PROVIDED that such
Indebtedness does not mature prior to the Mandatory Redemption Date; and (ix)
<PAGE>
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Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $25.0 million.
(b) Notwithstanding any other provision of this subparagraph (m)(1),
the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this subparagraph (m)(1), shall not be
deemed to be exceeded, with respect to any outstanding Indebtedness due
solely to the result of fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness
under this subparagraph (m)(1), Guarantees, Liens or obligations with respect
to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes
of determining compliance with this subparagraph (m)(1), in the event that an
item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify, and from time to time may reclassify, such item
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
(2) LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company
shall not Incur any Indebtedness that is subordinate in right of payment to
any Senior Indebtedness unless such Indebtedness would be pari passu with, or
subordinated in right of payment to, the Exchange Debentures; PROVIDED that
the foregoing limitation shall not apply to distinctions between categories
of Senior Indebtedness of the Company that exist by reason of any Liens or
Guarantees arising or created in respect of some but not all such Senior
Indebtedness.
(3) LIMITATION ON LIENS. The Company shall not Incur any
Indebtedness secured by a Lien ("Secured Indebtedness") which is not Senior
Indebtedness unless effective provision is made to have the Exchange
Debentures (if and when issued) secured equally and ratably with (or, if the
Secured Indebtedness would be subordinated in right of payment to the
Exchange Debentures, prior to) such Secured Indebtedness for so long as such
Secured Indebtedness is secured by a Lien.
(4) LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend or make any distribution on or with respect to
its Junior Securities (other than (x) dividends or distributions payable
solely in shares of its Junior Securities (other than Disqualified Stock) or
in options, warrants or other rights to acquire shares of such Junior
Securities and (y) pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries held by minority stockholders, PROVIDED that such
dividends do not in the aggregate exceed the minority stockholders'
<PAGE>
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pro rata share of such Restricted Subsidiaries' net income from the first day
of the fiscal quarter beginning immediately following the Closing Date) held
by Persons other than the Company or any of its Restricted Subsidiaries, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Junior
Securities of (A) the Company or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Junior
Securities) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Junior
Securities) held by any Affiliate of the Company (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5%
or more of the Capital Stock of the Company, or (iii) make any Investment,
other than a Permitted Investment, in any Person (such payments or any other
actions described in clauses (i) through (iii) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Voting Rights Triggering Event, or an event which
with the giving of notice or the passage of time, or both, would become a
Voting Rights Triggering Event, shall have occurred and be continuing, (B)
the Company could not Incur at least $1.00 of Indebtedness under the first
paragraph of subparagraph (m)(1), (C) the aggregate amount of all Restricted
Payments (the amount, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of
the amount of such loss) (determined by excluding income resulting from
transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter immediately following the Closing Date and ending on the last day of
the last fiscal quarter preceding the Transaction Date for which reports have
been filed pursuant to subparagraph (m)(8) PLUS (2) the aggregate Net Cash
Proceeds received by the Company after the Closing Date from the issuance and
sale permitted by this Certificate of Designation of its Capital Stock (other
than Disqualified Stock) to a Person who is not a Subsidiary of the Company
(except to the extent such Net Cash Proceeds are used to Incur Indebtedness
pursuant to clause (viii) under subparagraph (m)(1)) or from the issuance to
a Person who is not a Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case, exclusive
of any Disqualified Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed, prior
to the Mandatory Redemption Date) PLUS (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments and
reductions in Investments made pursuant to clause (ix) of the second
paragraph of this subparagraph (m)(4)) in any Person resulting from payments
of interest on Indebtedness, dividends, repayments of loans or advanc-
<PAGE>
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es, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds
are included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary or (D) dividends on the Preferred Stock shall not have been paid
in full as provided in this Certificate of Designation.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof
if, at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the repurchase, redemption or other acquisition of Junior
Securities of the Company (or options, warrants or other rights to acquire
such Junior Securities) in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Junior Securities (other than
Disqualified Stock) of the Company; (iii) the declaration or payment of
dividends on the Common Stock of the Company following a Public Equity
Offering of such Common Stock, of up to 6% per annum of the Net Cash Proceeds
received by the Company in such Public Equity Offering; (iv) payments or
distributions, to dissenting stockholders pursuant to applicable law,
pursuant to or in connection with a consolidation, merger or transfer of
assets that complies with the provisions described in subparagraph (m)(9);
(v) the purchase, redemption, acquisition, cancellation or other retirement
for value of shares of Junior Securities of the Company to the extent
necessary in the good faith judgment of the Board of Directors of the
Company, to prevent the loss or secure the renewal or reinstatement of any
license or franchise held by the Company or any Restricted Subsidiary from
any governmental agency; (vi) the purchase of shares of Fleet Investors
Preferred Stock of the Company (or the Class A Common Stock into which the
Class B Preferred Stock may be converted) pursuant to the exercise of the put
rights granted to the Fleet Investors under the Shareholders' Agreement or
any mandatory redemption provisions, in each case as in effect on the Closing
Date; PROVIDED (a) after giving pro forma effect to any such purchase the
Consolidated Leverage Ratio would be less than 7.5 to 1, and (b) if the event
triggering the exercisability of the put rights constitutes a Change of
Control, no such repurchase shall be made prior to the Company's repurchase
of such Preferred Stock as is required to be repurchased pursuant to
subparagraph (h); (vii) the declaration or payment of dividends on the Fleet
Investors Preferred Stock (I) if after giving pro forma effect to any such
dividend, the Consolidated Leverage Ratio would be less than 6 to 1 or (II)
following a Public Equity Offering of Junior Securities; PROVIDED (A) the Net
Cash Proceeds received by the Company in such Public Equity Offering is at
least equal to $90 million and (B) the aggre-
<PAGE>
-20-
gate amount of dividends permitted to be made in any fiscal year of the
Company under clause (iii) and this clause (vii) shall not exceed 6% of the
Net Cash Proceeds received by the Company in the Public Equity Offering;
(viii) the purchase, redemption, retirement or other acquisition for value of
Junior Securities of the Company, or options to purchase such shares, held by
directors, employees or former directors or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates)
upon death, disability, retirement, termination of employment or pursuant to
the terms of any agreement under which such shares of Junior Securities or
options were issued; PROVIDED that the aggregate consideration paid for such
purchase, redemption, acquisition, cancellation or other retirement of such
shares of Junior Securities or options after the Closing Date does not exceed
$500,000 in any calendar year, or $1.5 million in the aggregate; (ix)
Investments in any Person or Persons, the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investments, in an aggregate
amount not to exceed $30 million plus an amount not to exceed the Net Cash
Proceeds received by the Company after the Closing Date from the issuance and
sale of its Capital Stock (other than Disqualified Stock) to a Person that is
not a Subsidiary of the Company, except to the extent such Net Cash Proceeds
are used to Incur Indebtedness outstanding pursuant to clause (viii) of
subparagraph (m)(1) or to make Restricted Payments pursuant to clause (C)(2)
of the first paragraph, or clause (ii) or (x) of this paragraph, of this
subparagraph (m)(4); or (x) the distribution on or with respect to the
holders of the Company's Junior Securities of the Capital Stock of an
Unrestricted Subsidiary; PROVIDED that, except in the case of clauses (i) and
(ii), no Voting Rights Triggering Event, or an event which with the giving of
notice or the passage of time, or both, would become a Voting Rights
Triggering Event, shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than an exchange of Junior Securities for Junior Securities
referred to in clause (ii) thereof) and the Net Cash Proceeds from any
issuance of Junior Securities referred to in clause (ii) or Capital Stock
referred to in clause (ix) shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this subparagraph (m)(4)
have been met with respect to any subsequent Restricted Payments.
(5) LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall not
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (i) pay dividends or make
any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary
<PAGE>
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owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii)
make loans or advances to the Company or any other Restricted Subsidiary or
(iv) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in this Certificate of
Designation, the Bank Facility Agreement, the Senior Note Indenture or any
other agreements in effect on the Closing Date, and any amendments,
extensions, refinancings, renewals or replacements of such agreements;
PROVIDED that, other than as contemplated in clause (vi) below, the
encumbrances and restrictions in any such amendments, extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the Holders than those encumbrances or restrictions that are then
in effect and that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law; (iii) existing with respect to
any Person or the property or assets of such Person acquired by the Company
or any Restricted Subsidiary, existing at the time of such acquisition and
not incurred in contemplation thereof, which encumbrances or restrictions are
not applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired; (iv)
in the case of clause (iv) of the first paragraph of this subparagraph
(m)(5), (A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) existing by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by this Certificate of Designation or (C) arising or agreed to in
the ordinary course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the value of property
or assets of the Company or any Restricted Subsidiary in any manner material
to the Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
of, or property and assets of, such Restricted Subsidiary; or (vi) contained
in the terms of (A) the New DOC Facility Agreement or the New Credit Facility
Agreement, PROVIDED any encumbrance or restriction that would prevent
payments of dividends or other distributions to the Company to pay cash
interest on the Exchange Debentures or cash dividends on the Preferred Stock
applies on or prior to January 15, 2003, or applies thereafter only in the
event of an event of default (other than an event of default resulting solely
from a breach of a representation or warranty) under the New DOC Facility
Agreement or the New Credit Facility Agreement; PROVIDED (x) with respect to
any event of default (other than a payment default (including by way of
acceleration), bankruptcy default or a loss of a material license
<PAGE>
-22-
or cellular system), such restriction will terminate 180 days after the
occurrence of such event of default and (y) the financial covenants which
create such encumbrance or restriction on dividends or other distributions in
the New DOC Facility Agreement or the New Credit Facility Agreement are no
less favorable to the Company or its Subsidiaries than the financial
covenants set forth in the New DOC Facility Commitment Letter or the New
Credit Facility Commitment Letter; or (B) any Indebtedness of a Restricted
Subsidiary, or any agreement pursuant to which such Indebtedness was issued,
if the encumbrance or restriction applies only in the event of a payment
default or a default with respect to a financial covenant contained in such
Indebtedness or agreement, if the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Preferred Stock than is
customary in comparable financings (as determined by the Company) and if the
Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make dividend payments on the
Preferred Stock or principal or interest payments on the Exchange Debentures.
Nothing contained in this subparagraph (m)(5) shall prevent the Company or
any Restricted Subsidiary from (1) creating, incurring, assuming or suffering
to exist any Liens otherwise permitted in subparagraph (m)(3) or (2)
restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that secure Indebtedness of the
Company or any of its Restricted Subsidiaries.
(6) LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not sell, and shall not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including options,
warrants or other rights to purchase shares of such Capital Stock) except (i)
to the Company or a Wholly Owned Restricted Subsidiary; (ii) issuances of
director's qualifying shares or sales to foreign nationals of shares of
Capital Stock of foreign Restricted Subsidiaries, to the extent required by
applicable law; (iii) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary, PROVIDED any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made under
subparagraph (m)(4), if made on the date of such issuance or sale; and (iv)
sales of Common Stock of a Restricted Subsidiary; PROVIDED that the assets of
such Restricted Subsidiary consist solely of assets relating to the Company's
PCS or resale business.
(7) LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such
<PAGE>
-23-
holder) of 5% or more of any class of Capital Stock of the Company or with
any Affiliate of the Company or any Restricted Subsidiary, except upon fair
and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if
such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Transfer Agent a written opinion of a nationally recognized
investment banking firm stating that the transaction is fair to the Company
or such Restricted Subsidiary from a financial point of view; (ii) any
transaction solely between the Company and any of its Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries; (iii)
the payment of reasonable and customary regular fees to directors of the
Company who are not employees of the Company; (iv) any payments or other
transactions pursuant to any tax-sharing agreement between the Company and
any other Person with which the Company files a consolidated tax return or
with which the Company is part of a consolidated group for tax purposes; or
(v) any Restricted Payments not prohibited by subparagraph (m)(4).
Notwithstanding the foregoing, any transaction covered by the first paragraph
of this subparagraph (m)(7) and not covered by clauses (ii) through (v) of
this paragraph, the aggregate amount of which exceeds $2 million in value,
must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above.
(8) COMMISSION REPORTS AND REPORTS TO HOLDERS. Whether or not the
Company is required to file reports with the Commission, for so long as any
Preferred Stock is outstanding, the Company shall file with the Commission
all such reports and other information as it would be required to file with
the Commission by Sections 13(a) or 15(d) under the Exchange Act if it were
subject thereto. The Company shall supply the Transfer Agent and each Holder
or shall supply to the Transfer Agent for forwarding to each such Holder,
without cost to such Holder, copies of such reports and other information.
(9) CONSOLIDATION, MERGER AND SALE OF ASSETS. The Company shall
not consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as
an entirety or substantially an entirety in one transaction or a series of
related transactions) to any Person or permit any Person to merge with or
into the Company unless: (i) the Company shall be the continuing Person, or
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and
assets of the Company shall be a corporation organized
<PAGE>
-24-
and validly existing under the laws of the United States of America or any
jurisdiction thereof and the Preferred Stock shall be converted into or
exchanged for and shall become shares of such successor company, having in
respect of such successor company or resulting company substantially the same
powers, preferences and relative participating, optional or other special
rights and the qualifications, limitations or restrictions thereon that the
Preferred Stock had immediately prior to such transaction; (ii) immediately
after giving effect to such transaction, no Voting Rights Triggering Event,
or an event which with the giving of notice or the passage of time, or both,
would become a Voting Rights Triggering Event, shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a
pro forma basis, the Company, or, if other than the Company, the successor
company or resulting company, as the case may be, shall have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately after giving effect
to such transaction on a pro forma basis the Company, or, if other than the
Company, the successor company or resulting company, as the case may be,
could Incur at least $1.00 of Indebtedness under the first paragraph of
subparagraph (m)(1); PROVIDED that this clause (iv) shall not apply to a
consolidation or merger with or into a Wholly Owned Restricted Subsidiary
with a positive net worth; PROVIDED that, in connection with any such merger
or consolidation, no consideration (other than Common Stock in the surviving
Person or the Company) shall be issued or distributed to the stockholders of
the Company; and (v) the Company delivers to the Transfer Agent an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (iii) and (iv)) and opinion of counsel, in each case stating
that such consolidation, merger or transfer complies with this provision and
that all conditions precedent provided for herein relating to such
transaction have been complied with; PROVIDED, HOWEVER, that clauses (iii)
and (iv) above do not apply if, in the good faith determination of the Board
of Directors of the Company, whose determination shall be evidenced by a
Board Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Company and any such transaction shall not have
as one of its purposes the evasion of the foregoing limitations.
(n) DEFINITIONS. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and VICE VERSA),
unless the context otherwise requires.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition;
<PAGE>
-25-
PROVIDED that Indebtedness of such Person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Person becomes a Restricted Subsidiary or such
Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
subparagraph (m)(4) (and in such case, except to the extent includable pursuant
to clause (i) above), the net income (or loss) of any Person accrued prior to
the date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or substantially
all of the property and assets of such Person are acquired by the Company or any
of its Restricted Subsidiaries; (iii) except in the case of any restriction or
encumbrance permitted under clause (vi) of subparagraph (m)(5), the net income
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at the time permitted by the operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv) any gains
or losses (on an after-tax basis) attributable to Asset Sales; (v) except for
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of subparagraph (m)(4), any amount
paid or accrued as dividends on Preferred Shares of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses, net of tax.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the
<PAGE>
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management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; PROVIDED that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; PROVIDED that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
described under subparagraph (m)(9); PROVIDED that "Asset Sale" shall not
include (a) sales or other dispositions of inventory, receivables and other
current assets, (b) sales or other dispositions of assets for consideration at
least equal to the fair market value of the assets sold or disposed of, PROVIDED
that the consideration received consists of property or assets (other than
current assets) of a nature or type or that are used in a business (or a company
having property or assets of a nature or type, or engaged in a business) similar
or related to the nature or type of the property and assets of, or business of,
the Company and its Restricted Subsidiaries existing on the date of such sale or
other disposition or (c) sales, transfers or other dispositions of assets
constituting a Restricted Payment permitted to be made under subparagraph
(m)(4).
<PAGE>
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"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Facility Agreement" means the Second Amended and Restated Credit
Agreement, dated February 28, 1997, as amended, among Dobson Operating Company
and CoreStates Bank, N.A., First Union National Bank of North Carolina,
NationsBank of Texas, N.A. and the other banks party thereto, as the same may be
further amended, supplemented, extended, renewed, replaced or otherwise modified
from time to time, including the credit agreement contemplated by the New DOC
Facility Commitment Letter, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith, in
each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time.
"Board Resolution" means a copy of a resolution, certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Transfer Agent.
"Business Day" means any day except a Saturday or Sunday or other day on
which commercial banks in The City of New York are required or authorized by law
or other governmental action to be closed.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the Closing Date, including, without limitation, all Common Stock
and Preferred Shares.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) under the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a
<PAGE>
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fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date and (b) after the occurrence of a Public Market, a
"person" or "group" (within the meaning of Section 13(d) or 14(d)(2) under the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 35% of the total voting power of
the Voting Stock of the Company on a fully diluted basis and such ownership
represents a greater percentage of the total voting power of the Voting Stock
of the Company, on a fully diluted basis, than is held by the Existing
Stockholders and their Affiliates on such date; or (ii) individuals who on the
Closing Date constitute the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors then in office who either
were members of the Board of Directors on the Closing Date or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
"Class A Common Stock" means the Class A Common Stock, par value $1.00 per
share, of the Company.
"Class A Preferred Stock" means the Class A Non-Voting, Non-Convertible
Preferred Stock, par value $1.00 per share, of the Company.
"Class B Preferred Stock" means the Class B Convertible Preferred Stock,
par value $1.00 per share, of the Company.
"Class C Preferred Stock" means the Class C Preferred Stock, par value
$1.00 per share, of the Company.
"Closing Date" means the date on which the Preferred Stock is originally
issued.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Shares of
such Person, whether now outstanding or issued after the Closing Date, including
without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income (i) Consolidated Interest Expense,
(ii) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or sales of
assets), (iii) depreciation expense, (iv) amortization expense, and (v) all
other non-cash
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items reducing Adjusted Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required
by GAAP to be, made), less all non-cash items increasing Adjusted Consolidated
Net Income, all as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in conformity with GAAP; PROVIDED that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied
by (B) the quotient of (1) the number of shares of outstanding Common Stock of
such Restricted Subsidiary not owned on the last day of such period by the
Company or any of its Restricted Subsidiaries divided by (2) the total number
of shares of outstanding Common Stock of such Restricted Subsidiary on the
last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; EXCLUDING, HOWEVER, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Senior Notes and the Preferred Stock, all as determined
on a consolidated basis (without taking into account Unrestricted Subsidiaries)
in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date, plus,
solely for purpose of calculating whether a Restricted Payment may be made
pursuant to clause (vi) or (vii) of subparagraph (m)(4), the maximum fixed
redemption or repurchase price of the Preferred Stock and any Senior Securities
or Parity Securities at the time of determination, to (ii) the
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aggregate amount of Consolidated EBITDA for the four fiscal quarters for which
financial statements of the Company have been filed with the Commission
pursuant to subparagraph (m)(8) (such four fiscal quarter period being the
"Four Quarter Period"); PROVIDED that (A) pro forma effect shall be given to
any Indebtedness that is to be Incurred or repaid on the Transaction Date as
if such Incurrence or repayment had occurred on the first day of such Four
Quarter Period; (B) pro forma effect shall be given to Asset Dispositions and
Asset Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition) that occur during the period beginning on
the first day of the Four Quarter Period and ending on the Transaction Date
(the "Reference Period") as if they had occurred and such proceeds had been
applied on the first day of such Reference Period; and (C) pro forma effect
shall be given to asset dispositions and asset acquisitions (including giving
pro forma effect to the application of proceeds of any asset disposition) that
have been made by any Person that has become a Restricted Subsidiary or has
been merged with or into the Company or any Restricted Subsidiary during such
Reference Period and that would have constituted Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Restricted
Subsidiary as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
Reference Period; PROVIDED that to the extent that clause (B) or (C) of this
sentence requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the four
full fiscal quarters immediately preceding the Transaction Date of the Person,
or division or line of business of the Person, that is acquired or disposed of
for which financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be
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redeemed prior to the Mandatory Redemption Date, (ii) redeemable at the
option of the holder of such class or series of Capital Stock at any time
prior to the Mandatory Redemption Date or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the Mandatory Redemption
Date; PROVIDED that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock upon the occurrence of
a "change of control" occurring prior to the Mandatory Redemption Date shall
not constitute Disqualified Stock if the "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in subparagraph (h) and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Preferred Stock as is required to be repurchased pursuant
to subparagraph (h).
"Dividend Payment Date" means January 15, April 15, July 15 and October 15
of each year.
"Dividend Period" means the dividend period commencing on each January 15,
April 15, July 15 and October 15 and ending on the day before the following
Dividend Payment Date; PROVIDED, HOWEVER, that the first such Dividend Period
shall commence on the Closing Date.
"Dobson Wireline" means Dobson Wireline Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means the Company's Senior Subordinated Debentures
due 2008 issued pursuant to the Exchange Indenture.
"Exchange Indenture" means the indenture for the Exchange Debentures, the
terms of which may be modified to the extent the corresponding terms in the
Preferred Stock have been modified in accordance with this Certificate of
Designation.
"Existing Stockholders" means Everett R. Dobson and Fleet Investors.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; PROVIDED that for purposes of clause (viii) of
the second paragraph of subparagraph (m)(1), (x) the fair market value of any
security registered under the Exchange Act shall be the
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average of the closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the sale of Capital Stock and
(y) in the event the aggregate fair market value of any other property
received by the Company exceeds $10 million, the fair market value of such
property shall be determined by a nationally recognized investment banking
firm and set forth in their written opinion which shall be delivered to the
Transfer Agent.
"Fleet Investors" means Fleet Venture Resources, Inc., Fleet Equity
Partners VI, L.P. and Kennedy Plaza Partners and their Affiliates.
"Fleet Investors Preferred Stock" means the Class B Preferred Stock and the
Class C Preferred Stock.
"FCC" means the Federal Communications Commission.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
this Certificate of Designation shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other provisions
of this Certificate of Designation shall be made without giving effect to (i)
the amortization of any expenses incurred in connection with the offering of the
Senior Notes and the Preferred Stock and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary
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course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Holder" means a holder of shares of Preferred Stock.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Indebtedness by reason of a Person becoming a
Restricted Subsidiary; PROVIDED that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi),
(vii) or (viii) below) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if drawn
upon, to the extent such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; PROVIDED that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (viii) the maximum fixed redemption
or repurchase price of Disqualified Stock of such Person at the time of
determination and (ix) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date (or in the case of a revolving credit or other similar facility, the
total amount of funds outstanding and/or available on the date of determination)
of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, PROVIDED (A) that
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the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the unamortized
portion of the original issue discount of such Indebtedness at the time of its
issuance as determined in conformity with GAAP, (B) money borrowed at the time
of the Incurrence of any Indebtedness in order to pre-fund the payment of
interest on such Indebtedness shall be deemed not to be "Indebtedness" and (C)
that Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary (other than as a result of being designated as an
Unrestricted Subsidiary under clause (i) above), including without limitation,
by reason of any transaction permitted by clause (iii) of subparagraph (m)(6).
For purposes of the definition of "Unrestricted Subsidiary" and subparagraph
(m)(4), (i) "Investment" shall include the fair market value of the assets (net
of liabilities (other than liabilities to the Company or any of its
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
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"Mandatory Redemption Date" means January 15, 2008.
"Memorandum" means the offering memorandum dated January 16, 1998 in
connection with the offering of the Preferred Stock.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"New Credit Facility Agreement" means the credit agreement established
pursuant to the New Credit Facility Commitment Letter, together with all other
agreements, instruments and documents executed or delivered pursuant thereto or
in connection therewith, in each case as such credit agreement, other
agreements, instruments
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or documents may be amended, supplemented, extended, renewed, replaced or
otherwise modified from time to time.
"New Credit Facility Commitment Letter" means the commitment letter
(including the Summary of Terms and Conditions attached thereto) dated January
7, 1998 among Dobson Communications Corporation, Dobson Cellular Operations
Company, NationsBank of Texas, N.A. and NationsBanc Montgomery Securities LLC.
"New DOC Facility Agreement" means the credit agreement established
pursuant to the New DOC Facility Commitment Letter, together with all other
agreements, instruments and documents executed or delivered pursuant thereto or
in connection therewith, in each case as such credit agreement, other
agreements, instruments or documents may be amended, supplemented, extended,
renewed, replaced or otherwise modified from time to time.
"New DOC Facility Commitment Letter" means the commitment letter (including
the Summary of Terms and Conditions attached thereto) dated January 7, 1998
among Dobson Communications Corporation, Dobson Operating Company, NationsBank
of Texas, N.A. and NationsBanc Montgomery Securities LLC.
"Offer to Purchase" means an offer by the Company to purchase Preferred
Stock from the Holders commenced by mailing a notice to the Transfer Agent and
each Holder stating: (i) the covenant pursuant to which the offer is being made
and that all Preferred Stock validly tendered will be accepted for payment on a
pro rata basis; (ii) the purchase price and the date of purchase (which shall be
a Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Preferred Stock not
tendered will continue to accrue dividends pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the purchase price, any Preferred
Stock accepted for payment pursuant to the Offer to Purchase shall cease to
accrue dividends on and after the Payment Date; (v) that Holders electing to
have Preferred Stock purchased pursuant to the Offer to Purchase will be
required to surrender the Preferred Stock, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Preferred
Stock completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the liquidation
preference of Preferred Stock delivered for purchase and a statement that such
Holder is withdrawing its election to have such Preferred Stock purchased; and
(vii) that Holders whose Preferred Stock is being purchased only in part will be
issued new shares of Preferred Stock equal in liquidation preference to the
unpurchased portion of the Preferred Stock surrendered;
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PROVIDED that each share of Preferred Stock purchased and each new share of
Preferred Stock issued shall be in a liquidation preference of $1,000 or
integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis Preferred Stock or portions thereof validly
tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent
money sufficient to pay the purchase price of all Preferred Stock or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the
Transfer Agent all Preferred Stock or portions thereof so accepted together
with an Officers' Certificate specifying the Preferred Stock or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Preferred Stock so accepted payment in an amount equal
to the purchase price, and the Transfer Agent shall promptly countersign and
mail to such Holders new shares of Preferred Stock equal in liquidation
preference to any unpurchased portion of the Preferred Stock surrendered;
PROVIDED that each share of Preferred Stock purchased and each new share of
Preferred Stock issued shall be in a liquidation preference of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date. The
Transfer Agent shall act as the Paying Agent for an Offer to Purchase.
"Officer" means (i) the Chairman of the Board, the President, any Vice
President or the Chief Financial Officer and (ii) the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer listed in
clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof or any two Officers listed in clause (i) of the
definition thereof.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; PROVIDED that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; and (iv) stock, obligations or securities received in
satisfaction of judgments.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
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"Preferred Shares" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
now outstanding or issued after the Closing Date, including, without limitation,
all series and classes of such preferred stock or preference stock.
"Preferred Stock Exchange Offer" means each registered offer to exchange
the Preferred Stock for Exchange Preferred Stock.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Redemption Date" with respect to any shares of Preferred Stock, means the
date on which such shares of Preferred Stock are redeemed by the Company.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means (i) Indebtedness of the Company under the
Senior Notes, the Senior Note Indenture, the Bank Facility Agreement and the New
Credit Facility Agreement and all fees, expenses and indemnities payable in
connection with any of the foregoing and (ii) all other Indebtedness of the
Company, including principal and interest on such Indebtedness, unless such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, would be PARI PASSU with, or
subordinated in right of payment to, the Exchange Debentures; PROVIDED that the
term "Senior Indebtedness" shall not include (a) any Indebtedness of the Company
that, when Incurred and without respect to any election under Section 1111(b) of
the United States Bankruptcy Code, was without recourse to the Company, (b) any
Indebtedness of the Company to a Subsidiary of the Company or to a joint venture
in which the Company has an interest, (c) any Indebtedness of the Company, to
the extent not permitted by subparagraph (m)(1) or subparagraph (m)(2), (d) any
repurchase, redemption or other obligation in respect of Disqualified Stock, (e)
any Indebtedness to any employee of the Company or any of its Subsidiaries, (f)
any liability for federal, state, local or other taxes owed or owing by the
Company or (g) any Trade Payables. Senior Indebtedness will also include
interest accruing subsequent to events of bankruptcy of the Company at the rate
provided for in the document governing
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such Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under federal bankruptcy
law.
"Senior Note Indenture" means the Indenture dated as of February 28, 1997
between the Company and United States Trust Company of New York, relating to the
Senior Notes, as such indenture may be amended, supplemented, extended, renewed,
replaced or otherwise modified from time to time.
"Senior Notes" means the 11 3/4% Senior Notes due 2007 issued by the
Company under the Senior Note Indenture.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating)
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or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P, and (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Transfer Agent" means United States Trust Company of New York.
"Unrestricted Subsidiary" means (i) Dobson Wireline or any other Subsidiary
of the Company that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any Restricted Subsidiary (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; PROVIDED that (A) any Guarantee by
the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under
subparagraph (m)(4) and (C) if
<PAGE>
-41-
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under subparagraphs (m)(1) and
(m)(4). The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; PROVIDED that immediately after giving effect to
such designation (x) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be incurred for all purposes of this
Certificate of Designation and (y) no Voting Rights Triggering Event, or an
event which with the giving of notice or the passage of time, or both, would
become a Voting Rights Triggering Event, shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Transfer Agent by promptly providing the Transfer Agent a copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
(o). TRANSFER AND LEGENDING OF SHARES. (i) No transfer of shares of
the Preferred Stock shall be effective until such transfer is registered on the
books of the Company. Until registered under the Securities Act, the expiration
of the time period referred to in Rule 144(k) (as then in effect) under the
Securities Act from the Closing Date, or the Company and the Holder of such
shares otherwise agree, all shares of Preferred Stock other than the Exchange
Preferred Stock shall bear the following legend:
THIS PREFERRED STOCK HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
PREFERRED STOCK IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) or (7) OF REGULATION D
UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2)
AGREES THAT
<PAGE>
-42-
IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS
PREFERRED STOCK, RESELL OR OTHERWISE TRANSFER THIS PREFERRED STOCK
EXCEPT (A) TO DOBSON COMMUNICATIONS CORPORATION OR ANY SUBSIDIARY THEREOF,
(B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS PREFERRED
STOCK (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER AGENT)
AND, IF SUCH TRANSFER IS IN RESPECT OF PREFERRED STOCK HAVING AN AGGREGATE
LIQUIDATION PREFERENCE AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN
OPINION OF COUNSEL ACCEPTABLE TO DOBSON COMMUNICATIONS CORPORATION THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS PREFERRED STOCK IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS PREFERRED STOCK WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON
THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRANSFER AGENT. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRANSFER AGENT AND DOBSON COMMUNICATIONS CORPORATION SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE CERTIFICATE OF
DESIGNATION FOR THE PREFERRED STOCK CONTAINS A PROVISION REQUIRING THE
TRANSFER AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS PREFERRED STOCK
IN VIOLATION OF THE FOREGOING RESTRICTIONS.
(ii) The Transfer Agent shall refuse to register any attempted
transfer of shares of Original Preferred Stock not in compliance with this
paragraph (o).
(iii) At any time after 40 days following the Closing Date, upon
receipt by the Transfer Agent and the Company of a certificate substantially in
the form of Exhibit A hereto, the Transfer Agent shall authenticate and deliver
one or more shares of
<PAGE>
-43-
unlegended Preferred Stock in the place of the legended Preferred Stock.
(iv) In connection with proposed transfers of Original Preferred
Stock described in Exhibit B or Exhibit C, the Transfer Agent or the Company may
require the transferor or transferee, as the case may be, to deliver the
appropriate letter attached hereto as Exhibits B or C. Each Holder of Original
Preferred Stock shall notify the Company or the Transfer Agent in the event of
any transfer by such Holder of any shares of Original Preferred Stock to a
foreign transferee.
IN WITNESS WHEREOF, Dobson Communications Corporation has caused this
Certificate of Designation to be executed in its corporate name by Everett R.
Dobson, its Chairman of the Board, President and Chief Executive Officer and
attested by Stephen T. Dobson, its Secretary, this 20th day of January, 1998.
DOBSON COMMUNICATIONS CORPORATION
By: EVERETT R. DOBSON
--------------------------------------
Name: Everett R. Dobson
Title: Chairman of the Board,
President and Chief Executive Officer
Attest:
By: STEPHEN T. DOBSON
------------------------------------
Name: Stephen T. Dobson
Title: Secretary
[corporate seal]
<PAGE>
EXHIBIT A
Form of Certificate as to
Completion of Distribution and
Termination of Restricted Period
--------------------------------
__________________, ____
United States Trust Company of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Dobson Communications Corporation
(the "Company") Senior Exchangeable
Preferred Stock (the "Securities")
----------------------------------
Dear Ladies and Gentlemen:
This letter relates to _____ shares of Securities represented by the
attached Certificate (the "Legended Certificate") which bears a legend outlining
restrictions upon transfer of such Legended Certificate. Pursuant to paragraph
(o) of the Certificate of Designation (the "Certificate of Designation") filed
with the Secretary of State of the State of Oklahoma on January 21, 1998
relating to the Securities, we hereby certify that we are a person outside the
United States to whom the Securities could be transferred in accordance with
Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as
amended. Accordingly, you are hereby requested to exchange the Legended
Certificate for an unlegended certificate representing an identical number of
shares of Securities, all in the manner provided for in the Certificate of
Designation.
<PAGE>
A-2
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
----------------------------------
Authorized Signature
<PAGE>
EXHIBIT B
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_______________, ____
United States Trust Company of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Dobson Communications Corporation
(the "Company") Senior Exchangeable
Preferred Stock (the "Securities")
----------------------------------
Dear Ladies and Gentlemen:
In connection with our proposed purchase of _____ shares of the
Securities, we confirm that:
1. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Certificate
of Designation relating to the Securities (the "Certificate of
Designation") and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
2. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not
be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we
will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified
institutional buyer" (as defined therein), (C) inside the United States to
an institutional "accredited investor" (as defined in Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act) that, prior to such
transfer, furnishes to you a signed letter substantially in the form of
this letter and, if such transfer is in respect of Securities having an
aggregate liquidation preference at the time of transfer of less than
$100,000, an opinion of counsel
<PAGE>
B-2
acceptable to the Company that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule
904 of Regulation S under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities
Act (if available) or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to
any person purchasing any of the Securities from us a notice advising
such purchaser that resales of the Securities are restricted as stated
herein.
3. We understand that, on any proposed resale of any Securities, we
will be required to furnish to you and the Company such certifications,
legal opinions and other information as you and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us
will bear a legend to the effect set out in paragraph 2.
4. We are an institutional "accredited investor" and have such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and
we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Securities purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
6. We are not acquiring the Securities with a view to a distribution
thereof or with any present intention of offering or selling any of the
Securities, except as permitted above; provided that the disposition of our
property and property of our accounts for which we are acting as fiduciary
will remain at all times within our control.
<PAGE>
B-3
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Holder]
By:
----------------------------------
Authorized Signature
<PAGE>
EXHIBIT C
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
------------------------
_______________, _____
United States Trust Company of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Dobson Communications Corporation
(the "Company") Senior Exchangeable
Preferred Stock (the "Securities")
----------------------------------
Dear Ladies and Gentlemen:
In connection with our proposed sale of ____ shares of the Securities,
we confirm that such sale has been effected pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered
<PAGE>
C-2
hereby. Terms used in this certificate have the meanings set forth in
Regulation S.
Very truly yours,
[Name of Holder]
By:
----------------------------------
Authorized Signature
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated January 16, 1998
between
DOBSON COMMUNICATIONS CORPORATION
and
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
- -------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into January 16, 1998, between DOBSON COMMUNICATIONS CORPORATION, an
Oklahoma corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED AND NATIONSBANC MONTGOMERY
SECURITIES LLC (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated the
date hereof, between the Company and the Placement Agents (the "Placement
Agreement"), which provides for the sale by the Company to the Placement Agents
of an aggregate of 175,000 shares of the Company's 12 1/4% Senior Exchangeable
Preferred Stock (the "Securities"), which will be mandatorily redeemable 2008,
as set forth in the Certificate of Designation relating to the Securities (the
"Certificate of Designation"), and will be exchangeable, at the option of the
Company, in whole but not in part, into Senior Subordinated Debentures due 2008
to be issued, if applicable, pursuant to an Indenture to be dated as of the date
of such exchange. In order to induce the Placement Agents to enter into the
Placement Agreement, the Company has agreed to provide to the Placement Agents
and their direct and indirect transferees the registration rights with respect
to the Securities and the PIK Shares (as defined herein) set forth in this
Agreement. The execution of this Agreement is a condition to the closing under
the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"CERTIFICATE OF DESIGNATION" shall have the meaning set forth in the
preamble to this Agreement.
"CLOSING DATE" shall mean the Closing Date as defined in the Placement
Agreement.
<PAGE>
2
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"EXCHANGE DATES" shall have the meaning set forth in Section 2(a)(ii)
of this Agreement.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"EXCHANGE SECURITIES" shall mean securities issued by the Company
containing terms identical to the Securities and the PIK Shares (except
that the Exchange Securities shall bear no legend and shall be free from
restrictions on transfer) and to be offered to Holders of Securities and
PIK Shares in exchange for Securities and PIK Shares pursuant to the
Exchange Offer.
"HOLDER" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Certificate of Designation; PROVIDED that for purposes
of Sections 4 and 5 of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a)).
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate liquidation preference of outstanding Registrable Securities;
PROVIDED that whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company or any of its affiliates (as such term is
defined in Rule 405 under the 1933 Act) (other than the Placement Agents or
subsequent Holders of Registrable Securities if such subsequent Holders are
deemed to be such affiliates solely by reason of their holding of such
Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage or
amount.
"PERSON" shall mean an individual, partnership, corporation, trust or
<PAGE>
3
unincorporated organization, or a government or agency or political
subdivision thereof.
"PIK SHARES" shall mean any additional Securities issued as payment in
kind dividends to any Holder of the Securities.
"PLACEMENT AGENTS" shall have the meaning set forth in the preamble to
this Agreement.
"PLACEMENT AGREEMENT" shall have the meaning set forth in the preamble
to this Agreement.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"REGISTRABLE SECURITIES" shall mean the Securities and the PIK Shares;
PROVIDED, HOWEVER, that the Securities and the PIK Shares shall cease to be
Registrable Securities (i) when a Registration Statement with respect to
such Securities and such PIK Shares shall have been declared effective
under the 1933 Act and such Securities and such PIK Shares shall have been
disposed of pursuant to such Registration Statement, (ii) when such
Securities and such PIK Shares have been sold to the public pursuant to
Rule 144 (or any similar provision then in force, but not Rule 144A) under
the 1933 Act or (iii) when such Securities and such PIK Shares shall have
ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) the fees and disbursements of the Transfer Agent and its counsel,
(vi) the fees and disbursements of counsel for the Company and,
<PAGE>
4
in the case of a Shelf Registration Statement, the fees and disbursements
of one counsel for the Holders (which counsel shall be selected by the
Majority Holders and which counsel may also be counsel for the Placement
Agents) and (vii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the underwriters
(other than fees and expenses set forth in clause (ii) above) or the
Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a
Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES" shall have the meaning set forth in the Preamble to this
Agreement.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Securities (but no other
securities unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRANSFER AGENT" shall mean United States Trust Company of New York
and any successors thereto.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which Registrable Securities are sold to an Underwriter (as
hereinafter defined) for reoffering to the public.
2. REGISTRATION UNDER THE 1933 ACT.
<PAGE>
5
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed, no later than 90 days after the Closing Date, an Exchange
Offer Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the
Exchange Offer Registration Statement has been declared effective by the SEC and
use its best efforts to have the Exchange Offer consummated not later than 60
days after such effective date. The Company shall commence the Exchange Offer
by mailing the related exchange offer Prospectus and accompanying documents to
each Holder stating, in addition to such other disclosures as are required by
applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period of
at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue dividends, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal, to
the institution and at the address specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the number of shares of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing its election to
have such Securities exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
validly tendered and not validly withdrawn pursuant to the Exchange Offer;
and
<PAGE>
6
(ii) deliver, or cause to be delivered, to the Transfer Agent for
cancellation all Registrable Securities or portions thereof so accepted for
exchange by the Company and issue, and cause the Transfer Agent to promptly
countersign and register and mail to each Holder, an Exchange Security with
an aggregate liquidation preference equal to the aggregate liquidation
preference of the Registrable Securities surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agents shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
July 22, 1998 or (iii) the Exchange Offer has been completed and in the opinion
of counsel for the Placement Agents a Registration Statement must be filed and a
Prospectus must be delivered by the Placement Agents in connection with any
offering or sale of Registrable Securities, the Company shall use its best
efforts to cause to be filed as soon as practicable after such determination,
date or notice of such opinion of counsel is given to the Company, as the case
may be, a Shelf Registration Statement providing for the sale by the Holders of
all of the Registrable Securities and to have such Shelf Registration Statement
declared effective by the SEC. In the event the Company is required to file a
Shelf Registration Statement solely as a result of the matters referred to in
clause (iii) of the preceding sentence, the Company shall file and use its best
efforts to have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all Registrable
Securities and a Shelf Registration Statement (which may be a combined
Registration Statement with the Exchange Offer Registration Statement) with
respect to offers and sales of Registrable Securities held by the Placement
Agents after completion of the Exchange Offer. The Company agrees to use its
best efforts to keep the Shelf Registration Statement continuously effective
until the expiration of the period referred to in Rule 144(k) with respect to
all Registrable Securities covered by the Shelf Registration Statement or such
shorter period that will terminate when all of the Registrable Securities
covered by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company further agrees to supplement or amend the
Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the
<PAGE>
7
Company for such Shelf Registration Statement or by the 1933 Act or by any
other rules and regulations thereunder for shelf registration or if
reasonably requested by a Holder with respect to information relating to such
Holder, and to use its best efforts to cause any such amendment to become
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company agrees to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly
after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; PROVIDED, HOWEVER, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided for in the Certificate
of Designation, in the event that the Exchange Offer is not consummated, and a
Shelf Registration Statement is not declared effective on or prior to July 22,
1998, the dividends payable on the Securities (in addition to the dividends
otherwise payable on the Securities) will accrue at an annual rate of 0.5% of
the liquidation preference thereof until the date upon which the Exchange Offer
is consummated or a Shelf Registration Statement with respect to all of the
Registrable Securities is declared effective.
(e) Without limiting the remedies available to the Placement Agents
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
<PAGE>
8
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the
Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (z) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain effective
in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as
so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section 4(3)
and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel for
the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company consents to the
use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be
made with the National Association of Securities
<PAGE>
9
Dealers, Inc. and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in each such jurisdiction of such Registrable Securities owned
by such Holder; PROVIDED, HOWEVER, that the Company shall not be required
to (i) qualify as a foreign corporation or as a dealer in securities in
any jurisdiction where it would not otherwise be required to qualify but
for this Section 3(d), (ii) file any general consent to service of process
or (iii) subject itself to taxation in any such jurisdiction if it is not
so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to the offering cease to be true and correct in all material
respects or if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (v)
of the happening of any event during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading and (vi)
of any determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
<PAGE>
10
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Certificate of Designation) and registered in such names as the selling
Holders may reasonably request at least one business day prior to the
closing of any sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) or (vi) hereof, use its best efforts
to prepare and file with the SEC a supplement or post-effective amendment
to a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Company agrees to notify the Holders to suspend
use of the Prospectus as promptly as practicable after the occurrence of
such an event, and the Holders hereby agree to suspend use of the
Prospectus upon receipt of such notice until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company as shall be reasonably requested by
the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) available for
discussion of such document, and shall not at any time file or make any
amendment to the Registration Statement, any Prospectus or any amendment of
or supplement to a Registration Statement or a Prospectus or any document
which is to be incorporated by reference into a Registration Statement or a
Prospectus, of which the Placement Agents and their counsel (and, in the
case of a Shelf Registration Statement, the Holders and their counsel)
shall not have previously been advised and furnished a copy or to which the
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration
<PAGE>
11
Statement;
(l) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants designated
by the Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and properties of the
Company, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement;
(m) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange or
any automated quotation system on which similar securities issued by the
Company are then listed if requested by the Majority Holders, to the extent
such Registrable Securities satisfy applicable listing requirements;
(n) use its best efforts to cause the Exchange Securities to be rated
or continue to be rated by two nationally recognized statistical rating
organizations (as such term is defined in Rule 436(g)(2) under the 1933
Act), if the Securities have been rated;
(o) in the case of a Shelf Registration, if reasonably requested by
any Holder of Registrable Securities covered by a Registration Statement,
(i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information with respect to such Holder as such Holder
reasonably requests to be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as
soon as the Company has received notification of the matters to be
incorporated in such filing; and
(p) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and, in the event
of an Underwritten Offering, any Underwriters of such Registrable
Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which counsel
and opinions, in form, scope
<PAGE>
12
and substance, shall be reasonably satisfactory to the Holders and such
Underwriters and their respective counsel) addressed to each selling
Holder and Underwriter of Registrable Securities, covering the matters
customarily covered in opinions requested in underwritten offerings,
(iii) obtain "cold comfort" letters from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountant of any subsidiary of the Company, or of any business acquired
by the Company for which financial statements and financial data are or
are required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority of the Registrable
Securities being sold or the Underwriters, and which are customarily
delivered in underwritten offerings, to evidence the continued validity of
the representations and warranties of the Company made pursuant to clause
(i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder
of such Registrable Securities as the Company may from time to time
reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) or (vi) hereof, such Holder
will forthwith discontinue disposition of Registrable Securities pursuant to
a Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and,
if so directed by the Company, such Holder will deliver to the Company (at
its expense) all copies in its possession, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company
shall give any such notice to suspend the disposition of Registrable
Securities pursuant to a Registration Statement, the Company shall extend the
period during which the Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date
when the Holders shall have received copies of the supplemented or amended
Prospectus necessary to resume such dispositions. There may not be more than
90 days during any consecutive 365 day period in which such suspensions are
in effect.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable
Securities in an Underwritten
<PAGE>
13
Offering. In any such Underwritten Offering, the investment banker or
investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within
the meaning of the 1933 Act and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such Exchange
Securities.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means
by which Participating Broker-Dealers may resell the Exchange Securities,
without naming the Participating Broker-Dealers or specifying the amount of
Exchange Securities owned by them, such Prospectus may be delivered by
Participating Broker-Dealers to satisfy their prospectus delivery obligation
under the 1933 Act in connection with resales of Exchange Securities for
their own accounts, so long as the Prospectus otherwise meets the
requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as
they relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below,
in order to expedite or facilitate the disposition of any Exchange Securities
by Participating Broker-Dealers consistent with the positions of the Staff
recited in Section 4(a) above; PROVIDED that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 3(i), for a period exceeding 180 days
after the last Exchange Date (as such period may be extended pursuant to
the penultimate paragraph of Section 3 of this Agreement) and Participating
Broker-Dealers shall not be authorized by the Company to deliver and shall
not deliver such Prospectus after such period in connection with the
resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
<PAGE>
14
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company by the Placement Agents or with the
reasonable request in writing to the Company by one or more broker-dealers
who certify to the Placement Agents and the Company in writing that they
anticipate that they will be Participating Broker-Dealers; and PROVIDED
FURTHER that, in connection with such application of the Shelf Registration
procedures set forth in Section 3 to an Exchange Offer Registration, the
Company shall be obligated (x) to deal only with one entity representing
the Participating Broker-Dealers, which shall be Morgan Stanley & Co.
Incorporated unless it elects not to act as such representative, (y) to pay
the fees and expenses of only one counsel representing the Participating
Broker-Dealers, which shall be counsel to the Placement Agents unless such
counsel elects not to so act and (z) to cause to be delivered only one, if
any, "cold comfort" letter with respect to the Prospectus in the form
existing on the last Exchange Date and with respect to each subsequent
amendment or supplement, if any, effected during the period specified in
clause (i) above.
(c) The Placement Agents shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section
4(b) above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Placement Agents, each Holder and each Person, if any, who controls any
Placement Agent or any Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, or is under common control with, or
is controlled by, any Placement Agent or any Holder, from and against all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by the Placement Agent, any
Holder or any such controlling or affiliated Person in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which Exchange
Securities or Registrable Securities were registered under the 1933 Act,
including all documents incorporated therein by reference, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact necessary to
make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Placement
Agents or any Holder furnished to
<PAGE>
15
the Company in writing by the Placement Agents through Morgan Stanley & Co.
Incorporated or any selling Holder expressly for use therein. In connection
with any Underwritten Offering permitted by Section 3, the Company will also
indemnify the Underwriters, if any, selling brokers, dealers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders, if
requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Placement Agents and the other selling
Holders, and each of their respective directors, officers who sign the
Registration Statement and each Person, if any, who controls the Company, any
Placement Agent and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent
as the foregoing indemnity from the Company to the Placement Agents and the
Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b)
above, such Person (the "indemnified party") shall promptly notify the Person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for (a) the fees and expenses of more than
one separate firm (in addition to any local counsel) for the Placement Agents
and all Persons, if any, who control any Placement Agent within the meaning
of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for the Company, its directors, its officers who sign the
Registration Statement and each Person, if any, who controls the Company
within the meaning of either such Section and (c) the fees and expenses of
more than one separate firm (in addition to any local
<PAGE>
16
counsel) for all Holders and all Persons, if any, who control any Holders
within the meaning of either such Section, and that all such fees and
expenses shall be reimbursed as they are incurred. In such case involving
the Placement Agents and Persons who control the Placement Agents, such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated. In such
case involving the Holders and such Persons who control Holders, such firm
shall be designated in writing by the Majority Holders. In all other cases,
such firm shall be designated by the Company. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent but, if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party for such fees and expenses of counsel in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 4 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company and the Holders shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Holders and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Holders' respective obligations to contribute pursuant to this Section 5(d)
are several in proportion to the aggregate liquidation preference of the
Registrable Securities of such Holder that were registered pursuant to a
Registration Statement.
<PAGE>
17
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by PRO
RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at
which Registrable Securities were sold by such Holder exceeds the amount of
any damages that such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 5 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law or
in equity.
The indemnity and contribution provisions contained in this Section
5 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any Person controlling any Placement
Agent or any Holder, or by or on behalf of the Company, its officers or
directors or any Person controlling the Company, (iii) acceptance of any of
the Exchange Securities and (iv) any sale of Registrable Securities pursuant
to a Shelf Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders
of the Company's other issued and outstanding securities under any such
agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent
of Holders of at least a majority in aggregate liquidation preference of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or consent; PROVIDED,
<PAGE>
18
HOWEVER, that no amendment, modification, supplement, waiver or consent to
any departure from the provisions of Section 5 hereof shall be effective as
against any Holder of Registrable Securities unless consented to in writing
by such Holder.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions
of this Section 6(c), which address initially is, with respect to the
Placement Agents, the address set forth in the Placement Agreement; and (ii)
if to the Company, initially at the Company's address set forth in the
Placement Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Transfer Agent
at United States Trust Company of New York, Corporate Trust Division, 114
West 47th Street, 15th Floor, New York, New York 10036-1532.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for
an express assignment, subsequent Holders; PROVIDED that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Placement Agreement.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking
and holding such Registrable Securities such Person shall be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement and such Person shall be entitled to receive the
benefits hereof. The Placement Agents (in their capacity as Placement
Agents) shall have no liability or obligation to the Company with respect to
any failure by a Holder to comply with, or any breach by any Holder of, any
of the obligations of such Holder under this Agreement.
(e) PURCHASES AND SALES OF SECURITIES. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405
under the 1933 Act) not to, purchase and then resell or otherwise transfer
any Securities.
<PAGE>
19
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Placement Agents, on the other hand, and each Holder shall
have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
<PAGE>
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DOBSON COMMUNICATIONS
CORPORATION
By /s/ Bruce R. Knooihuizen
--------------------------------------
Name: Bruce R. Knooihuizen
Title: Chief Financial Officer
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
By: MORGAN STANLEY & CO. INCORPORATED
By /s/ James B. Avery
------------------------------------------
Name: James B. Avery
Title: Principal
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
13439 NORTH BROADWAY EXTENSION
OKLAHOMA CITY, OKLAHOMA 73114
March 4, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Unfiled Debt Instruments
Ladies and Gentlemen:
Dobson Communications Corporation (the "Company") is a party to
certain long-term debt instruments which authorize borrowings by the Company in
amounts that do not exceed 10% of the total assets of the Company and its
consolidated subsidiaries. The Company has not filed, and may not file in the
future, such debt instruments as exhibits to its reports under the Securities
Exchange Act of 1934 or registration statements under the Securities Act of
1933. Pursuant to Item 601(4)(iii)(A) of Regulation S-K, the Company hereby
agrees to furnish the Commission a copy of any such unfiled debt instruments
upon request.
Very truly yours,
BRUCE R. KNOOIHUIZEN
Bruce R. Knooihuizen
Vice President and
Chief Financial Officer
<PAGE>
[LETTERHEAD]
September 16, 1997
Mr. William Hoffman, Jr.
1294 Waterview Ct.
Ft. Lauderdale, FL 33326
Dear Chip,
It is with great pleasure I offer you a position with Dobson Communications
Corporation. After our conversations I am convinced you would be a good
complement to our companies and lead the Logix's group forward over the next
several years.
Your title will be Vice President, Chief Operating Officer of Dobson's CLEC
operations, reporting to me. Upon your agreement to join Dobson
Communications Corporation, you will receive a signing bonus of $10,000.00.
The initial annual salary will be $110,000 which will be reviewed one year
after the start date. In addition, there will be a bonus of between 30-50%
dependent on your performance as defined by a a set of objectives agreed to
by you, myself, the business plan, and the Board of Directors. The bonus will
be paid quarterly, based upon the performance in the previous quarter.
We also offer you the opportunity to purchase options for .11% or 664 shares
of Dobson Communications Corporation at a strike price consistent with the
current valuation of the company. Sixty percent (60%) of those options will
vest over five years at 12% per year. Forty percent (40%) of the options will
be performance-based, vesting at the end of the year and dependent upon
achieving specific milestones and objectives, again identified within the
business plan. Should a change of control occur at Dobson Communications
Corporation, your options will be come fully vested. Attached to this letter
is a spreadsheet representing a pro forma valuation for Dobson in year 2002.
If you have any questions concerning these options, our CFO, Bruce
Knooihuizen and myself would be happy to go over it with you.
Additionally, a mutually agreed upon compensation package, specific to Logix,
will be implemented upon acceptance of the COO position. This package will be
based on your ability to exceed Dobson's existing business plan.
<PAGE>
In addition, you will have three weeks vacation and a full medical and dental
plan. We also have a 401K plan which will give you some additional deferred
compensation opportunities. To insure relocation from Florida is quick and
easy, we will reimburse you for actual moving expenses.
In the event you are terminated without cause, Dobson Communications
Corporation agrees to a severance pay equal to one year's salary.
It would be beneficial to all for your start date to be as soon as possible.
Please indicate your concurrence to the above by signing below, then return
the document to me.
Dobson Communications Corporation looks forward to you becoming a part of our
team.
Sincerely,
Stephen Dobson
President, Dobson Wireless, Inc.
Agreed to:
/s/ William J. Hoffman, Jr.
- -----------------------------------
William J. Hoffman, Jr.
Date: 9/23/97
<PAGE>
[LETTERHEAD]
September 23, 1997
Mr. Stephen Dobson
President - Logix Communications
13439 N. Broadway Extension, Suite 200
Oklahoma City, OK 73114
Dear Stephen:
I am very pleased to accept your offer to serve as the Vice President and
Chief Operating Officer for Dobson Communication's Logix group under the
terms outlined in your offer letter dated September 16, 1997 and the
additional terms that we discussed Tuesday. My official start date will be
October 1, 1997.
In addition to the terms outlined in your letter, I understand Dobson will:
1. Develop a mutually agreed upon compensation package that will allow me to
participate in achievement that exceeds the Logix business plan. I will
receive compensation in instruments equivalent to 20% of EBITDA improvements
on an annual basis.
2. The firm will provide a relocation package equivalent to Sprint
Corporation's "Management Relocation Program" with the exception of section's
3.11, 3.20-21, 6.06, 7, 8 and 12.
3. The firm will provide initiation and dues to a suitable Country Club in the
Oklahoma City area.
I look forward to the opportunity provided to me by Dobson and am ready to
engage in the challenges ahead.
Sincerely,
/s/ William J. Hoffman Jr.
- ---------------------------------
William J. Hoffman Jr.
<PAGE>
[LETTERHEAD]
October 28, 1997
R. Thomas Morgan
1892 Bedford Road
Columbus, OH 43212
Dear Tom,
It is with great pleasure I offer you a position with Dobson Communications
Corporation. After our conversations I am convinced you would be a good
complement to our companies and lead the Information Services group forward
over the next several years.
Your title will be Vice President, Chief Information Officer of Dobson
Communications Corporation reporting to me. The initial salary will be
$135,000 which will be reviewed one year after the start date. You will also
receive a one time signing bonus of $20,000. In addition, there will be a
bonus of between 30-40% dependent on your performance as defined by a set of
objectives agreed to by you, myself, the business plan, and the Board of
Directors. The bonus will be paid annually, based upon the performance in the
previous year.
We also offer you the opportunity to purchase options for .20% or 1,206
shares of Dobson Communications Corporation at a strike price consistent with
the current valuation of the company. These options will vest over five years
at 20% per year. Should a change of control occur at Dobson Communications
Corporation, your options will be come fully vested. Attached to this letter
is a spreadsheet representing a pro forma valuation for Dobson in year 2002.
If you have any questions concerning these options, our CFO, Bruce
Knooihuizen and myself would be happy to go over it with you.
In addition, you will have three weeks vacation and a full medical and dental
plan. We also have a 401K plan which will give you some additional deferred
compensation opportunities. To
<PAGE>
insure relocation from Ohio is quick and easy, we will reimburse you for
actual moving expenses.
In the event you are terminated without cause, Dobson Communications
Corporation agrees to a severance pay equal to one year's salary.
It would be beneficial to all for your start date to be as soon as possible.
Please indicate your concurrence to the above by signing below, then return
the document to me.
Dobson Communications Corporation looks forward to you becoming a part of our
team.
Sincerely,
/s/ Everett Dobson
- ---------------------------
Everett Dobson
President and CEO
Dobson Communications Corporation
Agreed to:
/s/ R. Thomas Morgan
- ---------------------------
R. Thomas Morgan
Date: 11-1-97
<PAGE>
SERVICES AGREEMENT
THIS AGREEMENT is made by and among Dobson Cellular of Maryland, Inc., an
Oklahoma Corporation ("Dobson"), Maryland Wireless Communications Limited
Partnership, a Maryland Limited Partnership, Wendy C. Coleman, an individual
(collectively referred to as "Coleman"), and Washington Baltimore Cellular
Limited Partnership, ("WBCP"), a Virginia Limited Partnership.
WHEREAS, Coleman holds a license from the Federal Communications Commission
("FCC") to construct and operate a cellular radio telecommunications system on
frequency Block A, the non-wireline system, to serve the Maryland RSA 2, and
WHEREAS, Dobson has a Management Agreement with Coleman, and Dobson and
Coleman have entered into an agreement by which Dobson will acquire Maryland
RSA 2, and have filed with the FCC for approval of a transfer of control of
the license from Coleman to Dobson, and
WHEREAS, WBCP owns and operates switching and other equipment capable of
providing switching and other services to Maryland RSA 2, and possesses the
skills required for the efficient operation of cellular radio
telecommunications systems and currently operates the non-wireline cellular
telephone system which serves the Maryland RSA 2, pursuant to an interim
authority granted by the FCC; and
WHEREAS, Dobson and/or Coleman intend to construct a physical wireless
network in Maryland RSA 2 and seek to provide service to customers by leasing
WBCP's facilities located in Maryland RSA 2 ("Leased Facilities") and through
the provision by WBCP of switching services provided during construction of
Dobson/Coleman's network, and
WHEREAS, also pursuant to the Interim Operating Authority Order issued by
the FCC, WBCP is obligated to assign for compensation its existing Maryland
RSA 2 customers to the licensee of Maryland RSA 2 upon reaching an agreed upon
price, and
WHEREAS, Dobson and Coleman wish to enter into an agreement with WBCP to
acquire those customers in Maryland RSA 2, and
WHEREAS, Dobson, Coleman, and WBCP wish to agree to the mutual roaming
procedures and reciprocal wholesale exchange roaming rates on the terms and
conditions set forth herein, and upon execution of a Rate Addendum, attached
hereto as Attachment D, for the benefit of their respective customers; and,
WHEREAS, WBCP, Dobson, and Coleman seek to enter into an agreement to
achieve certain economies of scale, by arranging to provide for the lease by
WBCP to Dobson and Coleman of certain network facilities located in Maryland
RSA 2 ("Leased Facilities"), as well as providing switching capacity from its
Switch, as defined below, and to provide for certain other specified services,
all on the terms and conditions hereinafter set forth.
<PAGE>
2
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, it is agreed as follows:
ARTICLE I
DEFINITIONS
1.1 "Backhaul Facilities" shall mean any equipment and facilities, whether
owned or leased, over which Traffic is carried between the cell sites and
the Switch or to and from cell sites and the PSTN in either WBCP's System
or Dobson/Coleman's System.
1.2 "Basic Switching Services" shall mean the following services:
a. Switching services,
b. monitoring of all Leased Facilities or Dobson/Coleman System's cell
site alarms and notification of alarms;
c. Daily printing of all alarms;
d. Weekly report of all outages;
e. Reporting of all field problems to vendors and assisting the vendors
in problem resolution;
f. Changing cell site radio parameters (power levels, frequency
assignments, etc.)
1.3 "Dobson/Coleman's System" shall mean all cellular equipment, microwave
equipment, hardware, software, antennae, transmitting or receiving
equipment, cell site equipment and ancillary and related equipment and
facilities which Dobson and/or Coleman currently has in place either
through acquisition or lease, (other than "Leased Facilities" as defined
in this Agreement) or will acquire or lease in the future in order to
construct and operate a wireless system in Maryland RSA 2, to deliver
Traffic between and among cell sites and any points of interconnection to
the PSTN, as defined below, in Maryland RSA 2 and to and from the Switch.
1.4 "Enhanced Switching Services" shall mean the services described as "Basic
Switching Services" as defined herein, and the following additional
services:
a. maintenance and diagnostics for Dobson/Coleman's System;
b. maintenance and diagnostics by WBCP on the Leased Facilities shall
also be considered an Enhanced Switching Service;
c. database maintenance, excluding customer records, as is requested
from time to time by Dobson/Coleman;
d. weekly traffic reports for the System;
e. recording services, including provision of AMA data on a monthly
basis to Dobson/Coleman (or to its designated billing vendor);
<PAGE>
3
f. responding to alarms on the Dobson/Coleman System or on the Leased
Facilities.
1.5 "Leased Facilities" shall mean all cellular equipment, microwave
equipment, hardware, software, antennae, transmitting or receiving
equipment, cell site equipment, and ancillary and related equipment and
facilities currently used by WBCP to operate a wireless system that are
located within or serve Maryland RSA 2, or to deliver Traffic between and
among cell sites and points of interconnection to the PSTN in Maryland
RSA 2, and to deliver Traffic to and from cell sites in Maryland RSA 2 to
the Switch, all of such facilities are owned or leased by WBCP and leased
to Dobson/Coleman in accordance with this Agreement. Nothing in this
Agreement gives Dobson/Coleman an interest in the Switch.
1.6 "WBCP System" shall mean all equipment owned and operated by WBCP other
than that equipment defined herein as "Leased Facilities."
1.7 "MOU" ("Minutes of Use") shall mean the number of minutes of airtime used
by the Dobson/Coleman Systems or Leased Facilities for switched calls
whether such calls are completed or not completed, and whether a bill for
such calls will or will not be rendered to Dobson and/or Coleman's
customers. All minutes shall be rounded to increments of one minute and
any fraction of one minute shall be rounded up to the next whole minute,
unless otherwise explicitly provided for elsewhere in this Agreement. If
WBCP changes its billing practices to generally bill its customers in
increments less than one minute, Dobson/Coleman shall be billed in the
same increments in which WBCP bills its customers.
1.8 "Pro-rata" shall be measured with respect to Fixed costs, by the number
of minutes of use ("MOU") switched on behalf of Dobson/Coleman compared
against the total MOU switched by WBCP. With respect to variable costs,
the relationship between the number of transactions processed for
Dobson/Coleman in relation to all transactions processed by the Switch.
1.9 "PSTN" shall mean the landline public switched telephone network.
1.10 "Roaming Agreement" shall mean the standard agreement as is currently
being utilized, by Dobson and WBCP in their existing roaming agreement.
1.11 "Switch" shall mean the switching equipment owned by WBCP, including,
without limitation, all related hardware, software and ancillary and
related equipment and facilities collocated with such switching equipment
and required for such switching equipment to operate in accordance with
its specifications. "Switch" does not include (a) any equipment and
facilities which are part of Dobson/Coleman's System or (b) any Backhaul
Facilities.
<PAGE>
4
1.12 "Traffic" shall mean voice, data and associated electronic signals.
ARTICLE II
OWNERSHIP OF EQUIPMENT
2.1 WBCP's System. WBCP's System, including the Switch and the Leased
Facilities, has been purchased, leased or otherwise obtained by and are
owned by WBCP, subject only to the limited rights of Dobson/Coleman to
lease switching capacity or equipment, as hereinafter provided.
2.2 Dobson/Coleman's System. Unless otherwise provided for in this Agreement,
Dobson and/or Coleman shall be fully responsible for the purchase,
Financing, installation and construction of Dobson/Coleman's System, and
for obtaining Backhaul Facilities necessary to Dobson/Coleman's System.
WBCP shall have no rights of ownership or operation of Dobson/Coleman's
System, other than the Leased Facilities leased to Dobson/Coleman by WBCP
as part of this Agreement.
2.3 Interconnection Facilities. Dobson and/or Coleman shall be responsible
for paying all reasonable and pre-agreed charges associated with circuits
necessary to Connect their System to WBCP's System (whether such circuits
are obtained from a wireline carrier or involve Dobson/Coleman-owned or
leased microwave facilities). Dobson and/or Coleman are also responsible
for paying all charges associated with circuits necessary to interconnect
their System to the PSTN for the purpose of obtaining telephone numbers
for their new customers (whether such circuits are connected directly to
their System or to WBCP's Switch). Dobson/Coleman may utilize the
existing circuits of WBCP to access an Interexchange Carrier for the
provision of long-distance (InterLATA or otherwise) calling, provided
WBCP's circuits have the capacity. Should Dobson and Coleman opt to use
WBCP's existing circuits, Dobson and Coleman agree to reimburse WBCP for
their pro rata share of the fixed charges of the facility plus their
share of the variable costs (computed on an average effective rate). All
such facilities must be technically compatible with WBCP's System.
2.4 Modification and Adjustment. Dobson and Coleman agree and acknowledge
that, although WBCP's System, (including the Switch) and the Leased
Facilities are efficient and functional as of the date of this Agreement,
the evolving nature of wireless technology may render portions of WBCP's
System inefficient or unsuitable for the service that WBCP wishes to
deliver to its customers. WBCP reserves the right, in its sole discretion
and at its expense, to make any and all changes to WBCP's Systems and the
Leased Facilities that it may choose. If WBCP elects to make material
changes to WBCP's Systems and Leased Facilities as provided herein that
will impact service provided to Dobson/Coleman's customers. WBCP agrees
to give Dobson/Coleman forty-five (45) days advance notice of any such
material change, including adequate details to permit Dobson/Coleman to
make any adjustments to its operations because of
<PAGE>
5
such changes. In the event any such change impacts Dobson/Coleman's
System, they shall have the option, at their sole discretion, of
terminating this Agreement under Section 6.2(c) below, or of making, at
their sole expense, all changes, modifications or adjustments to their
System which may be necessary or appropriate to adapt to such changes to
WBCP's System.
ARTICLE III
MANAGEMENT AND OPERATION SERVICES
3.1 a. Services Offered by WBCP. During the term of this Agreement,
Dobson/Coleman shall lease from WBCP all of WBCP's equipment located
within the geographic confines of Maryland RSA 2, as defined in
Article 1.5 ("Leased Facilities") for the monthly recurring charge
set forth on Attachment A. A list of these sites is attached hereto
as Attachment E. Also, during the term of this Agreement, WBCP shall
operate and maintain the Switch and the Leased Facilities to perform
the functions with regard to Dobson/Coleman's System as are described
in this Agreement for the fees set forth in Attachment A,
incorporated herein by reference. Those functions may be either
Enhanced or Basic Switching Services, as both terms are defined
herein, and include processing calls at the Switch, monitoring of
alarms, notification of alarms, processing cell to cell handoff of
calls, production of magnetic (or comparable medium) ALMA billing
tapes which contain basic billing information, production of reports
as described herein, and intersystem handoffs (as appropriate). Any
and all changes, improvements, modifications, updates to and new
capabilities or subscriber features or services (all known as "new
capabilities") offered through the Switch shall be made available to
Dobson/Coleman on an equal and non-discriminatory basis, provided
that if Dobson/Coleman choose to acquire the new capabilities of the
Switch, WBCP may charge an additional fee to Dobson/Coleman for such
new capabilities, and provided further that Dobson/Coleman shall have
no right to require WBCP to purchase or provide to Dobson/Coleman any
new capability which WBCP chooses not to install for its own use in
serving WBCP's System. Dobson/Coleman is responsible for responding
to alarms on the Dobson/Coleman System upon notification of an alarm
by WBCP. Responding to an alarm on the Dobson/Coleman System by WBCP
is an Enhanced Switching Service that Dobson/Coleman may request.
3.1 b. In the event WBCP sells the Leased Facilities to Dobson/Coleman,
pursuant to a separate agreement, WBCP shall continue to switch for
Dobson/Coleman pursuant to the terms of this Agreement, unless or
until Dobson/Coleman purchases a switch from WBCP or a vendor, and
becomes fully operational. Once Dobson/Coleman's System becomes fully
operational, and as such no longer requires switching services from
WBCP, and upon notification to
<PAGE>
6
WBCP of Dobson/Coleman's intent to terminate WBCP's switching and
leasing services pursuant to the terms of this Agreement at Section
6(2)(b), governing termination, the remaining provisions of this
Agreement, including but not limited to roaming provisions,
provisions for the sale of WBCP's customers, and ratifying contour
extensions shall survive following the termination of the switching
and leasing services.
3.2 System Maintenance or Repair.
a. WBCP shall, at its sole expense, maintain and repair, or cause to be
maintained and repaired, WBCP's System, including the Switch, and all
components thereof. Such maintenance shall be in accordance with
industry standards.
b. WBCP shall also be responsible for all corrective and preventive
maintenance, repair and diagnostics for all network facilities and
associated equipment used by Dobson/Coleman, including the Leased
Facilities, (other than the Dobson/Coleman System) including all
necessary coordination with other leased facility carriers. Such
maintenance shall be in accordance with industry standards.
Dobson/Coleman shall pay WBCP's fees for this service as per
Attachment A to this Agreement which sets forth "Enhanced Switching
Services" fees.
c. Dobson/Coleman agrees to maintain Dobson/Coleman's System and WBCP
agrees to maintain WBCP's System and the Leased Facilities such that
each shall obtain a minimum system performance rating of P02 grade,
calculated during the average ten high-day busy hour in any month.
d. Dobson/Coleman and WBCP further agree that any personnel maintaining
or repairing portions of their respective systems shall be certified
as meeting certain industry standards and shall have attended all
appropriate vendor training courses on equipment used in the relevant
system. All vendor specifications shall be met or exceeded by the
applicable party's construction, operation or repair of each system,
including without limitation, use of required test equipment.
e. Dobson/Coleman understand that WBCP's maintenance or repair of the
Leased Facilities and the Switch or WBCP's System may upon occasion
require that a portion of Dobson/Coleman's System or the Leased
Facilities to be removed from service temporarily. WBCP shall notify
Dobson/Coleman at least thirty (30) days prior to performing such
routine maintenance and repair that results in an interruption of
service to Dobson/Coleman's customers. WBCP shall make all reasonable
efforts to minimize the necessity for and length of any such
interruption of Dobson/Coleman's System. Nothing in this paragraph
shall
<PAGE>
7
prevent WBCP from making an immediate interruption without prior
notice in order to comply with federal and/or state regulations, or
in the event of an emergency.
3.3 Access to Switch. WBCP shall provide to Dobson/Coleman one (1) direct
electronic access to the Switch for purposes of activating or
deactivating a Dobson/Coleman's subscriber's telephone number.
Dobson/Coleman's direct electronic access to the Switch shall be limited
to that necessary to perform the tasks previously mentioned. In the event
Dobson/Coleman makes a decision that one direct connection unduly burdens
Dobson/Coleman's ability to provide efficient service in connecting and
disconnecting its customers, Dobson/Coleman may request additional ports
and WBCP shall provide a reasonable number of ports at no additional
charge to Dobson/Coleman if, in WBCP's discretion, the provision of
additional ports will not unduly limit WBCP's switch capacity. In the
event that WBCP's Switch is relocated, Dobson/Coleman shall pay all
additional costs associated with the reconnection of direct electronic
access or with necessary security measures to ensure privacy of WBCP's
and Dobson/Coleman's customer information. Dobson/Coleman shall be
responsible for all costs associated with the direct electronic access to
WBCP's Switch, regardless if access is through a direct point to point
telephone service or through a dial-up and modem configuration.
3.4 Traffic Reports. WBCP shall supply weekly reports to Dobson/Coleman
setting forth Traffic carried on Dobson/Coleman's System and Leased
Facilities, which reports shall be in the same format employed by WBCP
from time to time.
3.5 Billing Tapes.
a. Unless otherwise agreed by the parties, WBCP shall weekly provide
Dobson/Coleman (or Dobson/Coleman's designated billing service) with
a magnetic (or comparable medium) billing tape containing basic
billing information. Dobson/Coleman shall bear all costs associated
with converting such information into subscriber bills. WBCP shall
have no responsibility to arrange or manage production of
Dobson/Coleman's subscriber bills, except as specifically mentioned
in Attachment A. WBCP will provide maintenance to the Switch database
on behalf of Dobson/Coleman as part of Enhanced Switched Services, as
defined herein.
b. Actual out of pocket costs incurred by WBCP to configure its Switch
to accommodate Dobson/Coleman's billing needs (including any start-up
charges from WBCP's billing vendor) will be borne by Dobson/Coleman.
Dobson/Coleman shall bear all costs charged by WBCP's billing vendor
with respect to additional billing volume of Dobson/Coleman in
accordance with Attachment A.
<PAGE>
8
c. In the event Dobson/Coleman elect to arrange for electronic transfer
of billing data to its billing vendor or other outside source used in
its billing process, and if the WBCP equipment provides the ability
for such electronic transfer of billing data, WBCP will provide this
electronic transfer with all costs for such direct connection being
borne by Dobson/Coleman. Dobson/Coleman may retain this electronic
transfer of billing data only so long as all terms of this Agreement
remain in force and effect.
3.6 Review of Information. If Dobson/Coleman should question the validity of
data set forth in the Traffic reports or billing tapes, WBCP and
Dobson/Coleman shall cooperate in good faith to resolve any such
questions. To that end, WBCP shall permit Dobson/Coleman to review all
information related to such data and the processes used to produce such
data, and shall make available any personnel of WBCP necessary to assist
in such review at reasonable times and upon reasonable prior notice.
3.7 Roamer Verification.
a. WBCP shall configure and program the Switch to perform pre-call
roamer verification at no additional charge for calls placed on
Dobson/Coleman's System or on the Leased Facilities by subscribers
whose number resides in WBCP's Switch without the necessity of
sending such calls to a third-party clearinghouse.
b. WBCP shall arrange for the provision of pre-call roamer verification
for calls placed by any person whose number does not reside in WBCP's
Switch, and carried on Dobson/Coleman's System upon Dobson/Coleman's
payment of an additional charge. This additional charge shall be
Dobson/Coleman's pro rata share of all fixed costs associated with
providing this roamer verification service, and all variable charges
shall be allocated based upon the number of verifications originating
on the respective Systems. Notwithstanding anything herein to the
contrary, Dobson/Coleman's share of fixed charges shall not exceed
the incremental increase in roamer verification costs attributable to
Dobson/Coleman's System or the Leased Facilities.
3.8 Service Not Included. Dobson/Coleman acknowledge that the following
services are not included under this Agreement and are Dobson/Coleman's
responsibility unless otherwise provided in separate agreements executed
by the parties or discussed in Schedule A:
a. Customer Service for Dobson/Coleman's Subscribers;
<PAGE>
9
b. Billing for access to or usage of Dobson/Coleman's System or Leased
Facilities (other than the production of billing tapes) (i.e., WBCP
is not responsible for providing bills to or collecting amounts from
Dobson/Coleman's customers);
c. Backhaul Facilities for the carriage of Traffic between cell sites in
the Dobson/Coleman's System, between the Dobson/Coleman's System and
points of interconnection to the PSTN in Maryland RSA 2, and between
the Dobson/Coleman's System and the Switch, excluding the Leased
Facilities.
3.9 Service Interruption.
a. The parties agree and acknowledge that, given the complex nature of
the Dobson/Coleman's System and the Leased Facilities, and the WBCP's
System, including the Switch, service interruptions may be
unavoidable. Dobson/Coleman agree that WBCP may interrupt service to
Dobson/Coleman without advance notice if such interruption is
necessary to maintain integrity of WBCP's System. WBCP and
Dobson/Coleman shall use their best efforts to avoid any unnecessary
service interruptions and, where required, to work with each other to
plan and coordinate necessary service interruptions so as to minimize
disruptions to their customers.
b. WBCP agrees to maintain the integrity of the Dobson/Coleman System
and the Leased Facilities on the same standard that it operates its
own facilities and agrees to use its best efforts to be
non-discriminatory in addressing maintenance of the Dobson/Coleman
System and the Leased Facilities compared to any other system that
WBCP owns or operates.
ARTICLE IV
REVENUE, ROAMING, SERVICE CHARGES AND COSTS
4.1 Assignment of Revenues. Dobson/Coleman shall operate using the same SID
Number ("System Identification Number") as used by WBCP in its adjoining
systems, and Dobson/Coleman shall establish a separate BID Number
("Billing Identification Number") in order to segregate roaming and other
traffic. WBCP and Dobson/Coleman shall cooperate to configure and program
the Switch and make arrangements with each of their respective billing
vendors so as to insure that revenues are appropriately assigned between
WBCP's and Dobson/Coleman's Systems, including Leased Facilities,
according to the following guidelines:
a. Access revenue and feature revenue (i.e. revenue derived from such
features as three-way calling, call forwarding, custom billing. and
the like) shall be
<PAGE>
10
assigned according to the subscriber's NXX, i.e., the first three
digits in the subscriber's seven-digit cellular telephone number.
b. Usage revenue (whether derived from local subscribers or roamers)
shall be assigned according to the cell site which carries the
Traffic underlying such revenue, with the intention that the revenue
from any one call shall be assigned to the cell site upon which such
call originated.
4.2 Roaming.
a. Individual Roamer Agreements.
(i) Subject to the provisions of Section 4.2(a)(ii),
Dobson/Coleman's subscribers shall be entitled to roam in
other cellular systems based upon agreements entered into
between Dobson/Coleman and the relevant carrier. Subscribers
to such other cellular systems shall have the right to roam on
Dobson/Coleman's System, including the Leased Facilities,
based on the roaming agreements Dobson/Coleman negotiates.
Nothing in this Agreement shall be construed to permit
Dobson/Coleman to rely upon the terms of WBCP's roamer
agreements as entered into or modified from time to time by
WBCP. Neither shall WBCP have the right to rely upon the terms
of Dobson/Coleman's roaming agreements with any other
provider. Dobson/Coleman cannot agree to technical
arrangements in its roaming agreements that WBCP does not
currently have in place so long as WBCP is providing switching
services to Dobson/Coleman. Dobson/Coleman will send their own
tapes to the roaming clearinghouse via their billing vendors.
(ii) Dobson/Coleman agree that Dobson/Coleman shall bear all of the
fixed and variable costs associated with modifying the Switch
and WBCP's System, including the Leased Facilities, to permit
such separate roaming agreements and arrangements and provided
further that Dobson/Coleman shall pay to WBCP an additional
amount equal to 5% of the initial fixed costs incurred in
modifying the Switch and WBCP's System and the Leased
Facilities to permit such separate agreements and arrangements
to compensate WBCP for its administrative expenses.
(iii) WBCP and Dobson/Coleman agree that their subscribers shall be
entitled to roam in the other party's service areas at the
reciprocal rate of $0.50 (fifty cents) per minute, with no
daily subscription fees pursuant to the terms of the Rate
Addendum attached hereto as Attachment D.
<PAGE>
11
(iv) WBCP and Dobson/Coleman agree that their subscribers shall not
be charged any toll or "long distance" or other fees for
roaming in the other party's service areas. All calls by
either party's subscribers that both originate and terminate
in the service areas of the parties shall be treated as
"local" calling, as such local calling scope applies to the
party's Own Subscribers. Notwithstanding anything to the
contrary, it is the intent of the parties that "long distance"
charges may apply to calls placed to areas outside of the
parties' home service areas.
b. Assignment for Roamer Revenues. All wholesale roamer charges
generated by WBCP subscribers or other non-Dobson/Coleman subscribers
using Dobson/Coleman's System or Leased facilities, shall be
allocated to Dobson/Coleman, and all wholesale roamer charges
generated by Dobson/Coleman's subscribers using WBCP or other
non-Dobson/Coleman's Systems shall be Dobson/Coleman's
responsibility. Similarly, all wholesale roamer charges generated by
Dobson/Coleman's Subscribers or other non-WBCP subscribers using
WBCP's Systems shall be allocated to WBCP, and all wholesale roamer
charges generated by WBCP's subscribers using Dobson/Coleman's or
other non-WBCP systems shall be WBCP's responsibility. Dobson/Coleman
and WBCP agree to pay and indemnify each other against all costs
(including reasonable attorneys' fees), expenses, liabilities and
other damages or claims arising out of roamer charges generated by
their respective subscribers. Each Party is responsible for the fraud
generated on the Mobile Identification Numbers ("MINs") associated
with the Party's subscribers. WBCP will monitor the Leased Facilities
for indicia of fraud with the same diligence by which it monitors
WBCP's system, and shall report evidence of fraud to Dobson/Coleman
in a timely manner. Notwithstanding anything in this Agreement, WBCP
is not required to upgrade or add to the current fraud detection
capability of the Leased Facilities unless all cost for such upgrade
or addition is borne by Dobson/Coleman. Each Party is responsible for
settlement with its roaming partners.
c. Charges for Functions. Dobson/Coleman shall pay to WBCP the pro rata
share of all fixed expenses and variable expenses associated with
providing roamer verification services, as set forth in Section 3.8.
Should Dobson/Coleman choose to use a billing vendor other than that
being used by WBCP, then WBCP may incur charges associated with
having WBCP's billing vendor strip Dobson/Coleman's roamer call
records off of the billing tapes, and such charges will be passed
through to Dobson/Coleman, plus a five percent (5%) markup to cover
administrative costs.
4.3 Service Charges and Costs. For the rights granted to Dobson/Coleman by
WBCP hereunder, Dobson/Coleman shall pay to WBCP "Service Charges" as
listed on
<PAGE>
12
Attachment A attached hereto, together with the retail rates ("costs")
charged by the supplier of third party services, such as long-distance,
toll, Operator-assisted calls, directory assistance, time and
temperature, emergency bureau, in each case attributable to usage of
Dobson/Coleman's System and the Leased Facilities. WBCP reserves the
right to change "service charges as WBCP deems appropriate on an annual
basis, after giving Dobson/Coleman ninety (90) days written notice of
proposed changes.
4.4 Payment. WBCP shall submit to Dobson/Coleman within 30 days after the end
of each calendar month an invoice listing Service Charges and Costs
payable by Dobson/Coleman hereunder in respect of the prior month (either
on a calendar or billing cycle basis). Dobson/Coleman shall pay such
invoices in full within 30 days of receipt thereof, without deduction or
offset. Any payments not made in full within said thirty (30) day period
shall accrue interest at the lesser of the maximum rate authorized by law
or at eighteen percent (18%) per annum until paid in full. Any disputed
amount shall be paid in full as outlined above, regardless of the
dispute. Should the dispute ultimately be resolved in favor of
Dobson/Coleman, WBCP will refund any amount due within thirty (30) days.
4.5 Assignment of Customers. Dobson/Coleman agrees to purchase those
customers who have activated NXX codes within the confines of the
Maryland RSA 2 ("Maryland RSA 2 Customers") for the price of $280.00 (Two
hundred eighty dollars) per customer. The customers being purchased by
Dobson/Coleman are listed on Attachment B. The total amount will be paid
in full by Dobson/Coleman to WBCP no later than January 11, 1997.
Further, as long as those customers subscribe to cellular service from
Dobson/Coleman, Dobson/Coleman will be responsible to pay the residuals
to the dealers and retailers who originated those customers in accordance
with WBCP's agreements with said dealers and retailers, as agreed between
Dobson/Coleman and the agents/retailers the parties agree WBCP will not
be responsible for any payments to the agents/retailers as of January 1,
1997.
The customers to be acquired by Dobson/Coleman shall be only those
customers that are in WBCP's System under its standard credit and
disconnect policies now in effect, and WBCP agrees to follow those
policies up to the date of acquisition; Dobson/Coleman have no obligation
to pay for or acquire customers that are in the system outside of the
standard WBCP credit and disconnect policies.
It is acknowledged that all parties to this Agreement desire to have a
smooth transition of those customers acquired by Dobson/Coleman from
WBCP; to that end, the parties agree that they will work together to
devise an acceptable notice to the customers and that the same shall be
sent to the customers at a mutually agreed time.
The assignment of the cellular service agreements are in "as is"
condition without warranties expressed or implied. WBCP makes no
representations or warranties on the
<PAGE>
13
assignability of said customer contracts. Further, WBCP makes no
representations or warranties on the enforceability of the agreements by
Dobson/Coleman once the agreements are assigned to it. WBCP fully
discloses that some or a sizeable portion of said customers may object to
the attempted assignment and may contend successfully that if
Dobson/Coleman cannot or chooses not to provide cellular service at the
same rate, geographic area, terms, conditions, and/or local calling area
as presently being provided to said customers by WBCP that their cellular
service agreements are personal in nature and therefore not assignable.
WBCP will have no responsibility to attempt to enforce the contracts once
they are assigned to Dobson/Coleman and will have no obligation to
defend, indemnify or hold harmless from any suits that may be brought
against Dobson/Coleman as a result of the attempted assignment. Further,
WBCP will have no obligation to refund any amount paid by Dobson/Coleman
for said assignments in the event that said assignments are subsequently
determined invalid or unenforceable.
4.6 Ratification of Contour Extensions. The parties hereby ratify and approve
those contour extensions into Maryland RSA 2 by WBCP, and into WBCP's
Systems by Maryland RSA 2, as identified on Attachment C, in accordance
with all relevant FCC rules and regulations, with said extensions to
remain as configured, absent interference, until WBCP no longer provides
switching services or Leased Facilities to Dobson/Coleman. After WBCP
ceases to provide switching service or Leased Facilities to
Dobson/Coleman, the parties agree to negotiate in good faith to enter
into agreements for reasonable contour extensions into the service areas
of the Parties. Both parties agree to withdraw within a reasonable time
upon written notice of a significant interference that cannot be
ameliorated by any reasonable means other than withdrawal.
4.7 The Parties agree to negotiate in good faith to assign the existing
agency/dealer agreements between WBCP and agents/dealers located within
the geographic confines of Maryland RSA 2 to Dobson/Coleman, subject to
the consent of the agents/dealers and Dobson/Coleman.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 Mutual Representations, Warranties and Covenants.
Each of the parties represent, warrants and covenants to the other as
follows:
a. It is an individual, or a partnership or a corporation organized and
validly existing under the laws of the jurisdiction of its
organization;
23<PAGE>
14
b. It has full power and authority and authority to execute and perform this
Agreement;
c. The execution, delivery, and performance of this Agreement has been duly
authorized by all necessary action on its part and is binding and
enforceable against all;
d. Except as specifically noted herein with regard to customer cellular
service agreements, the execution, delivery, and performance of this
Agreement will not conflict with, result in a breach of, or cause a default
under (with or without the giving of notice or the passage of time, or
both), its organization agreements, or any material agreement or instrument
to which it is a party or by which it or any of its property is bound, nor
will it conflict with or violate any statute, law, rule, regulation, order,
decree, license, permit or judgment of any court or governmental authority
which is binding upon it or its property;
e. There are no actions, suits or proceedings pending against it, or to its
knowledge threatened against it, which might have a materially adverse
effect upon its business, operations or financial condition or its ability
to perform its obligations under this Agreement;
f. It is, and will for the term hereof remain, qualified to hold a Block A
cellular construction permit or operating license, as appropriate, pursuant
to FCC and state rules and regulations; and
g. Should the acquisition agreement between Coleman, Maryland Wireless
Communications L.P., and Dobson Cellular of Maryland, Inc., fail to be
consummated for any reason, the terms of this Agreement shall continue in
full force and effect between Coleman, Maryland Wireless Communications
L.P. and WBCP for the duration set forth in Paragraph 6.1. If the
acquisition between Coleman, Maryland Wireless Communications L.P. and
Dobson Cellular of Maryland, Inc. is consummated, and neither Coleman nor
Maryland Wireless Communications L.P. retain an ownership interest in
Maryland RSA 2, then this Agreement shall continue in full force and effect
between Dobson Cellular of Maryland, Inc. and WBCP;
h. During the term of this Agreement each party shall (a) maintain in full
force and effect all necessary federal, state and local regulatory agency
authorizations, (b) timely fill all requests for renewals or replacements
thereof, (c) supply all such agencies with all other required information
which relate to the operation of its facilities, (d) cooperate fully with
the other party in maintenance, renewal and replacement of all such
necessary federal, state and local regulatory authorizations, (e) provide
to the other party all necessary information and
<PAGE>
15
execute any and all said documents to accomplish the same, and (f)
observe and comply with all laws, rules, regulations, ordinances, codes,
orders, licenses and permits relating to its properties or applicable to
its business.
ARTICLE VI
TERM AND TERMINATION
6.1 a. Term. The initial term of this Agreement shall commence on January 1,
1997, and, unless earlier terminated as provided herein, shall
terminate on the third anniversary of the date hereof. This
Agreement shall be renewed automatically for successive terms of
two years unless either party gives written notice to the other
party of its intention to terminate this Agreement at least three
months prior to the end of the then-current term. The parties
acknowledge that the parties intend the switching and cell site
leasing services are for a limited duration while Dobson/Coleman
decides upon its own equipment vendor and network design.
Accordingly, these services are priced with that limited duration
in mind. The parties agree the prices for these services may be
renegotiated should WBCP continue to provide these services beyond
twelve (12) months from January 1, 1997.
b. Except as provided herein Dobson/Coleman may upon thirty (30) days
notice to WBCP, terminate certain provisions of this Agreement as
it becomes capable of providing a service on its own that was
formerly provided by WBCP. Nothing in this paragraph or this
Agreement shall give Dobson/Coleman the right to terminate the
roaming rate agreed to between the parties during the term of this
Agreement, or the contour extension agreement, or the agreement
concerning the purchase of the customers.
6.2 Termination by Dobson/Coleman.
a. WBCP Breach. If at any time during the term of this Agreement, WBCP
materially breaches this Agreement, and such breach remains uncured
for 30 days after written notice thereof by Dobson/Coleman, then,
in addition to other remedies available to it, Dobson/Coleman shall
have the right to terminate this Agreement, upon no less than 30
days written notice to WBCP, without payment of any penalty or
other amount to WBCP (except for amounts due WBCP hereunder for
periods prior to the termination date).
b. Installation of Compatible Equipment. Dobson/Coleman shall have the
right to terminate this Agreement upon thirty (30) days prior
notice if Dobson/Coleman install in Maryland RSA 2 and covenant to
operate for the remainder of the current term of this Agreement a
wireless system, which will permit
<PAGE>
16
transparent, seamless automatic handoff of calls in process between
WBCP's System and Dobson/Coleman's System, and which is capable of
carrying out transparent area paging from WBCP's System. In the
event of termination under this Subparagraph 6.2(b), WBCP and
Dobson/Coleman covenant to coordinate frequency usage on borders of
Dobson/Coleman's MSA and WBCP's RSA for the period equal to the
term which would have remained under this Agreement without such
termination so as to eliminate or minimize to the greatest extent
possible any frequency interference. Termination of the Agreement
pursuant to this subparagraph does not terminate the portion of the
Agreement relating to roaming, acquisition of subscribers, and
contour extensions, which will survive such termination.
c. Modification of System. If WBCP relocates, modifies or adjusts WBCP's
System including the Switch in a manner that materially hinders the
ability of the Switch to perform basic switching for
Dobson/Coleman's System, or Leased Facilities, Dobson/Coleman shall
have the right to terminate this Agreement effective upon the
activation by WBCP of such modification or adjustment, unless
Dobson/Coleman determines to make changes to Dobson/Coleman's
System, at Dobson/Coleman's cost, to remain compatible with WBCP's
System. WBCP agrees to inform Dobson/Coleman of such modifications
at least six (6) months prior to such an event.
d. Transfer of Control. In the event of a transfer of direct or indirect
control of WBCP, or assignment by WBCP of this Agreement, to a
party other than an affiliate of WBCP, Dobson/Coleman shall have
the right upon 90 days prior written notice to terminate this
Agreement.
6.3 Termination by WBCP.
a. Dobson/Coleman Breach. In the event Dobson/Coleman fail to make
payment when due or Service Charges and costs hereunder, or
breaches any other material term of this Agreement, which failure
continues for a period of 30 days after written notice of such
failure is given to Dobson/Coleman, then in such event WBCP shall
have the right to terminate this Agreement by giving Dobson/Coleman
120 days written notice of such termination without payment of any
amount to Dobson/Coleman, other than the payments due under this
Agreement. Provided that in the event that any breach of
Dobson/Coleman which gives rise to a notice of termination by WBCP
involves a failure to make payment when due of Service Charges and
Costs, WBCP shall only be obligated to continue to provide service
to Dobson/Coleman during such 120 day period upon payment by the
15th day of each month of estimated Service Charges and Costs for
each month of such 120 day period. WBCP shall have the right to
<PAGE>
17
demand advanced payment in an amount equal to the Service Charges
and Costs invoiced for the month preceding the month for which
advance payment is sought.
b. Transfer of Control. In the event of a transfer of direct or indirect
control of the Maryland RSA 2 license to a party other Dobson or an
affiliate of Dobson, WBCP shall have the right upon 180 days prior
written notice to terminate this Agreement.
c. Dobson/Coleman-Actions. In the event that Dobson/Coleman, in pursuing
its business goals and strategies, undertakes any action or actions
which substantially and materially harm the business of WBCP, WBCP
shall have the right upon 120 days prior written notice to
terminate this Agreement.
6.4 Rights Upon Termination. After the effective date of termination of this
Agreement, Dobson/Coleman shall have no rights or claims with respect to
WBCP's System including the Switch and the Leased Facilities.
Dobson/Coleman's and WBCP's obligations under paragraphs 4.2(iii), 4.2(iv),
4.5, 4.6, and 8.1(a - g) shall survive termination of this Agreement.
Further, upon termination, Dobson/Coleman shall immediately remove, and bear
all charges relating thereto, the connecting or other facilities from WBCP's
premises.
ARTICLE VII
LIMITATION OF LIABILITY
7.1 Force Majeure. Neither of the parties hereto will be liable for
nonperformance or defective or late performance of any of its obligations
hereunder to the extent and for such periods of time as such nonperformance,
defective performance or late performance is due to reasons outside such
party's control, including without limitation, acts of God, war (declared or
undeclared), acts (including failure to act) of any governmental authority,
riots, revolutions, fire, floods, explosions, sabotage, nuclear incidents,
lightning, weather, earthquakes, storms, sinkholes, epidemics, strikes, or
delays of suppliers or subcontractors. Neither party shall be required to
settle any labor dispute in any manner which is deemed by that party to be
less than totally advantageous, in that party's sole discretion.
7.2 No Consequential or Special Damages. WBCP SHALL NOT BE RESPONSIBLE TO
DOBSON/COLEMAN FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES
TO DOBSON/COLEMAN, DOBSON/COLEMAN'S SYSTEM OR ANY SUBSCRIBER OR CUSTOMER OF
DOBSON/COLEMAN'S SYSTEM OR ANY OTHER PARTY, INCLUDING, WITHOUT LIMITATIONS,
ANY DAMAGE TO OR LOSS OF REVENUES, BUSINESS OR GOODWILL
<PAGE>
18
SUFFERED BY ANY PERSON OR ENTITY FOR ANY FAILURE OF THE SWITCH OR LEASED
FACILITIES OR FAILURE OF PERFORMANCE HEREUNDER. WBCP'S LIABILITY TO
DOBSON/COLEMAN FOR ANY SUCH FAILURE SHALL BE LIMITED TO THE AMOUNT OF ANY
SERVICE CHARGES OR COSTS PAID BY DOBSON/COLEMAN TO WBCP PURSUANT TO THIS
AGREEMENT FOR THE PERIOD OF ANY SUCH FAILURE, EXCEPT IN THE EVENT THAT THE
NEGLIGENCE IS GROSS OR INTENTIONAL.
Approved: WBCP's Initials DAR
-------------------------------
Coleman's Initials WCC
-------------------------------
Dobson's Initials ERA
-------------------------------
ARTICLE VIII
MISCELLANEOUS
8.1 Confidentiality Agreement
a. Each of the parties hereto hereby covenants and agrees that, during
the term of this Agreement and for all time thereafter, neither it,
nor any of its employees, agents, officers or directors, will at
any time make use of, divulge or disclose to any person, firm or
corporation any confidential or proprietary information about the
other party, without limitation, any information concerning the
other party's subscribers, their names, addresses, or telephone
numbers, whatever the source of such confidential or proprietary
information; provided, however, that this confidentiality agreement
shall not apply to information which is the public domain through
no act of the party desiring to disclose such.
b. Each party agrees that such confidential or proprietary information
concerning the other party shall only be disclosed to its employees
who have a valid business reason to know such information and then
only to the extent required for the performance of such employee's
duties.
c. A document need not be marked "confidential" or "proprietary" or
otherwise to be considered confidential or proprietary if it
contains the type of information described above or the content and
context of the information is indicative of a desire to remain
confidential.
d. Nothing herein shall restrict the right of any party to disclose
confidential or proprietary information which is ordered to be
disclosed pursuant to judicial or
<PAGE>
19
other lawful governmental action, but only to the extent so
ordered, or as otherwise required by applicable law or regulation.
e. If either party is served with process to obtain any confidential or
proprietary information or subscriber records of the other party,
that party shall immediately notify the other party and permit the
other party to conduct the defense against disclosure.
f. Upon termination of this Agreement, each party shall return to the
other all confidential and proprietary information concerning the
other which exists in written form.
g. Each of the parties acknowledges and confirms that any failure on its
part to adhere strictly to the terms and conditions of this
paragraph is likely to cause substantial and irreparable injury to
the other party. Accordingly, each party confirms and agrees that,
in addition to all other remedies to which the other party may be
entitled under this Agreement or at law or in equity, the other
party shall be entitled to specific performance an do the equitable
relief, including temporary and permanent injunctive relief to
enforce the provisions of this paragraph.
8.2 No Joint Venture. Nothing herein is intended, or shall be construed, to
create a joint venture, partnership or other common business entity as among
WBCP and Dobson/Coleman, and Nothing herein is intended, or shall be
construed, to impair or diminish WBCP's control over WBCP's System or Leased
Facilities or Dobson/Coleman's control over Dobson/Coleman's System. This
Agreement is not intended, nor shall it be construed, to make WBCP the agent
or co-licensee of Dobson/Coleman, nor Dobson/Coleman the agent or co-licensee
of WBCP. Neither of the parties shall have the authority to bind or commit
the other party in any respect or to accept legal process on behalf of the
other party. Nothing herein gives Dobson/Coleman or WBCP claim to the
subscribers of the other or to the revenues of the other.
8.3 Governmental Approval. The performance of any obligations of any party
hereunder or the exercise of any rights hereunder by any party hereto that
may require FCC approval shall be subject to obtaining such approval. Pending
obtaining such FCC approval, neither party will do anything which is
contrary to the interests of the other party with respect to the subject
matter hereof.
8.4 Notices. Notices provided by this Agreement shall be in writing and
shall be effective when hand delivered, the day following being sent by
overnight courier service, or five days after being sent by certified U.S.
mail, postage prepaid, return receipt requested, to the following address:
<PAGE>
20
If to Coleman or Maryland Wireless Communications, LP
15600 NE 8th Street
Suite B1165
Bellevue, WA 98008
Attention: Wendy Coleman
with a copy to:
Lukas, McGowan, Nace & Gutierrez
1111 Nineteenth Street, NW
Suite 1200
Washington, DC 20036
Attention: Thomas Gutierrez
If to Dobson Cellular of Maryland Inc.
Mr. Everett Dobson, President
Dobson Communications Corporation
13439 North Broadway Extension
Suite 200
Oklahoma City, OK 73114
with a copy to:
Pate, Kempf and Knarr, PC
Attorneys at Law
PO Box 1907
Oklahoma City, OK 73101
Attention: Collier H. Pate
and to Washington Baltimore Cellular Limited Partnership
Steve Sitton
General Manager
Cellular One
7855 Walker Drive, Suite 100
Greenbelt, MD 20770
and
<PAGE>
21
Dan Foley
Vice President - Law
Cellular One
7855 Walker Drive, Suite 100
Greenbelt, MD 20770
with a copy to:
Carol Tacker
Vice President, General Counsel & Secretary
Southwestern Bell Mobile Systems, Inc.
17330 Preston Road, Suite 100A
Dallas, TX 75252
8.5 Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon parties hereto and their respective successors and assigns;
provided, however, that Dobson/Coleman shall not be permitted to assign any
of its rights hereunder without the prior written consent of the WBCP, which
consent shall not be unreasonably withheld. Nothing contained herein shall be
determined to create any rights enforceable by any person other than (a) a
party hereto or (b) the permitted successor or assigns of a party hereto.
8.6 Waiver. No waiver of any provisions of this Agreement, and no consent to
any default hereunder, shall be effective unless the same shall be in writing
and signed by an authorized representative of the party against whom such
waiver or consent is claimed.
8.7 Governing Law. This Agreement shall be governed by the laws of the State
of Maryland.
8.8 Entire Agreement. Subject to the contemporaneous written agreements
among the parties evidenced by Addendum, this Agreement expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements among them relating to the subject
matter hereof and no representations, oral or written, other than those
contained herein, shall have any force or effect. Amendments hereto shall be
effective only if made in writing and executed by all parties. All other
services, if any, to be provided by WBCP shall be governed by separate
agreements to be negotiated and executed by the parties.
8.9 Section Headings. The section headings and numberings of the articles,
sections and paragraphs in this Agreement are for convenience only and shall
not be construed to define or limit any of the terms contained herein or
affect the meaning or interpretation of this Agreement.
<PAGE>
22
8.10 Severability. In the event any provision of this Agreement is held to be
unenforceable, such unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed to the greatest extent possible
as is such unenforceable provision had never been contained herein.
8.11 Counterparts. This Agreement may be executed in counterparts, each which
shall be deemed an original, and both of which shall constitute one and the
same instrument and shall become effective when each of the parties hereto
shall have delivered to the other a duly executed copy of the Agreement or a
facsimile thereof.
<PAGE>
23
WASHINGTON BALTIMORE CELLULAR LIMITED PARTNERSHIP
By: /s/ Drew A. Roy
--------------------------------
Its:
-------------------------------
Dated:
-----------------------------
DOBSON CELLULAR OF MARYLAND, INC.
By: /s/ Ernest Dobson
--------------------------------
Its:
-------------------------------
Dated:
-----------------------------
MARYLAND WIRELESS COMMUNICATIONS LIMITED PARTNERSHIP
By: /s/ Wendy Coleman
--------------------------------
Its: General Partner
-------------------------------
Dated: 12-9-96
-----------------------------
WENDY C. COLEMAN
By: /s/ Wendy Coleman
--------------------------------
Its:
-------------------------------
Dated: 12-9-96
-----------------------------
<PAGE>
24
ATTACHMENT A - SERVICE CHARGES
1. Leased Facilities Charges:
$6,500.00 per month per cell site including the ports needed for the
Leased Facilities. This charge includes depreciation and operating
expenses associated with an individual existing cell site. Additional
sites will be provided only upon WBCP space and capacity availability at
additional fees to be negotiated by the parties.
2. Variable Switch Charges:
Peak calling time will be switched at $0.035 peak and for off peak, Basic
Switching Services and for Enhanced Switching Services. Each switched
minute (whether Basic or Enhanced) is incurred when the Switch is
processing Traffic which is originating or terminating on
Dobson/Coleman's System or the Leased Facilities. It is understood that
switched minutes will be actual minutes or portions of minutes rounded up
to the next full minute on an individual basis. These minutes will be
derived from the reports generated off of the billing system.
3. Billing Tapes Charges:
There will be a $250.00 charge per tape for billing tapes sent by WBCP to
Dobson/Coleman.
4. Roamer Service Charge:
WBCP will provide roaming net settlement services, roaming administration
and coordination services and roaming validation services for $0.50 per
month for each Maryland RSA 2 customer.
5. Should Dobson/Coleman and WBCP agree that WBCP shall provide customer
service and/or billing and collection service for Dobson/Coleman, the cost
for that service shall be:
Billing $2.50 per customer per month
Customer Care (service)
& Collections $2.00 per customer per month
<PAGE>
25
WASHINGTON BALTIMORE CELLULAR LIMITED PARTNERSHIP
By: /s/ Drew A. Roy
--------------------------------------
Its:
-------------------------------------
Dated:
-----------------------------------
DOBSON CELLULAR OF MARYLAND, INC.
By: /s/ Everett Dobson
--------------------------------------
Its:
-------------------------------------
Dated:
-----------------------------------
MARYLAND WIRELESS COMMUNICATIONS Limited Partnership
By: /s/ Wendy C. Coleman
--------------------------------------
Its: General Partner
-------------------------------------
Dated: 12-9-96
-----------------------------------
WENDY C. COLEMAN
By: /s/ Wendy C. Coleman
--------------------------------------
Its:
-------------------------------------
Dated: 12-9-96
-----------------------------------
<PAGE>
Attachment C
Maryland 2 currently has the following contour extensions into
Washington/Baltimore and Virginia 12:
Cell Site Number Location
---------------- --------
193 Prince Frederick
194 Leonardtown
202 Snow Hill
250 Lexington Park
258 Pocomoke City
272 Kent Island
303 Mutual
Maryland 2 currently has the following extensions into Wilmington and
Delaware 1 RSA:
147 Ocean Pines
148 Salisbury
204 Princess Anne
205 Crumpton
276 Ocean City North
494 Denton
495 Federalsburg
564 Wicomico Park
Virginia 12 (a WBCP Market) currently has the following contour extensions
into Maryland 2:
228 Oak Grove
247 Kilmarnock
255 Montross
257 Accomack
260 Robely
266 Haynesville
383 Belbegger Creek
357 Mappsville
1
<PAGE>
Maryland MSA currently has the following contour extensions into
Maryland 2:
3 Harwood
32 Joppa
36 Severna Park
61 Annapolis
70 Dundalk
71 Aberdeen
76 Crownsville
104 Eastport
115 Middle River
139 Cape St. Claire
189 Swan Creek
198 Clayton
203 South River
218 Sudley (under construction)
395 Academy
407 Sharonville
Washington MSA currently has the following contour extensions into
Maryland 2:
20 Kirby Road
22 La Plata
43 Andrews
59 Upper Marlboro
112 Largo
164 Pointer Ridge
180 PG Airpark
182 Hughesville
271 Woodyard
350 Manchester
Comcast currently has the following contour extensions into Maryland 2:
Cayots Pine Tree Corner
Smyrna Dover
Woodside Harrington
Bridgeville Seaford
Angola Laurel
Ocean View Millsboro
Capitol City
2
<PAGE>
Attachment D
(5 Pages)
November 6, 1996
Tina Durant
Manager of Roaming Services
Dobson Cellular Systems
13439 North Broadway Ext.
Suite 100
Oklahoma City, OK 73114
RE: ADDENDUM TO INTERCARRIER ROAMER SERVICES AGREEMENTS ("AGREEMENTS")
BETWEEN SOUTHWESTERN BELL MOBILE SYSTEMS, INC. AND DOBSON CELLULAR
SYSTEMS AS REFERRED TO IN ATTACHMENT A.
The purpose of this letter is to set forth certain terms and conditions
agreed to by Southwestern Bell Mobile Systems, Inc. ("SBMS") and Dobson
Cellular Systems ("Dobson") with regard to the provision of automatic roaming
cellular service by SBMS to Dobson customers who desire to use SBMS systems,
and by Dobson to SBMS customers who desire to use the Dobson systems. Dobson
and SBMS (hereinafter collectively referred to as the "parties") have agreed
to the terms and conditions as set forth below:
1) The effective date of this Addendum is January 1, 1997.
2) The parties agree to charge one another the rate of no daily
surcharge and $0.50 per minute when SBMS customers from the markets
listed in Attachment B travel to Dobson markets listed in Attachment
C and when Dobson customers from the markets listed in Attachment C
travel to SBMS markets listed in Attachment B. Rates apply to all
specified markets except where lower rates already exist.
3) The parties agree not to charge toll charges when SBMS customers from
the markets listed in Attachment B travel to Dobson markets listed in
Attachment C, and when Dobson customers from the markets listed in
Attachment C travel to SBMS markets listed in Attachment B. Rather,
the calls be treated as "local," except that "long distance" charges
will apply to calls placed to areas outside of the parties' home
service areas.
4) The parties agree that the rates set forth above apply to all roaming
service provided under the agreement(s) and all future markets as
reflected on technical data sheets that will be exchanged by the
parties. Rates can only be modified by mutual written agreement by
the parties hereto.
5) This Addendum may be signed in counterparts, each of which shall be
deemed an original.
<PAGE>
6) To the extent of any conflict between the provision of this Addendum
and the Original Agreement and any previous Addendum, this Addendum
will control.
7) Except as set forth above, this Addendum does not change any other
terms of the Original Agreement or any previous addendum.
If you concur, please sign both originals and return them to me.
Regards,
Martha Barnes
Manager - Intercarrier Services
Acknowledged and agreed upon with the intent to be legally bound hereby:
DOBSON CELLULAR SYSTEMS SOUTHWESTERN BELL MOBILE SYSTEMS, INC.
By: /s/ Everett Dobson By:
------------------------ --------------------------
Name: Everett Dobson Name: Stan Sigman
---------------------- ------------------------
Title: CEO & President Title: President & CEO
--------------------- -----------------------
Date: 12-5-96 Date:
---------------------- ------------------------
<PAGE>
ATTACHMENT A
REFERENCED AGREEMENTS
INTERCARRIER ROAMING AGREEMENTS EFFECTIVE DATE
- ------------------------------- --------------
Southwestern Bell Mobile Systems, Inc March 1, 1995
<PAGE>
ATTACHMENT B
COVERED MARKETS
SOUTHWESTERN BELL MOBILE SYSTEMS, INC.
dba CELLULAR ONE OF WASHINGTON
- --------------------------------------
00013 WASHINGTON DC (includes Baltimore MSA)
30333 CULPEPER VA VA11
30339 MARTINSBURG WV WV4
30341 WARRENTON VA VA10
30343 TAPAHANACK VA VA12
<PAGE>
ATTACHMENT C
DOBSON CELLULAR SYSTEMS
Systems Covered as of January 1, 1997
- -----------------------------------------
MARKETS SID/BIDS
- ------- --------
EASTERN SHORE, MD-2
<PAGE>
ATTACHMENT E
LIST OF CELL SITES IN THE MARYLAND 2 RSA
(TO BE LEASED FACILITIES)
----------------------------------------
1) Wye Mills 21) Calvert Cliffs
2) Ocean Pines 22) Prince Frederick
3) Salisbury 23) Easton
4) Trappe
5) Snow Hill
6) Princess Anne
7) Wicomico Park
8) Leonardtown
9) Hughesville
10) Hughesville (land)
11) Crumpton
12) Lexington Park
13) Pocomoke City
14) Kent Island
15) Ocean City Inlet
16) Ocean City North
17) Ocean City South
18) Federalsburg
19) Denton
20) Nanticoke
<PAGE>
GENERAL PURCHASE AGREEMENT
FOR
DOBSON CELLULAR SYSTEMS
AND
LUCENT TECHNOLOGIES INC.,
<PAGE>
TABLE OF CONTENTS
GENERAL AGREEMENT FOR PURCHASE OF CELLULAR SYSTEMS
GENERAL PROVISIONS PAGE
1. ARTICLE I GENERAL PROVISIONS APPLICABLE TO ENTIRE AGREEMENT 1
1.1 HEADINGS AND DEFINITIONS: 1
1.2 TERM OF AGREEMENT: 4
1.3 SCOPE: 4
1.4 PURCHASE OF INITIAL SYSTEM: 4
1.5 ADDITIONS TO AN INITIAL SYSTEM: 5
1.6 PLANNING INFORMATION: 5
1.7 ORDERS: 5
1.8 ORDER ACCEPTANCE: 5
1.9 CHANGES IN CUSTOMER'S ORDERS: 6
1.10 PRICES: 6
1.10.1 CONTRACT CONDITIONS: 7
1.10.2 CONTRACT INCENTIVES: 7
1.10.3 PARTNERSHIP GROWTH PAYMENT: 8
1.10.4 ANNUAL FEE PREPAYMENT: 8
1.10.5 OPTIONAL FEATURES PREPAYMENT: 8
1.10.6 DISCOUNT STRUCTURE: 8
1.10.7 EXCLUSIONS: 9
1.11 INVOICES AND TERMS OF PAYMENT 9
1.12 DELIVERY AND INSTALLATION SCHEDULE: 9
1.13 TRANSPORTATION: 10
1.14 PACKING, MARKING, AND SHIPPING: 10
1.15 TITLE AND RISK OF LOSS: 10
1.16 COMPLIANCE WITH LAWS: 11
1.17 TAXES: 11
1.18 TRAINING: 11
Lucent Tecnologies Inc. Proprietary
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<PAGE>
1.19 TERMINATION FOR CONVENIENCE: 11
1.20 CANCELLATION FOR BREACH: 12
1.21 PATENTS, TRADEMARKS AND COPYRIGHTS: 12
1.22 USE OF INFORMATION: 13
1.23 NOTICES: 14
1.24 RIGHT OF ACCESS: 14
1.25 INDEPENDENT CONTRACTOR: 14
1.26 CUSTOMER'S REMEDIES: 15
1.27 FORCE MAJEURE: 15
1.28 ASSIGNMENT: 15
1.29 PUBLICITY: 16
1.30 APPLICABLE LAW: 16
1.31 SURVIVAL OF OBLIGATIONS: 16
1.32 SEVERABILITY: 16
1.33 NON-WAIVER: 16
1.34 CUSTOMER RESPONSIBILITY 17
1.35 PUBLICATION OF AGREEMENT 17
1.36 ARBITRATION: 17
2. ARTICLE II PROVISIONS APPLICABLE TO ORDERING OF PRODUCTS 17
2.1 GENERAL: 18
2.2 PRODUCT AVAILABILITY: 18
2.3 DOCUMENTATION: 18
2.4 PRODUCT COMPLIANCES: 18
2.5 PRODUCT CHANGES: 18
2.6 CONTINUING PRODUCT SUPPORT - PARTS AND SERVICES: 19
2.7 SPECIFICATIONS: 19
2.8 CUSTOMER TECHNICAL SUPPORT: 19
2.9 PRODUCT WARRANTY: 20
Lucent Tecnologies Inc. Proprietary
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<PAGE>
3. ARTICLE III PROVISIONS APPLICABLE TO THE LICENSING OF SOFTWARE 22
3.1 GENERAL: 22
3.2 LICENSE: 22
3.3 TITLE, RESTRICTIONS AND CONFIDENTIALITY: 23
3.4 CHANGES IN LICENSED MATERIALS: 23
3.5 MODIFICATIONS TO SOFTWARE: 24
3.6 MODIFICATION BY CUSTOMER: 24
3.7 RELATED DOCUMENTATION: 24
3.8 SOFTWARE WARRANTY: 24
3.9 CANCELLATION OF LICENSE: 25
3.10 TAXES APPLICABLE TO SOFTWARE: 26
4. ARTICLE IV PROVISIONS APPLICABLE TO ENGINEERING,INSTALLATION, AND
OTHER SERVICES 26
4.1 GENERAL: 26
4.2 ACCEPTANCE OF INSTALLATION: 26
4.3 CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED ON
CUSTOMER'S SITE: 27
4.3.1 ITEMS PROVIDED BY CUSTOMER 27
4.3.2 ITEMS TO BE FURNISHED BY SELLER 29
4.4 WORK DONE BY OTHERS: 30
4.5 SERVICES WARRANTIES: 31
5. ARTICLE V ENTIRE AGREEMENT AND EXECUTION 31
5.1 ENTIRE AGREEMENT: 31
ATTACHMENT A - DESCRIPTION/PRICING FOR INITIAL SYSTEM
ATTACHMENT B - DESCRIPTION/PRICING FOR MODEL CELL SITE
ATTACHMENT C - CA4 SYSTEM DEFINITION
Lucent Tecnologies Inc. Proprietary
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<PAGE>
GENERAL AGREEMENT FOR PURCHASE OF CELLULAR SYSTEMS
This is an agreement between Lucent Technologies Inc. (Seller), a Delaware
corporation having an office at 583 King George Road, Warren, New Jersey
07059 and Dobson Cellular Systems (Customer), an Oklahoma corporation having
an office at 12439 N. Broadway, Extension 100, Oklahoma City, Oklahoma 73114.
1. ARTICLE I GENERAL PROVISIONS APPLICABLE TO ENTIRE AGREEMENT
1.1 HEADINGS AND DEFINITIONS:
All headings used in this Agreement are inserted for convenience only
and are not intended to affect the meaning or interpretation of this
Agreement or any clause. For the purpose of this Agreement, the following
definitions will apply:
"Advertising" means all advertising, sales promotion, press releases,
and other publicity matters relating to performance under this Agreement;
"Affiliate" of a corporation means its Subsidiaries, any company of
which it is a Subsidiary, and other Subsidiaries of such company. For
purposes of this Agreement, the meaning of "Affiliate" shall not include
any company or subsidiary which is a manufacturer of telecommunication
products in direct competition with Seller;
"Cell Site Equipment" shall mean Control Equipment, Radio Equipment and
Filter Equipment contained within a cell site;
"Customer Price List" means Seller's published "Network Wireless Systems
Price Reference Guide" or other price notification releases furnished by
Seller for the purpose of communicating Seller's prices or pricing
related information to Customer; however, this does not include firm
price quotations;
"Designated Processor" means the Product for which the licenses to use
Licensed Materials are initially granted;
"Firmware" means a combination of (i) hardware and (ii) Software
represented by a pattern of bits contained in such hardware;
"Form" means physical shape;
Lucent Tecnologies Inc. Proprietary
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<PAGE>
"Fit" means physical size or mounting arrangement (e.g., electrical or
mechanical connections);
"Franchise Area" means an area for which the Federal Communications
Commission has granted a permit to construct a cellular mobile
telecommunications system;
"Function" means product features;
"Force Majeure" means fires, strikes, riots, embargoes, explosions,
earthquakes, floods, wars, water, the elements, labor disputes,
government requirements, civil or military authorities, acts of God or
by the public enemy, inability to secure raw materials or transportation
facilities, acts or omissions of carriers or suppliers, or other causes
beyond a party's control whether or not similar to the foregoing;
"Hazardous Material" means material designated as a "hazardous chemical
substance or mixture" by the Administrator, pursuant to Section 6 of the
Toxic Substance Control Act, a "hazardous material" as defined in the
Hazardous Materials Transportation Act (49 U.S.C. 1801, et seq.), or a
"hazardous substance" as defined in the Occupational Safety and Health
Act Hazard Communication Standard (29 CFR 1910.1200);
"In Revenue Service" means use of a Product or any part thereof for
commercial service, whether or not revenue is actually being generated;
"Information" means all documentation and technical and business
information in whatever form recorded, which a party may furnish under,
or has furnished in contemplation of, this Agreement;
"Initial Operations Date" means, as to an Initial System, the agreed
upon date by which Seller shall complete its delivery and installation
of such system;
"Initial System" means the cellular mobile telephone system consisting
of a MSC and cell sites described in Attachment A or in any other order
accepted under this Agreement, as the context requires;
"Licensed Materials" means the Software and Related Documentation for
which licenses are granted by Seller under this Agreement; no Source
Code versions of Software are included in Licensed Materials;
"MSC" means a mobile switching center and usually consists of an ECP,
IMS and at least one (1) DCS;
"Product" means systems, equipment, and parts thereof, other than
Turnkey Items, but the term does not mean Software whether or not such
Software is part of Firmware;
"Product Manufacturing Information" means manufacturing drawings and
specifications of raw materials and components, including part
manufacturing drawings and specifications covering special tooling and
the operation thereof, and a detailed list of all commercially
Lucent Tecnologies Inc. Proprietary
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<PAGE>
available parts and components purchased by Seller on the open market
disclosing the part number, name and location of the supplier, and price
lists;
"Related Documentation" means materials useful in connection with
Software, such as, but not limited to, flow charts, logic diagrams,
program descriptions, and specifications. No Source Code versions of
Software are included in Related Documentation;
"Repair Parts' means new, remanufactured, reconditioned, refurbished, or
functionally equivalent parts for the maintenance, replacement, and
repair of Products sold pursuant to this Agreement;
"Seller's Manufactured Product" means a Product manufactured by Seller
or purchased by it pursuant to its procurement specifications (e.g., KS
or AT);
"Services" means the performance of work for the Customer and includes
but is not limited to: (1) engineering Services such as preparation of
equipment specifications, preparation and updating of office records,
and preparation of a summary of material not specifically itemized in
the Order; (2) installation Services such as installation, equipment
removal, and cable mining; and (3) other Services such as maintenance
and repair. Services do not include Turnkey Services;
"Software" means a computer program consisting of a set of logical
instructions and tables of information which guide the functioning of a
processor; such program may be contained in any medium whatsoever,
including hardware containing a pattern of bits representing such
program, but the term "Software" does not mean or include such medium;
"Source Code" means any version of Software incorporating high-level or
assembly language that generally is not directly executable by a
processor. Except as may be expressly provided, this Agreement does not
require Seller to furnish any Source Code;
"Start Date" means, as to an Initial System, the date upon which Seller
has received Customer's written notice that Customer has performed all
Customer responsibilities and furnished all necessary items required
prior to Seller's commencement of installation of the MSC for the system;
"Subsidiary" of a company means a corporation the majority of whose
shares or other securities entitled to vote for election of directors is
now or hereafter owned or controlled by such company either directly or
indirectly; but any such corporation shall be deemed to be a Subsidiary
of such company only as long as such ownership or control exists;
"Territory" means the 50 states of the United States plus the District
of Columbia;
"Turnkey Item" means a good or product or a partial assembly of goods or
products furnished and, perhaps, installed by Seller as part of a
Turnkey Service but not furnished by Seller pursuant to this Agreement.
A Turnkey Item is not a Vendor Item or a Product as described in this
Agreement;
Lucent Tecnologies Inc. Proprietary
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<PAGE>
"Turnkey Services" means items and activities normally the
responsibility of the Customer under this Agreement, which may include,
but shall not be limited to, project management, field coordination,
construction and system testing. Turnkey Services do not include, and
are separate from, Seller's normal engineering and installation Services;
"Use" with respect to Licensed Materials means loading the Licensed
Materials, or any portion thereof, into a processor for execution of the
instructions and tables contained in such Licensed Materials;
"Vendor Item" means a Product or partial assembly of Products furnished
by Seller but neither manufactured by Seller nor purchased by Seller
pursuant to its procurement specifications. A Vendor Item is not a
Turnkey Item; and
"Warranty Period" means the period of time listed in the respective
WARRANTY clauses which, unless otherwise stated, commences on the date
of shipment, or if installed by Seller on acceptance by Customer or
thirty (30) days from the date Seller submits its notice of completion
of its installation whichever is sooner, and for Services, commences on
the date the Service is completed.
1.2 TERM OF AGREEMENT:
This Agreement shall be effective on the date of execution by the last
of the parties to execute this document and, except as otherwise provided
herein, shall continue in effect for a period of four (4) years. The
modification or termination of this Agreement shall not affect the rights or
obligations of either party under any order accepted by Seller before the
effective date of the modification or termination.
1.3 SCOPE:
The terms and conditions of this Agreement shall apply to all
transactions in which Seller furnishes AUTOPLEX-Registered Trademark- System
1000 Cellular Products, Licensed Materials, or Services to Customer for
Customer's own use, and not for resale. Turnkey Services to be performed by
Seller, if any, and/or Turnkey Items to be obtained by Seller for Customer,
if any, shall be subject to separate agreement of the parties. To the extent
that any terms and conditions in any other Article of the Agreement conflict
with the provisions of this Article I, such terms and conditions supersede
such conflicting provisions of this Article I.
1.4 PURCHASE OF INITIAL SYSTEM:
Seller agrees to engineer, furnish and install and Customer agrees to
purchase an AUTOPLEX System 1000 Cellular Mobile Telephone System (the
"Initial System") in accordance with the terms and conditions contained in
this Agreement. The Initial System will consist, as
Lucent Tecnologies Inc. Proprietary
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<PAGE>
required, two (2) 5ESS Switches (1 DCS Switch and 1 CDX Switch), one (1)
Access Manager and sixty (60) cell sites as set forth in Attachment A to this
Agreement. The Initial System may be modified prior to acceptance by Customer
by written agreement of Customer and Seller.
Subject to Seller's concurrence regarding any proposed modifications to
the Initial System, this Agreement shall be considered the order for the
Initial System and shall, subject to the terms of this Agreement, be deemed
accepted as of the execution of this Agreement.
1.5 ADDITIONS TO AN INITIAL SYSTEM:
The parties contemplate that Customer will wish to obtain additional
Products, Licensed Materials and Services to expand the coverage of or add
features to an Initial System. Orders for such additional items received by
Seller during the term of this Agreement shall be received and accepted
subject to the terms and conditions hereof.
1.6 PLANNING INFORMATION:
Upon Seller's request, and to the extent feasible, Customer will provide
to Seller non-binding forecasts of Customer's annual Product, Licensed
Materials, and Services needs. Such forecasts will be provided on a schedule
to be agreed upon. In addition, where preliminary order information is
required, Customer shall provide such information to Seller within an agreed
upon time prior to the date the order is to be placed.
1.7 ORDERS:
All orders submitted by Customer shall be deemed to incorporate and be
subject to the terms and conditions of this Agreement unless otherwise agreed
in writing.
All orders, including electronic orders, shall contain the information
necessary for Seller to fulfill the order.
All schedules and requested dates are subject to Seller's concurrence.
No provision or data on any order or contained in any documents attached
to or referenced in any order, any subordinate document (such as shipping
releases), shall be binding, except data necessary for Seller to fill the
order. All such other data and provisions are hereby rejected. Electronic
orders shall be binding on Customer notwithstanding the absence of a
signature.
Lucent Tecnologies Inc. Proprietary
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<PAGE>
1.8 ORDER ACCEPTANCE:
All orders are subject to acceptance by Seller. Seller shall acknowledge
the date of order receipt either in writing or electronic data interface
format. The acknowledged date of order receipt is the price effective date
for purposes of this Agreement.
Orders submitted for Products, Licensed Materials, or Services in
accordance with the terms and conditions of this Agreement shall be deemed
accepted by Seller in accordance with the following:
(a) If listed in a Customer Price List with price and scheduled interval,
upon receipt unless Seller notifies Customer to the contrary within ten
(10) days of order receipt;
(b) If listed in a Customer Price List with price and nominal interval (as
indicated in the Customer Price List), upon receipt unless Seller notifies
Customer to the contrary within twenty-one (21) days of order receipt;
(c) If the order is for Products, Licensed Materials or Services not listed
in a Customer Price List or requires engineering, upon receipt unless
Seller notifies Customer to the contrary within forty-two (42) days of
order receipt.
If Customer submits an order requesting a delivery or completion
interval less than the interval listed in the applicable Customer Price List,
Seller will accept such order only for its standard interval. Seller will,
however, attempt to meet Customer's requested interval and provide
confirmation or denial of the requested shortened interval within twenty-one
(21) days. Additional charges may be applicable.
Seller reserves the right to place any order on hold, delay shipment,
and/or reject an order due to, but not limited to, insufficient credit
limits. If orders are subject to third party financing, Products and Licensed
Materials will not ship until the Finance Closure Agreement is signed by both
parties and any associated documents are completed. All orders are subject to
acceptance by Seller.
While it is Seller's objective to provide Customer with an
acknowledgment of each order received, it is Customer's responsibility to
advise Seller of any missing or late notifications to insure that the order
has not been lost. No order is to be considered "accepted" by Seller unless
its receipt has been acknowledged.
1.9 CHANGES IN CUSTOMER'S ORDERS:
Changes made by Customer to an accepted order shall be treated as a
separate order unless the parties expressly agree otherwise. If any such
change affects Seller's ability to meet its obligations under the original
order, any price, shipment date, or completion date quoted by Seller with
respect to such original order is subject to change.
Lucent Tecnologies Inc. Proprietary
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<PAGE>
1.10 PRICES:
Prices, fees, and charges (hereinafter "prices") shall be as set forth
in Seller's Customer Price Lists, firm price quotations, specific agreements,
or other prices submitted by Seller to Customer. Pricing and Description for
the Initial System is set forth in Attachment A to this Agreement.
In those cases where the price is to be determined from a Customer Price
List, the applicable Customer Price List shall be the issue which is in
effect on the date of Seller's receipt of the order provided that the
requested shipment or service-commencement date is in accordance with
Seller's published shipping or planning interval or thirty (30) days from the
date of order receipt, whichever is longer. Prices for Products, Licensed
Materials or services to be shipped or performed beyond such period will be
established by determining an effective order-entry date (the date required
for order entry by Seller in accordance with Customer's requested date) and
applying the price from the applicable Customer Price List as of that date.
In those cases where the price is not to be determined from a Customer
Price List, a firm price quotation, or specific agreement, the applicable
price will be Seller's price in effect on the date of Seller's receipt of the
order and such price will be communicated to Customer as soon as practicable
thereafter.
Seller may amend its prices, other than those subject to firm price
quotations or other agreements between the parties.
Notwithstanding the foregoing, if Seller is delayed from completion of
an order due to any change requested by Customer or as a result of Customer's
delay in furnishing information or in performing its obligations, any price
agreed to by Seller is subject to change.
1.10.1 CONTRACT CONDITIONS:
Attachment A pricing is based upon the following contract conditions:
VOLUME: A minimum purchase commitment of three-hundred (300) total cell sites
and a minimum annual purchase of 60 cells. These cell sites must be equal to or
greater in value than the model described in Attachment B.
DOLLARS: A minimum purchase commitment of $81,000,000 during the term of this
agreement.
EXCLUSIVITY: Lucent is Customer's exclusive vendor in Texas (except TX 2 ),
Arkansas, Arizona, California, and New Mexico.
OWNERSHIP RIGHTS: Lucent is granted the option to take ownership, or to
transfer such ownership rights, of any equipment being replaced in these
markets.
1.10.2 CONTRACT INCENTIVES:
The following are the incentives Lucent will be providing the Customer
during the term of this Agreement:
Lucent Tecnologies Inc. Proprietary
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<PAGE>
INITIAL SYSTEM SIGNING BONUS: A $29,008,524 signing bonus will be applied to
the Initial System as described in Attachment A Lucent reserves the right to
distribute this incentive over the products and services comprising the
Initial System.
CALIFORNIA 4 RSA (CA4): Lucent will provide at no charge the software and the
hardware for CA4 as defined in Attachment C. Equipment (Software/Hardware)
purchased beyond the CA4 system as defined in Attachment C will be subject to
the standard customer discount structure as detailed in Section 1.10.7. All
Engineering and Installation costs for the CA4 system will be Customer's
responsibility.
CELL SITE CREDIT: For cell sites 141-300, that are equal to or greater in value
than the model described in Attachment B, a $109,10 credit will be applied. Only
cell sites equal to or greater in value than the model described in Attachment B
count toward the initial 140 sites.
1.10.3 PARTNERSHIP GROWTH PAYMENT:
Customer is responsible for an annual Partnership Growth Payment. The
first annual payment is due September 10, 1999 with subsequent annual payments
due on September 10, 2000 and September 10, 2001. The Partnership Growth
Payment is comprised of three components: 1) a fixed payment of $700,000 per
year, 2) a $50,000 per year per Access Manager payment, and 3) a $6 per
subscriber per year payment. The quantity of Access Managers and subscribers
will be determined by the quantity of each that are activated as of September
1 of the year the payment is due.
1.10.4 ANNUAL FEE PREPAYMENT:
The Customer agrees to pre-pay as part of the Initial System the annual
software maintenance fees associated with the Access Managers, 5ESSs, and cell
sites associated with all years of this contract. This one time pre-payment is
reflected as $5,471,000 in Attachment A.
1.10.5 OPTIONAL FEATURES PREPAYMENT:
The Customer agrees to a one time pre-pay as part of the Initial System
the optional feature charges for two Access Managers and related cells. This
pre-payment is reflected as $8,000,000 in Attachment A and provides Customer
access to all Access Manager and cell site optional features available at the
time the two Access Managers are individually accepted by the Customer.
1.10.6 DISCOUNT STRUCTURE:
The following discount structure is applied for the term of this
agreement:
<TABLE>
HARDWARE/SOFTWARE DISCOUNT
<S> <C>
5ESS Hardware/Software-New 66%
5ESS Hardware/Software-Growth 20%
Access Manager-Hardware 10%
Cell Site Hardware (inc TDMA and CDMA) 40%
Optional Features 20%
Initial Cell Software 20%
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Annual Fees 20%
</TABLE>
1.10.7 EXCLUSIONS:
Unless expressly stated in writing, Seller's prices are exclusive of
the following charges:
- Turnkey services such as RF engineering, site acquisition, and
construction management.
- Taxes, Transportation, Hauling, Hoisting, and Warehousing.
- Engineering Site Visits (if required).
- Power/battery plants, additions, growth and/or replacement.
- Transmission/networking equipment additions, growth, and/or
replacement.
- Antennas/tower additions, growth, or modifications.
- Building modifications/construction.
- Any other items not specifically quoted above.
1.11 INVOICES AND TERMS OF PAYMENT
Products and Licensed Materials (including transportation charges and
taxes, if applicable) will be billed by Seller when shipped, or as soon
thereafter as practicable. Engineering will be billed upon main shipment of
Products. Installation will be billed as performed or as soon thereafter as
practical. Customer shall pay such invoiced amounts, less any disputed items,
for receipt by Lucent within thirty (30) days of the invoice date. Delinquent
payments are subject to a late payment charge at the rate of one and one-half
percent (1-1/2%) per month, or portion thereof, of the amount due (but not to
exceed the maximum lawful rate). Any disputed items which Seller determines
are not valid are due for payment based upon the original invoice date and
will be subject to a retroactive late payment charge based upon the original
invoice date. Customer agrees to pay Seller's reasonable attorneys fees and
other costs incurred by Seller in collection of any amounts invoiced
hereunder. Customer shall notify Seller of any disputed invoice amounts within
thirty (30) days from the date of the invoice. Seller may apply any credit
which remains outstanding in favor of Customer to the oldest undisputed
invoice which remains in Customer's portfolio.
1.12 DELIVERY AND INSTALLATION SCHEDULE:
Customer shall notify Seller that the MSC site and/or cell sites for the
Initial System described in Attachment A are ready for installation and that
Customer's responsibilities referred to in Article IV relating to such sites
have been performed or furnished. Seller shall have access to such sites on
and from the date of Seller's receipt of such notification.
Seller agrees that it will install all of the parts of the Initial System
and submit notices of completion to Customer on or before the Initial
Operations Date, which, unless extended as provided in this Agreement or by
mutual consent of the parties.
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1.13 TRANSPORTATION:
Seller's prices for Products and Licensed Materials do not include
freight charges or related transportation Services or charges therefor, unless
expressly stated in writing by Seller to the contrary. Seller, in accordance
with its normal practices, will arrange for transportation for such items,
will prepay transportation, if appropriate, and invoice transportation charges.
If Customer elects to route Products and/or Licensed Materials or to
arrange for transportation, Seller will provide related services subject to a
separate fee.
Premium transportation will only be used with Customer's concurrence.
1.14 PACKING, MARKING, AND SHIPPING:
Seller shall, at no additional charge, pack and mark shipping containers
in accordance with its standard practices for domestic shipments. Where in
order to meet Customer's requests, Seller packs and/or is required to mark
shipping cartons in accordance with Customer's specifications, Seller shall
invoice Customer additional charges for such packing and/or marking.
Seller shall:
(a) Enclose a packing memorandum with each shipment and, if the shipment
contains more than one package, identify the package containing the
memorandum; and
(b) Mark Products as practicable for identification in accordance with
Seller's marking specifications (e.g., model/serial number and month and
year of manufacture).
Partial shipments under an order may be made by Seller and separately
invoiced.
1.15 TITLE AND RISK OF LOSS:
Title (except as provided in the clause USE OF INFORMATION and in Article
III) and risk of loss to a Product, Licensed Material, or other item furnished
to Customer under this Agreement shall pass to Customer upon delivery to the
final destination established by Customer's order for the item or other
agreement of the parties. Delivery of an item to its final destination by
Seller shall be deemed complete at such time as all transportation, interim
warehousing, hauling and hoisting required to be performed by Seller or its
agents under the order for the item have been completed. Notwithstanding the
above, if sooner, title and risk of loss to the item shall pass to Customer at
the point at which Seller or Seller's supplier or agent turns over possession
of the item to Customer, Customer's employee, Customer's designated carrier,
warehouser or hoister, or other Customer's agent. For the purposes of this
clause, receipt of an item by a carrier arranged for by Seller in performance
of a Turnkey Service provided under separate agreement of the parties shall be
deemed receipt by Customer's designated carrier.
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Customer shall notify Seller promptly of any claim with respect to loss
which occurs while Seller has the risk of loss and shall cooperate in every
reasonable way to facilitate the settlement of any claim.
Nothing herein shall, during the period Seller has the risk of loss to an
item, relieve Customer of responsibility for loss to the item resulting from
the acts or omissions of Customer, Customer's employees or Customer's agents.
1.16 COMPLIANCE WITH LAWS:
Performance under this Agreement shall be subject to all applicable laws,
orders, and regulations of federal, state, and local governmental entities.
1.17 TAXES:
Customer shall be liable for and shall reimburse Seller for all taxes and
related charges, however designated, (excluding taxes on Seller's net income)
imposed upon or arising from the provision of Services, or the transfer, sale,
license, or use of Products, Licensed Materials, or other items provided by
Seller. Taxes reimbursable under this paragraph shall be separately listed on
the invoice.
Seller shall not collect the otherwise applicable tax if the front of the
order indicates that the purchase is exempt from Seller's collection of such
tax and a valid tax exemption certificate is furnished by Customer to Seller.
1.18 TRAINING:
Seller will make available Seller's standard training for Customer's
personnel in the planning for, operation and maintenance of Products and
Software furnished hereunder in accordance with Seller's published prices at
Seller's training locations or as mutually agreed.
1.19 TERMINATION FOR CONVENIENCE:
Customer may, upon written notice to Seller, terminate any order or
portion thereof, except with respect (i) to any order for an Initial System,
or (ii) to Products or Licensed Materials that have already been shipped and
Services that have already been performed.
For those Products and Licensed Materials not shipped but considered
stock items, Customer agrees that it will pay Seller an order fee equal to
fifteen percent (15%) of the price or licensee fee for such items.
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For those Products and Licensed Materials not shipped and considered
customized or non-stock items, Customer agrees to pay a fee based upon
Seller's incurred expenses (after adjustment for recoveries and/or salvage
value, if any), including associated general and administrative expenses plus
a reasonable profit.
For Services in process, Customer agrees to pay for all Services rendered
to date, plus Seller's incurred expenses, including a reasonable profit, for
those Services ordered by Customer and subsequently terminated.
Customer may issue "holds" on orders or suspend performance under this
Agreement, in whole or in part, with Seller's prior written consent and upon
terms that will compensate Seller for any loss, damages, or expenses.
1.20 CANCELLATION FOR BREACH:
In the event Seller or Customer is in material breach or default of this
Agreement or any order placed hereunder and such breach or default continues
for a period of forty-five (45) days after the receipt of written notice (and
such additional time as may be agreed upon by the parties), then Seller or
Customer shall have the right to cancel that part of any order affected by the
breach or default without any charge, obligation or liability, except for
those items already fully discharged. Both parties shall cooperate in every
reasonable way to facilitate the remedy of a breach or default hereunder
within such forty-five (45) day period.
1.21 PATENTS, TRADEMARKS AND COPYRIGHTS:
In the event of any claim, action, proceeding or suit by a third party
against Customer alleging an infringement of any United States patent, United
States copyright, or United States trademark, or a violation in the United
States of any trade secret or proprietary rights by reason of the use, in
accordance with Seller's or other applicable specifications, of any Product or
Licensed Material furnished by Seller to Customer under this Agreement,
Seller, at its expense, will defend, indemnify and hold Customer harmless,
subject to the conditions and exceptions stated below. Seller will reimburse
Customer for any cost, expense or attorney's fee, incurred at Seller's written
request or authorization, and will indemnify Customer against any liability
assessed against Customer by final judgment on account of such infringement or
violation arising out of such use.
If Customer's use shall be enjoined or in Seller's opinion is likely to
be enjoined, Seller will, at its expense and at its option, either (1) replace
the enjoined Product or Licensed Material furnished pursuant to this Agreement
with a suitable substitute free of any infringement, (2) modify it so that it
will be free of the infringement, or (3) procure for Customer a license or
other right to use it. If none of the foregoing options is practical, Seller
will remove the enjoined Product or Licensed Material and refund to Customer
any amounts paid to Seller less a reasonable charge for any actual period of
use by Customer.
Customer shall give Seller prompt written notice of all such claims,
actions, proceedings or suits alleging infringement or violation and Seller
shall have full and complete authority to assume
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<PAGE>
the sole defense thereof, including appeals, and to settle same. Customer
shall, upon Seller's request and at Seller's expense, furnish all information
and assistance available to Customer and cooperate in every reasonable way to
facilitate the defense and/or settlement of any such claim, action, proceeding
or suit.
No undertaking of Seller under this clause shall extend to any such
alleged infringement or violation to the extent that it: (1) arises from
adherence to design modifications, specifications, drawings, or written
instructions which Seller is directed by Customer to follow, but only if such
alleged infringement or violation does not reside in corresponding commercial
Product or Licensed Material of Seller's design or selection; or (2) arises
from adherence to instructions to apply Customer's trademark, trade name, or
other company identification; or (3) resides in a Product or Licensed Material
which is not of Seller's origin and which is furnished by Customer to Seller
for use under this Agreement; or (4) relates to uses of Products or Licensed
Materials provided by Seller in combinations with other Products or Licensed
Materials, furnished either by Seller or others, which combination was not
installed, recommended or otherwise approved by Seller. In the foregoing cases
numbered (1) through (4), Customer will defend and save Seller harmless,
subject to the same terms and conditions and exceptions stated above with
respect to the Seller's rights and obligations under this clause.
The liability of Seller and Customer with respect to any and all claims,
actions, proceedings, or suits by third parties alleging infringement of
patents, trademarks, or copyrights or violation of trade secrets or
proprietary rights because of, or in connection with, any items furnished
pursuant to this Agreement shall be limited to the specific undertakings
contained in this clause.
1.22 USE OF INFORMATION:
All Information which bears a legend or notice restricting its use,
copying or dissemination, shall remain the property of the furnishing party.
The furnishing party grants the receiving party the right to use such
Information only as follows. Such Information (1) shall not be reproduced or
copied, in whole or part, except for use as authorized in this Agreement; and
(2) shall, together with any full or partial copies thereof, be returned or
destroyed when no longer needed. Moreover, when Seller is the receiving party,
Seller shall use such Information only for the purpose of performing under
this Agreement, and when Customer is the receiving party, Customer shall use
such Information only (1) to order, (2) to evaluate Products, Licensed
Materials or Services, or (3) to install, operate, and maintain the particular
Products or Licensed Materials for which it was originally furnished. Unless
the furnishing party consents in writing, such Information, except for that
part, if any, which is known to the receiving party free of any confidential
obligation, or which becomes generally known to the public through acts not
attributable to the receiving party, shall be held in confidence by the
receiving party. The receiving party may disclose such Information to other
persons, upon the furnishing party's prior written authorization, but solely
to perform acts which this clause expressly authorizes the receiving party to
perform itself and further provided such other person agrees in writing (a
copy of which writing will be provided to the furnishing party at its request)
to the same conditions respecting use of Information contained in this clause
and to any other reasonable conditions requested by the furnishing party.
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The term "Information" as used in this clause does not include Software
(whether or not embodied in Firmware) or Related Documentation. The use of
Software and Related Documentation is governed by Article III of this
Agreement.
1.23 NOTICES:
All notices under this Agreement shall be in writing (except where
otherwise stated) and shall be addressed to the addresses set forth below or
to such other address as either party may designate by notice pursuant hereto.
Such notices shall be deemed to have been given when received.
SELLER:
Lucent Technologies Inc.
4851 LBJ Freeway Suite 900
Dallas, TX 75244
Attn: Rick L. Madsen, Contract Manager
CUSTOMER:
Dobson Cellular Systems
13439 N. Broadway, Extension 100
Oklahoma City, Oklahoma 73114
Attn: G. Edward Evans, President and Chief Operating Officer.
1.24 RIGHT OF ACCESS:
Each party shall provide the other access to its facilities reasonably
required in connection with the performance of the respective obligations
under this Agreement. No charge shall be made for such access. Reasonable
prior notification will be given when access is required. Neither party shall
require releases of any personal rights in connection with visits to its
premises.
1.25 INDEPENDENT CONTRACTOR:
All work performed by one party under this Agreement shall be performed
as an independent contractor and not as an agent of the other and no persons
furnished by the performing party shall be considered the employees or agents
of the other. The performing party shall be responsible for its employees'
compliance with all laws, rules, and regulations while performing work under
this Agreement.
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1.2 6CUSTOMER'S REMEDIES:
(a) Customer's exclusive remedies and the entire liability of Seller and its
affiliates and their employees and agents for any claim, loss, damage, or
expense of Customer or any other entity arising out of this Agreement, or
the use or performance of any Product, Licensed Material, or Service,
whether in an action for or arising out of breach of contract, tort,
including negligence indemnity, or strict liability shall be as follows:
(1) For infringement--the remedy set forth in the "PATENTS, TRADEMARKS,
AND COPYRIGHTS" clause;
(2) For the performance of Products, Turnkey Items, Software, Services,
and Turnkey Services or claims that they do not conform to a
warranty--the remedy set forth in the applicable "WARRANTY" clause;
(3) For tangible property damage and personal injury caused by Seller's
negligence--the amount of direct damage;
(4) For everything other than as set forth above--the amount of direct
damages not to exceed $100,000 including awarded counsel fees and
costs.
(b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, SELLER AND ITS
AFFILIATES AND THEIR EMPLOYEE AND AGENTS SHALL NOT BE LIABLE FOR
INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGE OR LOST PROFITS, REVENUES
OR SAVINGS ARISING OUT OF THIS AGREEMENT, OR THE USE OR PERFORMANCE OF
ANY PRODUCT, LICENSED MATERIALS, TURNKEY ITEMS, SERVICES OR TURNKEY
SERVICES, WHETHER IN AN ACTION FOR OR ARISING OUT OF BREACH OF CONTRACT,
TORT, INCLUDING NEGLIGENCE, OR STRICT LIABILITY. THIS CLAUSE 1.26(b)
SHALL SURVIVE FAILURE OF AN EXCLUSIVE OR LIMITED REMEDY.
(c) Customer shall give Seller prompt notice of any claim. Any action or
proceeding against Seller must be brought within twenty-four (24) months
after the cause of action accrues.
1.27 FORCE MAJEURE:
Except with respect to Customer's obligation to make timely payments
under this Agreement, neither party shall be held responsible for any delay or
failure in performance to the extent that such delay or failure is caused by a
Force Majeure. Nothing contained herein or elsewhere shall impose any
obligation on either party to settle any labor difficulty.
1.28 ASSIGNMENT:
Except as provided in this clause, neither party shall assign this
Agreement or any right or interest under this Agreement, nor delegate any work
or obligation to be performed under this
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Agreement, (an "assignment") without the other party's prior written consent.
Any attempted assignment in contravention of this shall be void and
ineffective. Nothing shall preclude a party from employing a subcontractor in
carrying out its obligations under this Agreement. A party's use of such
subcontractor shall not release the party from its obligations under this
Agreement.
Seller has the right to assign this Agreement and to assign its rights
and delegate its duties under this Agreement, in whole or in part, at any time
and without Customer's consent, to any present or future Subsidiary of Seller,
or to any combination of the foregoing. Such assignment or delegation shall
release Seller from any further obligation or liability thereon. Seller shall
give Customer prompt written notice of the assignment.
For purposes of this clause, the term "Agreement" includes this
Agreement, any subordinate contract placed under this Agreement and any order
placed under such Agreement or subordinate contract.
1.29 PUBLICITY:
Each party shall submit to the other proposed copy of all Advertising
wherein the name, trademark, code, specification or service mark of the other
party or its affiliates is mentioned; and neither party shall publish or use
such Advertising without the other's prior written approval. Such approval
shall be granted as promptly as possible (usually within ten (10) days), and
may be withheld only for good cause.
1.30 APPLICABLE LAW:
The construction and interpretation of, and the rights and obligations of
the parties pursuant to this Agreement, shall be governed by the laws of the
State of New York.
1.31 SURVIVAL OF OBLIGATIONS:
The parties' rights and obligations which, by their nature, would
continue beyond the termination, cancellation, or expiration of this
Agreement, shall survive such termination, cancellation, or expiration.
1.32 SEVERABILITY:
If any provision in this Agreement shall be held to be invalid or
unenforceable, the remaining portions shall remain in effect. In the event
such invalid or unenforceable provision is considered an essential element of
this Agreement, the parties shall promptly negotiate a replacement provision.
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1.33 NON-WAIVER:
No waiver of the terms and conditions of this Agreement, or the failure
of either party strictly to enforce any such term or condition on one or more
occasions shall be construed as a waiver of the same or of any other term or
condition of this Agreement on any other occasion.
1.34 CUSTOMER RESPONSIBILITY
Customer shall, at no charge to Seller, provide Seller with such
electrical and environmental conditions, technical information, data,
technical support, or assistance as may reasonably be required by Seller to
fulfill its obligations under this Agreement, any subordinate agreement, or
order. If Customer fails to provide the required conditions, information,
data, support, or assistance, Seller shall be discharged from any such
obligation.
1.35 PUBLICATION OF AGREEMENT
The parties shall keep the provisions of this Agreement and any order
submitted hereunder confidential except as reasonably necessary for
performance hereunder and except to the extent disclosure may be required by
applicable laws or regulations, in which latter case, the party required to
make such disclosure shall promptly inform the other prior to such disclosure
in sufficient time to enable such other party to make known any objections it
may have to such disclosure. The disclosing party shall take all reasonable
steps to secure a protective order or otherwise assure that the Agreement or
order will be withheld from the public record.
1.36 ARBITRATION:
If a dispute arises out of or relates to this Agreement, or its breach,
the parties agree to submit the dispute to a sole mediator selected by the
parties or, at any time at the option of a party, to mediation by the American
Arbitration Association ("AAA"). If not thus resolved, it shall be referred
to a sole arbitrator selected by the parties within thirty (30) days of the
mediation or, in the absence of such selection, to AAA arbitration which shall
be governed by the United States Arbitration Act, and judgment on the award
may be entered in any court having jurisdiction. The arbitrator may determine
issues of arbitrability, but may not award punitive damages or limit, expand
or otherwise modify the terms of this Agreement. The parties, their
representatives, other participants and the mediator and arbitrator shall hold
the existence, content and result of mediation and arbitration in confidence.
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2. ARTICLE II PROVISIONS APPLICABLE TO ORDERING OF PRODUCTS
2.1 GENERAL:
The provisions of this Article II shall be applicable to the purchase of
Products from Seller. If Software is also to be licensed for use on a
purchased Product, or if a Product is also to be engineered or installed by
Seller, the provisions of Articles III and IV shall also be applicable.
2.2 PRODUCT AVAILABILITY:
Seller shall notify Customer, usually at least one (1) year, before
Seller discontinues accepting orders for a Seller's Manufactured Product sold
under this Agreement. Where Seller offers a functionally equivalent Product
for sale, the notification period may vary.
2.3 DOCUMENTATION:
Seller shall furnish to Customer, at no additional charge, one copy of
documentation for the Products provided hereunder sufficient to operate and
maintain such Products. Such documentation will be that customarily provided
by Seller to its Customers at no additional charge. Such documentation shall
be provided prior to, with, or shortly after the shipment of the Products from
Seller to Customer. Additional copies of the documentation are available at
prices set forth in the Customer Price List.
2.4 PRODUCT COMPLIANCES:
Seller represents that a Product furnished hereunder shall comply, to the
extent required, with the requirements of Part 22 of the Federal Communication
Commission's Rules and Regulations pertaining to cellular radio in effect upon
delivery of such Product. In addition, Seller represents that a Product
furnished hereunder shall comply, to the extent required, with the
requirements of Subpart J of Part 15 of the Federal Communication Commission's
Rule and Regulations in effect upon delivery of such Product, including those
sections concerning the labeling of such Product and the suppression of radio
frequency and electromagnetic radiation to specified levels. Seller makes no
undertaking with respect to harmful interference caused by (i) installation,
repair, modification or change of Products or Software by other than Seller;
(ii) Products being subjected to misuse, neglect, accident or abuse by other
than Seller; (iii) Products or Software being used in a manner not in
accordance with operating instructions or in a suitable installation
environment or operations of other equipment in the frequency range reserved
for Customer within the Franchise Area.
Seller assumes no responsibility under this clause for items designated
or supplied by Customer, including but not limited to antennas, power
equipment and batteries. Type acceptance or certification of such items shall
be the sole responsibility of Customer.
2.5 PRODUCT CHANGES:
Prior to the shipment of a Product, Seller may at any time make changes
in a Product furnished pursuant to this Agreement, or modify the drawings and
published specifications relating
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thereto, or substitute Products of later design to fill an order, provided
the changes, modifications, or substitutions under normal and proper use do
not impact upon the Form, Fit, or Function of an ordered Product as
identified in Seller's specifications.
2.6 CONTINUING PRODUCT SUPPORT - PARTS AND SERVICES:
In addition to repairs provided for under Product Warranty, Seller
offers repair Services and Repair Parts in accordance with Seller's repair
and Repair Parts practices and terms and conditions then in effect, for
Seller's Manufactured Products furnished pursuant to this Agreement. Such
repair Services and Repair Parts shall be available while Seller is
manufacturing or stocking such Products or Repair Parts, but in no event less
than five (5) years after such Product's discontinued availability effective
date. Seller may use either new, remanufactured, reconditioned, refurbished,
or functionally equivalent Products or parts in the furnishing of repairs or
replacements under this Agreement.
If during the agreed to support period Seller is unable to provide
Repair Part(s) and/or repair Service(s) and a functionally equivalent
replacement has not been designated, Seller shall advise Customer, by written
notice prior to such discontinuance to allow Customer to plan appropriately,
and if Seller is unable to identify another source of supply for such Repair
Part(s) and/or repair Service(s), Seller shall provide Customer, upon
request, with non-exclusive licenses for Product Manufacturing Information to
the extent Seller can grant such licenses, so that Customer will have
sufficient information to have manufactured, or obtain such Service or parts
from other sources. License terms, including charges, will be in accordance
with Seller's licensing procedures then in effect.
2.7 SPECIFICATIONS:
Upon request, Seller shall provide to Customer, at no charge, one (1)
copy of Seller's available commercial specifications applicable to Products
orderable hereunder. Additional copies are available at the applicable price
therefor.
2.8 CUSTOMER TECHNICAL SUPPORT:
Seller provides Customer Technical Support for the AUTOPLEX Cellular
System through the Customer Technical Support Organization (CTSO). The CTSO
is solely dedicated to the Seller's Cellular Product line. The CTSO provides
diagnostic center support, performance measurement and system engineering
services. Customer Technical Support is currently provided at no cost to the
Customer. Special, unusual or customized services may be billable, depending
upon the nature of the request.
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2.9 PRODUCT WARRANTY:
(a) Seller warrants to Customer only, that:
(i) As of the date title to Products passes to Customer, Seller will
have the right to sell, transfer, and assign such Products and the
title conveyed by Seller shall be good;
(ii) Upon shipment or, if installed by Seller, on acceptance by Customer
or thirty (30) days from the date Seller submits its notice of
completion of its installation, whichever is sooner, Seller's
Manufactured Products will be free from defects in material and
workmanship, and will conform to Seller's specification or any other
agreed-upon specification referenced in the order for such Product;
and
(iii) With respect to Vendor Items, Seller, to the extent permitted, does
hereby assign to Customer the warranties given to Seller by its vendor
of such Vendor Items. Such assignment will be effective on the date of
shipment of such Vendor Items. With respect to Vendor Items
recommended by Seller in its specifications for which the vendor's
warranty cannot be assigned to Customer, or if assigned, less than
sixty (60) days remain of the vendor's warranty at the time of
assignment, Seller warrants for sixty (60) days from the date of
shipment or, if installed by Seller, on acceptance by Customer or
thirty (30) days from the date Seller submits its notice of completion
of its installation whichever is sooner, that such Vendor's Items will
be free from defects in material and workmanship.
(b) The Warranty Periods listed below are applicable to Seller's Manufactured
Products furnished pursuant to this Agreement, unless otherwise stated:
<TABLE>
Repaired or
Class of New Replacement
Product Product* Product or Part**
- ----------------------------------------- --------- -----------------
<S> <C> <C>
Cellular Radio Telecommunications Systems
& Cell Sites 24 Months 6 Months
Transmission Systems
-All Transmission Products in the
"2000 Product Family" 60 Months 6 Months
-D4 Circuit Packs 60 Months 6 Months
-SLC Circuit Packs 60 Months 6 Months
-SLC Series 5 Plug-ins 60 Months 6 Months
-T1 Repeaters 60 Months 6 Months
-DDM-1000 Circuit Packs 60 Months 6 Months
</TABLE>
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<TABLE>
<S> <C> <C>
-Other Transmission Products 24 Months 6 Months
</TABLE>
* Refer to the SOFTWARE WARRANTY CLAUSE for associated Software warranties.
** The Warranty Period for a repaired Product or part thereof repaired under
or for a replacement Product of Part thereof furnished in lieu of repair
under this Warranty is the period listed or the un-expired term of the new
Product Warranty Period, whichever is longer.
Notwithstanding anything in this Agreement to the contrary, Customer's use of
any part of an Initial System In Revenue Service or to provide training or
hands-on experience to Customer's personnel shall, if prior to Seller's
notice of installation completion, commence the applicable warranty period;
provided, however, this provision shall not apply to training provided by
Seller nor to the extent that Customer's personnel merely familiarize
themselves with the Initial System without actual operation of the Products.
(c) If, under normal and proper use during the applicable Warranty Period,
a defect or nonconformity is identified in a Product furnished by Seller,
and Customer notifies Seller in writing of such defect or nonconformity
promptly after Customer discovers such defect or nonconformity and follows
Seller's instructions regarding the return of the defective or nonconforming
Product, Seller shall take the following action:
(i) Seller, at its option, shall attempt first to repair or replace such
Product without charge at its facility or, if not feasible, provide
a refund or credit based on the original purchase price, and
installation charges if installed by Seller. Customer must return the
Product to Seller for repair and replacement, except as noted below.
(ii) Where Seller has elected to repair or replace a Product which has
been installed by Seller and Seller ascertains that the Product is
not readily returnable by Customer, Seller will repair or replace the
Product at Customer's site.
(d) If Seller has elected to repair or replace a defective Product, Customer is
responsible for removing and reinstalling and, in addition, for on-site
repair or replacement of cable and wire Products, Customer must make the
Product accessible for repair or replacement, and is responsible to restore
the site.
(e) Products returned for repair or replacement will be accepted by Seller
only in accordance with its instructions and procedures for such returns.
The transportation expense associated with returning such Product to Seller
shall be borne by Customer. Seller shall pay the cost of transportation of
the repaired or replacing Product to the destination designated by
Customer within the Territory.
(f) Defective or nonconforming Products or parts which are replaced hereunder
shall become Seller's property. Seller may use either new, remanufactured,
reconditioned, refurbished, or functionally equivalent Products or parts
in the furnishing of repairs or replacements under this Agreement.
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(g) If Seller determines that a Product for which warranty Service is claimed
is not defective or not nonconforming, Customer shall pay Seller's costs
of handling, inspecting, testing, and transporting and, if applicable,
traveling and related expenses.
(h) Seller makes no warranty with respect to defective conditions or
nonconformities resulting from the following: Customer modifications,
misuse, neglect, accident or abuse; improper wiring, repairing, splicing,
alteration, installation, storage or maintenance; use in a manner not in
accordance with Seller's or vendor's specifications, or operating
instructions or failure of Customer to apply previously applicable Seller
modifications and corrections. In addition, Seller makes no warranty with
respect to Products which have had their serial numbers or months and year
of manufacture removed, altered and with respect to expendable items,
including, without limitation, fuses, light bulbs, motor brushes, and the
like.
(i) THE FOREGOING PRODUCT WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL
OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY SHALL BE SELLER'S OBLIGATION TO
REPAIR, REPLACE, CREDIT OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY.
3. ARTICLE III PROVISIONS APPLICABLE TO THE LICENSING OF SOFTWARE
3.1 GENERAL:
The provisions of this Article apply to the granting of licenses pursuant
to this Agreement by Seller to Customer for Licensed Materials.
3.2 LICENSE:
Upon delivery of Licensed Materials, but subject to payment of all
applicable license fees including, but not limited to, any continuing up-date
fees, Seller grants to Customer a personal, nontransferable, and nonexclusive
license pursuant to this Agreement to use Licensed Materials in the Territory
with either the Designated Processor or temporarily on any comparable
replacement, if the Designated Processor becomes inoperative, until the
Designated Processor is restored to
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operational status. Customer shall use Licensed Materials only for its own
internal business operation.
The license grants Customer no right to and Customer will not sublicense
such Licensed Materials, or modify, decompile, or disassemble Software
furnished as object code to generate corresponding Source Code.
3.3 TITLE, RESTRICTIONS AND CONFIDENTIALITY:
All Licensed Materials (whether or not part of Firmware) furnished by
Seller, and all copies thereof made by Customer, including translations,
compilations, and partial copies are the property of Seller.
Except for any part of such Licensed Materials which is or becomes
generally known to the public through acts not attributable to Customer,
Customer shall hold such Licensed Materials in confidence, and shall not,
without Seller's prior written consent, disclose, provide, or otherwise make
available, in whole or in part, any Licensed Materials to anyone, except to
its employees having a need- to-know. Customer shall not copy Software
embodied in Firmware. Customer shall not make any copies of any other
Licensed Materials except as necessary in connection with the rights granted
hereunder. Customer shall reproduce and include any Seller copyright and
proprietary notice on all such necessary copies of the Licensed Materials.
Customer shall also mark all media containing such copies with a warning that
the Licensed Materials are subject to restrictions contained in an agreement
between Seller and Customer and that such Licensed Materials are the property
of Seller. Customer shall maintain records of the number and location of all
copies of the Licensed Materials.
Customer shall take appropriate action, by instruction, agreement, or
otherwise, with the persons permitted access to the Licensed Materials so as
to enable Customer to satisfy its obligations under this Agreement.
When the Licensed Materials are no longer needed by Customer, or if
Customer's license is canceled or terminated, Customer shall return all
copies of such Licensed Materials to Seller or follow written disposition
instructions provided by Seller.
3.4 CHANGES IN LICENSED MATERIALS:
Prior to shipment, Seller may at any time modify the specifications
relating to its Licensed Materials. Seller may substitute modified Licensed
Materials to fill an order, provided the modifications, under normal and
proper Use, do not materially adversely affect the Use, Function, or
performance of the ordered Licensed Materials. Unless otherwise agreed, such
substitution shall not result in any additional charges to Customer with
respect to licenses for which Seller has quoted fees to Customer.
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3.5 MODIFICATIONS TO SOFTWARE:
Customer may request Seller to make changes to Seller's Software. Upon
receipt of a document describing in detail the changes requested by Customer,
Seller will respond in writing to Customer within ninety (90) days. If Seller
agrees to undertake such modifications, the response shall quote a proposed
delivery date and a fee for a license under such modified Software.
3.6 MODIFICATION BY CUSTOMER:
Unless otherwise agreed, Customer is not granted any right to modify
Software furnished by Seller under this Agreement.
3.7 RELATED DOCUMENTATION:
Seller shall furnish to Customer, at no additional charge, one copy of
the Related Documentation for Software furnished by Seller pursuant to this
Agreement. Such Related Documentation will be that customarily provided by
Seller to its Customers at no additional charge. Such Related Documentation
shall be provided prior to, with, or shortly after provision of Software by
Seller to Customer. Additional copies of the Related Documentation are
available at prices set forth in the Customer Price List.
3.8 SOFTWARE WARRANTY:
(a) Seller warrants to Customer only that:
(i) Software developed by Seller will, upon shipment, be free from
those defects which materially affect performance in accordance with
Seller's specifications or other agreed upon specifications
referenced in the order and Seller further warrants that it has the
right to grant the licenses to Use Software it grants under this
Agreement; and
(ii) With respect to Software not covered in paragraph (a), sub-
paragraph (i), Seller to the extent permitted, does hereby assign to
Customer the warranties given to Seller by its supplier of such
Software.
(b) The Warranty Periods listed below are applicable to Software developed
by Seller, the Related Documentation developed by Seller and associated
with such Software, and the medium on which such Software is recorded,
unless otherwise stated.
<TABLE>
Software Warranty Period
-------- ---------------
<S> <C>
-Network Wireless Systems,
including Software Updates 24 Months
-Transmission Systems 3 Months
-Quality Management Tools 3 Months
-All Other 3 Months
</TABLE>
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The Warranty Period for media and Related Documentation shall commence
on the same date as commences the Warranty Period for their associated
Software. The Warranty Period for Network Wireless System Software
(including any prior Software Update issued to Customer in respect thereto)
expires upon installation of any subsequent Software Update or Software
Generic Release for such Software (or Software Update).
(c) If, under normal and proper use during the applicable Warranty Period,
Software covered in paragraph (a), subparagraph (i) proves to have a
defect, which materially affects its performance in accordance with the
specifications referenced in the order, and Customer notifies Seller in
writing of such defect promptly after Customer discovers or should have
discovered such defect and follows Seller's instructions, if any, regarding
return of defective Software, Seller shall at its option, attempt first to
either correct or replace such Software without charge or if correction or
replacement is not feasible, provide a refund or credit based on the
original license fee.
(d) Software returned for correction or replacement will be accepted by
Seller only in accordance with its instructions and procedures for such
returns. The transportation expense associated with returning such
Software to Seller shall be borne by Customer. Seller shall pay the costs
of transportation of the corrected or replacing Software to the destination
designated by Customer within the Territory.
(e) If Seller determines that Software for which warranty Service is claimed
is not defective or nonconforming, Customer shall pay Seller's costs of
handling, inspecting, testing and transporting and, if applicable,
traveling and related expenses.
(f) Seller makes no warranty with respect to defective conditions or
nonconformities resulting from the following: modifications, misuse,
neglect, or accident; events outside Seller's control; installation, use or
maintenance in a manner not in accordance with Seller's specifications,
operating instructions, or license-to-use; or failure of Customer to apply
previously applicable Seller modifications and corrections. In addition,
Seller makes no warranty with respect to defects related to Customer's data
base errors. Moreover, no warranty is made that Software will run
uninterrupted or error free.
(g) THE FOREGOING SOFTWARE WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL
OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY SHALL BE SELLER'S OBLIGATION TO
CORRECT, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY.
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3.9 CANCELLATION OF LICENSE:
If Customer falls to comply with any of the material terms and
conditions of this Agreement and such failure continues beyond ten (10) days
after receipt of written notice thereof by Customer, Seller, upon written
notice to Customer, may cancel any affected license for Licensed Materials.
3.10 TAXES APPLICABLE TO SOFTWARE:
Notwithstanding clause TAXES in Article I of this Agreement, Seller
shall not bill, collect, or remit any state or local sales or use tax with
respect to the license of Software under this Agreement, or with respect to
the performance of Services related to such software, which Customer
represents to Seller is not properly due under Customer's interpretation of
the law of the taxing jurisdiction, if (1) Customer submits to Seller a
written explanation of the authorities upon which Customer bases its position
that the license or performance of Services is not subject to sales or use
tax, and (2) Seller agrees that there is authority for Customer's position,
provided, however, that Customer shall hold Seller harmless for all costs and
expenses (including, but not limited to, taxes and related charges payable
under clause TAXES, and attorney's fees) arising from the assertion by a
taxing authority that the license of, or the performance of Services with
respect to, the Software was subject to state or local sales or use tax.
4. ARTICLE IV PROVISIONS APPLICABLE TO
ENGINEERING,INSTALLATION, AND OTHER SERVICES
4.1 GENERAL:
The provisions of this Article IV shall be applicable to the furnishing
by Seller of Services other than Services furnished pursuant to any other
Article of this Agreement.
4.2 ACCEPTANCE OF Installation:
At reasonable times during the course of Seller's installation,
Customer, at its request may, or upon Seller's request shall, inspect
completed portions of such installation. Upon Seller's further request, and
upon sufficient notice to Customer, Customer shall observe Seller's testing
of the Product being installed to determine that such testing and the test
results are in accordance with Seller's acceptance standards or acceptance
procedures. The job shall be considered complete and ready for acceptance by
Customer when the Product has been installed and tested by Seller in
accordance with its standard procedures, and Seller represents such Product
to be in working order. Upon completion of the installation, Seller will
submit to Customer a notice of completion. Where Seller's installation
relates to an Initial System, separate notices of completion shall be issued
for (i) the MSC, (ii) each cell site, and (iii) the Initial System as a whole.
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Customer shall promptly make final inspection of substantial conformance
with Seller's specifications and do everything necessary to expedite
acceptance of the job. Seller will promptly correct any defects for which it
is responsible. The job will be considered as fully accepted unless Seller
receives notification to the contrary within thirty (30) days after
submitting the notice of completion. Not withstanding the foregoing, if
Customer places the Products and/or Licensed Materials into service, such
action will constitute Customer's acceptance.
4.3 CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED ON CUSTOMER'S
SITE:
4.3.1 ITEMS PROVIDED BY CUSTOMER
Except as the parties may have otherwise agreed for Turnkey Services, as
set forth in this Agreement or in other agreements of the parties, Customer
will be responsible for furnishing the following items (as required by the
conditions of the particular installation or other on-site Service,
hereinafter collectively referred to as the "Service") at no charge to Seller
and these items will not be included in Seller's price for the Service.
Seller's representative shall have the right to inspect the site prior to
Service start date. Should Customer fail to furnish any of such items for
which it is responsible after Seller provides Customer notice, Seller may
furnish such items and charge Customer for then in addition to the prices
otherwise charged by Seller for the Service.
REGULATORY COMMISSION APPROVALS--Prior to Service start date, obtain
such approvals, licenses, permits, tariffs and/or other authorities from the
Federal Communications Commission and state and local public utilities
commissions as may be necessary for construction and operation of a cellular
mobile radio telephone system.
EASEMENTS, PERMITS AND RIGHTS-OF-WAY--Prior to Service start date,
provide all rights-of-way, easements, licenses to come upon land to perform
the Service, permits and authority for installation of Products and other
items; permits for opening sidewalks, streets, alleys, and highways; and
construction and building permits.
ACCESS TO BUILDING AND WORK SITE--Allow employees of Seller and it
subcontractors free access to premises and facilities at all hours during the
scheduled Service or at such other times as are requested by Seller.
Customer shall obtain for Seller's and its subcontractors' employees any
necessary identification and clearance credentials to enable Seller and its
subcontractors to have access to the work site.
ENVIRONMENTAL CONDITIONS--When Customer provides or arranges for a third
party to provide MSC and/or cell site structures, Customer shall prior to
Service start date:
a. Insure that the MSC and/or cell site structures are in a structurally
safe and sound condition to properly house the materials to be
installed, in accordance with weight, strength, and structural
requirements specified by Seller. No later than the date Customer
places its order, Customer shall provide Seller a certificate of a
duly licensed architect or engineer (dated no sooner than ninety
(90) days prior to furnishing such certificate to Seller) stating that
the site(s) meets such requirements;
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<PAGE>
b. Take such action as may be necessary to insure that the premises
will be dry and free from dust and Hazardous Materials, including but
not limited to asbestos, and in such condition as not to be injurious
to Seller's or its subcontractors' employees or to the materials to be
installed. Prior to commencement of the Services and during the
performance of the Service, Customer shall, if requested by Seller,
provide Seller with sufficient data to assist Seller's supplier in
evaluating the environmental conditions at the work site (including the
presence of Hazardous Materials). The price quoted by Seller's supplier
for the Service does not include the cost of removal or disposal of the
Hazardous Materials from the work site. Customer is responsible for
removing and disposing of the Hazardous Materials, including but not
limited to asbestos, prior to commencement of the Service.
SENSITIVE EQUIPMENT--Prior to commencement of the Service, inform Seller
of the presence of any sensitive equipment at the work site (e.g., equipment
sensitive to static electricity or light).
REPAIRS TO BUILDINGS--Prior to Service start date, make such alterations
and repairs as are necessary for proper installation of items to be installed.
BUILDING READINESS--Prior to Service start date, provide hoisting and
hauling services, furnish suitable openings in buildings to allow the items
to be installed to be placed in position, and provide necessary openings and
ducts for cable and conductors in floors and walls as designated on
engineering drawings furnished by Seller.
SURVEYS--Prior to Service start date furnish surveys (describing the
physical characteristics, legal limitations and utility locations for the
work site) and a legal description of the site.
ELECTRICAL CURRENT, HEAT, LIGHT AND WATER--Provide electric current for
charging storage batteries and for any other necessary purposes with suitable
terminals where work is to be performed; provide temperature control and
general illumination (regular and emergency) in rooms in which work is to be
performed or Products or other items stored, equivalent to that ordinarily
furnished for similar purposes in a working office; provide exit lights;
provide water and other necessary utilities for the proper execution of the
Service.
CELLULAR SYSTEM UTILITY REQUIREMENTS--Negotiate with the power and
telephone companies for installation of the power and telephone facilities
necessary to proper operation of the Products and/or other items being
installed. The type and quantity of such facilities shall be subject to
Seller's reasonable approval. Customer shall have the telephone company
provide, place, install, extend and terminate telephone facilities into the
MSC and cell sites; line up and test the telephone company facilities outside
and inside the MSC and cell sites; and provide to Seller copies of the test
results prior to Seller's commencing integration testing of the MSC with each
cell site.
MATERIAL FURNISHED BY CUSTOMER--New or used material furnished by
Customer shall be in such condition that it requires no repair and no
adjustment or test effort in excess of that normal for new equipment.
Customer assumes all responsibility for the proper functioning of such
material. Customer shall also provide the necessary information for Seller to
properly install such material.
FURNITURE--provide and install all furniture.
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FLOOR SPACE AND STORAGE FACILITIES--Provide, during progress of the
Service, suitable and easily accessible floor space and storage facilities (a)
to permit storing major items of Products and other material closely adjacent
to where they will be used, (b) for administrative and luncheon purposes, (c)
for Seller's and its subcontractors' employees' personal effects, and (d) for
tools and property of Seller and its subcontractors. Where the Service is to
be performed outside of a building or in a building under construction,
Customer shall, in addition to the above requirements, as appropriate, permit
or secure permission for Seller and its subcontractors to maintain at the work
site, storage facilities (such as trailers) for Products, materials and other
items and for tools and equipment needed to complete the Service.
WATCH SERVICE--For MSCs, provide normal security (for cell sites,
commercial alarms) necessary to prevent admission of unauthorized persons to
building and other areas where installation Service is performed and to
prevent unauthorized removal of the Products and other items. Seller will
inform Customer as to which storage facilities at the work site Seller will
keep locked; such storage facilities will remain closed to Customer's
surveillance.
USE OF AVAILABLE TESTING EQUIPMENT--Customer shall make available to
Seller: (1) the maintenance test facilities which are imbedded in equipment to
which the Product or other item being installed will be connected or added,
and (2) meters, test sets, and other portable apparatus that is unique to the
item being installed. Seller's use of such test equipment shall not interfere
with the Customer's normal equipment maintenance functions.
HAZARDOUS MATERIALS CLEANUP--At the conclusion of the Service, Customer
shall be responsible for the cleanup, removal, and proper disposal of all
Hazardous Materials present at Customer's premises.
ACCESS TO EXISTING FACILITIES--Customer shall permit Seller reasonable
use of such portions of the existing plant or equipment as are necessary for
the proper completion of such tests as require coordination with existing
facilities. Such use shall not interfere with the Customer's normal
maintenance of equipment.
GROUNDS--Customer shall provide access to suitable and isolated building
ground as required for Seller's standard grounding of equipment. Where
installation is outside or in a building under construction, Customer shall
also furnish lightning protection ground.
REQUIREMENTS FOR CUSTOMER DESIGNED CIRCUITS--Customer shall furnish
information covering the proper test and readjust requirements for apparatus
and requirements for circuit performance associated with circuits designed by
Customer or standard circuits modified by Customer's drawings.
THROUGH TESTS AND TRUNK TESTS--Customer shall make required through tests
and trunk tests to other offices after Seller provides its notice of
completion or notice of advanced turnover.
4.3.2 ITEMS TO BE FURNISHED BY SELLER
The following items will be furnished by Seller (if required by the
conditions of the particular Service) and the price thereof is included in
Seller's price for Service:
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PROTECTION OF EQUIPMENT AND BUILDING--Seller shall provide protection for
Customer's equipment and buildings during the performance of the Service and
in accordance with Seller's standard practices.
METHOD OF PROCEDURE--Seller shall prepare a detailed Method of Procedure
("MOP") before starting work on live equipment. Customer shall review the MOP
and any requested changes shall be negotiated. Customer shall give Seller
written acceptance of the MOP prior to start of the work.
THE FOLLOWING ITEMS WILL BE FURNISHED BY SELLER IF REQUESTED BY CUSTOMER,
BUT CUSTOMER WILL BE BILLED AND SHALL PAY FOR THEM IN ADDITION TO SELLER'S
STANDARD OR FIRM QUOTED PRICE FOR THE SERVICES:
PROTECTION OF BUILDINGS AND EQUIPMENT--Seller may provide protection of
buildings and equipment in accordance with special practices of Customer
differing from Seller's standard practices.
MAINTENANCE--Maintenance of Products, Software and other items from
completion of installation until date of acceptance.
LOCALLY PURCHASED ITEMS--Purchase of items indicated by Seller's
specifications as needing to be purchased locally.
READJUSTING APPARATUS--Seller may provide readjustment (in excess of that
normally required on new apparatus) of apparatus associated with relocated or
rewired circuits.
CROSS-CONNECTIONS (OTHER THAN TO OUTSIDE CABLE TERMINATIONS)--Seller may
run or rerun permanent cross-connections in accordance with revised
cross-connection lists furnished by Customer.
HANDLING, PACKING, TRANSPORTATION AND DISPOSITION OF REMOVED AND SURPLUS
CUSTOMER EQUIPMENT--Seller may pack, transport, and dispose of surplus and
removed Customer equipment as agreed by the parties.
PREMIUM TIME ALLOWANCES AND NIGHT SHIFT BONUSES--Seller may have its
Services personnel work premium time and night shifts to the extent that
Seller may deem such to be necessary to effect the required coordination of
installing and testing operations or other Services because of Customer's
requirements.
EMERGENCY LIGHTING SYSTEM--Seller may provide new emergency lighting
system (other than the original ceiling mounted stumble lighting) to satisfy
illumination and safety needs of Products of certain heights.
4.4 WORK DONE BY OTHERS:
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Work done at the site by Customer or its other vendors or contractors
shall not interfere with Seller's performance of the installation or other
Services. If Customer or its other vendors or contractors fail to timely
complete the site readiness or if Customer's or its other vendors or
contractors' work interferes with Seller's performance, the scheduled
completion date of Seller's Services under this agreement shall be extended as
necessary to compensate for such delay or interference.
4.5 SERVICES WARRANTIES:
(a) Seller warrants to Customer only, that Services will be performed in a
careful and workmanlike manner and in accordance with Seller's
specifications or those referenced in the order and with accepted
practices in the community in which such Services are performed, using
material free from defects except where such material is specified or
provided by Customer. If Services prove to be not so performed and if
Customer notifies Seller, with respect to engineering, installation, or
repair Services, within a six (6) month period commencing on the date of
completion of the Service, and with respect to other Services, as
identified by Seller in writing, Seller, at its option, either will
correct the defective or nonconforming Service or render a full or
prorated refund or credit based on the original charge for the Services.
(b) Where Seller performs engineering or installation Services as part of a
combined engineering, furnishing, and installation order, the six (6)
month period referenced above shall commence on completion of the
installation Service.
(c) THE FOREGOING SERVICES WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL
OTHER EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY SHALL BE SELLER'S OBLIGATION TO MARK
CORRECTIONS OR GIVE A CREDIT OR REFUND AS SET FORTH ABOVE IN THIS
WARRANTY.
5. ARTICLE V ENTIRE AGREEMENT AND EXECUTION
5.1 ENTIRE AGREEMENT:
The terms and conditions contained in this Agreement, including
Attachments A & B, any subordinate agreements, and orders accepted
pursuant to this Agreement or any subordinate agreement supersede all
prior oral or written understandings between the parties with respect to
the subject matter thereof and constitute the entire agreement of the
parties with respect to such subject matter. Such terms and conditions
shall not be modified or amended except by a writing signed by authorized
representatives of both parties.
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ATTACHMENT A
Confidential information omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
ATTACHMENT B
Confidential information omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
ATTACHMENT C
Confidential information omitted and filed separately with the Securities and
Exchange Commission.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives on the date(s) indicated.
DOBSON CELLULAR SYSTEMS LUCENT TECHNOLOGIES INC.
By: /s/ G. Edward Evans By: /s/ Doris Jean Head
---------------------------- ----------------------------
Typed Name: G. Edward Evans Typed Name: Doris Jean Head
-------------------- --------------------
Title: President and Chief Title: Sales Vice President
------------------------- --------------------------
Operating Officer
-------------------------
Date 1/23/98 Date: 1/13/98
-------------------------- --------------------------
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EXHIBIT 10.4.8
AMENDMENT NO. 2
TO
SUPPLY AGREEMENT
BETWEEN
DOBSON COMMUNICATIONS CORPORATION
AND
NORTHERN TELECOM, INC.
Made as of this 24th day of June 1997, by and between Dobson Communications
Corporation (hereinafter referred to as "Buyer"), an Oklahoma corporation
with offices at 13439 North Broadway Extension, Suite 200, Oklahoma City,
Oklahoma 73114 and Northern Telecom Inc. (hereinafter referred to as "Nortel"
or "Seller"), a Delaware corporation, with offices at 2435 N. Central
Expressway, Richardson, Texas 75080.
WHEREAS, Buyer and Seller entered into a Supply Agreement dated as of
December 6, 1995, as amended December 20, 1995 (the "Agreement"); and
WHEREAS, Buyer and Seller now wish to amend the Agreement to include, among
other things, a new, extended Term, a commitment to purchase by Buyer and new
Equipment pricing, all as further described herein;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Buyer and Seller agree to amend the Agreement as follows:
1. Amend Article 1 (DEFINITIONS) as follows, adjusting the numbering
sequence in Article 1 accordingly:
(a) Add new Section 1.1 as follows:
"'ADJUNCT PLATFORM' shall mean third party hardware and/or software,
onto which Seller has added software in support of the applications
listed in Annex 9 hereof ("Value-added Software") and
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<PAGE>
in some cases, integrated such third-party hardware and Value-added
Software into a system providing peripheral functionality for the
DMS-MTX, all more fully described in Annex 9, 'Adjunct Platforms.'"
(b) Add the words "during the Initial Term" to the end of Section 1.8
("INITIAL PURCHASE").
(c) Delete existing Section 1.21 (Term) and insert the following new
definitions in the appropriately numbered sections as determined by
their insertion in alphabetical order:
'EXTENDED TERM' shall mean the period commencing on June 24, 1997
("Extended Effective Date") and ending four (4) years thereafter.
"'INITIAL TERM' shall mean the period commencing on the date first
set forth above (hereinafter 'Effective Date') and ending on June 23,
1997.
2. Amend Article 2 (SCOPE) by deleting the word "Term" in Section 2.1 and
replacing it with "Initial Term and Extended Term."
3. Amend Article 3 (PURCHASE ORDERS) at Section 3.1 by deleting the words
"Term of this Agreement, or as it may be extended," in the first sentence
and replacing them with "Initial Term and Extended Term."
4. Amend Article 4 (PRICE) by adding the following to the end of Section 4.1:
"Buyer understands that it has a firm obligation to purchase/license no
less than $30 million net Price (i.e., Price less applicable discounts)
of Equipment and/or Software from Seller during the Extended Term
('Commitment')."
5. Amend Article 5 (PAYMENT) as follows:
(a) In Section 5.2 add the words "and before the Extended Effective
Date" after the date "December 31, 1995."
2
<PAGE>
(b) Add a new Section 5.3 as follows:
"5.3 With respect to Purchase Orders for Equipment that include
Installation Services therefor, delivery of which Equipment is
taken by Buyer during the Extended Term, Buyer shall pay to
Seller the appropriate Price in accordance with the following:
5.3.1 70% of the Purchase Order Price shall be invoiced by Seller
upon shipment of the Switch in the case of a System
Installation or, in the case of an Expansion or Cell Site
Installation, upon shipment of the major components to the
Installation Site. Such payment shall be paid to Seller within
thirty (30) days following the date of Seller's invoice
therefor.
5.3.2 20% of the Purchase Order Price shall be invoiced by Seller
upon the date of Turnover. Such payment shall be paid to
Seller within thirty (30) days following the date of Seller's
invoice therefor.
5.3.3 10% of the Purchase Order Price shall be invoiced by Seller
after Acceptance of the Equipment as defined in Article 14
herein. Such payment shall be paid to Seller within thirty
(30) days following the date of Seller's invoice therefor."
6. Amend Article 9 (PATENT OR COPYRIGHT INFRINGEMENTS) by adding the
following to the single sentence constituting Section 9.4:
"or, (iii) alleging that method of use claims in such patent are
infringed by any service offering and/or by any use by Buyer of Equipment
furnished hereunder to make such service offering available."
7. Amend Article 10 (SOFTWARE LICENSE) by adding the words "During the
Initial Term" to the beginning of the first sentence of Subsection 10.2.2.
8. Amend Article 16 (REGULATORY COMPLIANCE) at Section 16.1 by adding the
following after the words "Effective Date:"
3
<PAGE>
"for Equipment purchased during the Initial Term and in force on the
Extended Effective Date for Equipment purchased during the Extended Term"
9. Amended Article 17 (CHANGES) by deleting the opening paragraph of Section
17.5 in its entirety and replacing it with the following:
"Subject to Section 24.1 herein, for purchases during the Initial Term
Buyer understands and agrees that the execution of this Agreement
constitutes a firm, non-cancelable Purchase Order for the Initial Purchase
set forth in Section 1.0 of Annex 1 and the training courses set forth in
Section 4.0 of Annex 1. For purchases during the Extended Term Buyer
understands that the execution of this Agreement constitutes a firm,
non-cancelable Purchase Order for the initial purchase of Equipment and
training for the Extended Term ('Extended Term Initial Purchase') as set
forth in Section 1.0 and 2.0 of Annex 1A. However for Purchase Orders for
Equipment other than the Initial Purchase and Extended Term Initial
Purchase, upon written notification to Seller, Buyer may elect to cancel
such Purchase Orders prior to shipment of Equipment in accordance with the
following:"
10. Amend Article 24 (GENERAL) by inserting the words "or claims for
indemnification" after the word "otherwise" in Section 24.6.
11. Amend Annex 1 (EQUIPMENT AND SERVICES PRICING) as follows:
(a) Add the word "INITIAL TERM" to the beginning of the title and
adjust Annex 1 references in the Table of Contents and in Section 23
of the Agreement accordingly.
(b) Add the word "Initial" before the word "Term" in the first sentence
of the opening paragraph.
(c) Add the words "During the Initial Term" to the beginning of Section
5.2.
12. Add Annex 1A (EXTENDED TERM EQUIPMENT AND SERVICES PRICING) as set out
in Schedule "A" of this Amendment.
4
<PAGE>
13. Subject to Buyer executing this Amendment on or before June 30, 1997,
Seller hereby agrees to add the following to Annex 1A:
(a) Add the words "Subject to (b) below" to the beginning of the
sentence immediately preceding part (a) of Section 2.2.
(b) Add the following words to the end of Section 2.2(b):
"provided, without charge to Buyer and included as a part of the
Extended Term Initial Purchase, Seller shall provide Buyer with an
Adept Silver system and MDS 2.09 system as described in Section 4.0
of this Annex 1A."
(c) Add the following new Section 4.0 as follows:
"4.0 ADEPT SILVER AND MDS 2.09 SYSTEMS
4.1 MDS 20.9 System
PEC Description Qty
--- ----------- ---
MTX D02AMSACS ACCOUNTING MEDIAT. COLLECT. S/W MDS 2.0 2511
MTX D02AMSACSM ACCOUNTING MEDIAT. COLLECT. S/W MDS 2.0M.FE 2511
MDS 20BSYB HP MDS 2.0 SYBASE S/W YEAR FOR ACS 1
(Pending) FAULT MANAGEMENT/PERFORMANCE S/W MDS 3.0* 1
MDS 220TR HP MDS 2.0 K220 SERVER 1
MDS 221TR HP MDS 3.0 K220 H/W S/W SUPPORT 0S6 YR1 1
MDS 102TR HP MDS 2.0 K220 OPTION A H/W 1
MDS 103TR HP MDS 2.0 K200 OPT H/W SUPPORT 0S6 YR1 1
MDS 000LC MDS 2.0 NORTEL INTEGRATION 1
MDS 001LC MDS 2.0 CABLES AND MISC. H/W 4
MDS 002LC MDS 2.0 MAINTENANCE MODEM 1
MT 2000LC E,F&I FOR MDS 2.0 1
*When and if commercially available from Seller.
4.2 ADEPT Silver System
PEC Description Qty
--- ----------- ---
MTX A0002 ADEPT SILVER - FIRST PLATFORM 1
XE 8885JD ADEPT HP H/W - DOBSON SWITCH 4 1
XE 8884JD ADEPT 3RD PARTY COMPONENT - SWITCH 4 1
XE 8886JD DEPT E, F&I 1"
5
<PAGE>
14. Amended Annex 8 (RF ENGINEERING SERVICES STATEMENT OF WORK) by adding
the words "INITIAL TERM" to the title and the words "during the Initial
Term" after the words "design analysis and system verification" in the
first sentence.
15. Add a new Annex 8A (EXTENDED TERM RF ENGINEERING SERVICES STATEMENT OF
WORK) as set out in Schedule "B" of this Amendment.
16. Add a new Annex 9 ("ADJUNCT PLATFORMS") as set out in Schedule "C" of
this Amendment.
17. Add the appropriate Annex listings for new Annexes 8A and 9 to the Table
of Contents and Section 23 (ANNEXES), respectively.
18. Except as specifically modified by Amendment No. 1 and this Amendment
No. 2, the Agreement in all other respects shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by
their duly authorized representatives effective as of the date first set
forth above.
DOBSON COMMUNICATIONS INC. NORTHERN TELECOM INC.,
By: /s/ G. Edward Evans By: /s/ Douglas Patterson
------------------------------- --------------------------------
G. Edward Evans Douglas Patterson
------------------------------- --------------------------------
Type or Print Name Type or Print Name
Title: President Title: VP Finance
---------------------------- ----------------------------
Date: 6/24/97 Date: 6/27/97
---------------------------- ------------------------------
6
<PAGE>
SCHEDULE A
TO AMENDMENT NO. 2 OF
SUPPLY AGREEMENT BETWEEN
DOBSON COMMUNICATIONS CORPORATION
AND NORTHERN TELECOM INC.
ANNEX 1A
EXTENDED TERM EQUIPMENT AND SERVICES
PRICING
During the Extended Term, Seller may, at its discretion, implement changes to
the Equipment, modify the drawings and Specifications relating thereto, or
substitute Equipment of more recent design; provided, however, that any such
changes, modifications or substitutions shall not materially and adversely
affect performance of the System. Unless otherwise specifically stated,
Services are not included in Equipment List Prices.
Buyer shall take delivery of the Extended Term Initial Purchase within
eighteen (18) months of the Extended Effective Date.
During the Extended Term, for 800 MHz AMPS/TDMA Equipment available to
Seller's customers as of the Extended Effective Date other than the Equipment
included in the Extended Term Initial Purchase ("Extended Term Additional
Equipment"), Prices shall be Seller's then-current List Prices for DMS-MTX
products less the applicable discounts set out in Section 3.2 of this Annex.
1.0 EXTENDED TERM INITIAL PURCHASE
The Equipment configurations set out in this Section 1.0 assume that
Buyer is providing sufficient floor space for the described Equipment.
Additional Equipment and/or Installation may be required at Buyer's
expense in the event Buyer fails to provide such floor space.
Seller shall provide, and Buyer shall purchase for its technicians, the
training courses listed in Subsections 1.1.1.4 and 1.2.1.3 below. All
training is conducted at Seller's facilities in Richardson, Texas.
Tuition rates listed below are exclusive of travel, lodging and per
diem expenses,
A-1
<PAGE>
which shall be for Buyer's account. Course content is subject to
change at Seller's discretion.
1.1 MARYLAND RSA 2- (Moving Existing Catocin Site MTX)
1.1.1 Switch Upgrade and Training
1.1.1.1 Switch Equipment Upgrade
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
DTC XPM+Upgrade NTMX77AA Processor 2 $39,700 $79,400
DTC XPM+Upgrade NTMX71AA Paddle Board 2 $2,500 $5,000
MCAM Cabinet 1 $29,472 $29,472
MEDP Cabinet 2 $25,717 $51,434
EDSPM Shelf NTAX7604 3 $20,000 $60,000
NTEX93AA EDSP Cards 16 $32,000 $512,000
NTAX80AA Controller Cards 11 $2,520 $27,720
NT2X70AF Power Converter Cards 11 $3,255 $35,805
CAP processor NTAX74AA - Spares 1 $59,600 $59,600
Time Switch NTAX78AA - Spares 1 $8,400 $8,400
ISDN Signal Processor NTBX01CA - Spares 1 $24,000 $24,000
Switch Upgrade Subtotal $892,831
1.1.1.2 Switch Equipment Expansion
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
MCTM-1 Cabinet ICP metro w/ICP Packfill 4 $310,000 $1,240,000
240 Port ICP Packfill w/Digital metro Proc 2 $257,625 $515,250
ICP METRO Processor-Digital Included
480 Port DTC Packfill 1 $204,528 $204,528
Capacity Expansion Subtotal $1,959,778
DISCOUNT ($1,141,004)
1.1.1.3 Switch Software (1997 Fee)
QTY LIST EXTENDED
DESCRIPTION (SUBS) PRICE PRICE
MTX-06 Base Load & 97 S/W Release License
Fee 29,600 $6/SUB Included
ANSI ISUP TR-317 Included Included Included
DCCH Sleep Mode Included Included Included
DCCH PSID/RSID Included Included Included
Group Ringing Included Included Included
Software Application fee 1 $25,000 Included
1997 Annual Software Fee Included
</TABLE>
A-2
<PAGE>
1.1.1.4 Nortel Switch E, F&I
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
Cabinet Expansion 5 $12,534 $62,670
Cabinet De-commissioning 10 $ 1,200 $12,000
Freight 22 $ 504 $11,088
Cabinet De-commissioning 10 $ 4,800 $48,000
Move Misc. Equip. (MAP, modems, etc.) 40 $ 120 $ 4,800
Cutover assistance to new MTX in Frederick 80 $ 120 $ 9,600
MEDP Expansion 2 $ 7,704 $15,408
Subtotal $163,566
</TABLE>
1.1.1.5 Training
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
MTX Maintenance 4 $ 6,000 $24,000
Translations 4 $ 2,000 $ 8,000
Networking 4 $ 2,250 $ 9,000
Introduction to MTX MAP #925 4 $ 1,200 $ 4,800
Subtotal $ 45,800
TOTAL MD2 SWITCH UPGRADE PRICE $ 1,920,931
STRATEGIC DISCOUNT $(1,711,565)
NET TOTAL MDS SWITCH UPGRADE PRICE $ 209,366
</TABLE>
1.1.2 Maryland RSA 2 - Cell Site Equipment
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
WYE MILLS
96 CH. 120 SECT/ICRM+/ATC 1 $492,752 $492,752
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 5,935 $ 5,935
Subtotal $ 505,837
OCEAN PINES
96 CH. 120 SECT/ICRM+/ATC 1 $492,752 $492,752
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 5,935 $ 5,935
Subtotal $ 505,837
SALISBURY
64 CH. 120 SECT/ICRM+/ATC 1 $344,150 $344,150
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 4,125 $ 4,125
Subtotal $ 355,425
CAMBRIDGE
64 CH. 120 SECT/ICRM+/ATC 1 $344,150 $344,150
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 4,125 $ 4,125
Subtotal $ 355,425
PRINCE FREDERICK
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 3,220 $ 3,220
Subtotal $ 287,312
</TABLE>
A-3
<PAGE>
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
LEONARDTOWN
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 3,220 $ 3,220
Subtotal $ 287,312
SNOW HILL
24 CH. OMNI/ICRM+/ATC 1 $148,305 $148,305
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 2,315 $ 2,315
Subtotal $ 157,770
PRINCESS ANNE
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 3,220 $ 3,220
Subtotal $ 287,312
CRUMPTON
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 3,220 $ 3,220
Subtotal $ 287,312
CALVERT CLIFFS
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 3,220 $ 3,220
Subtotal $ 287,312
LEXINGTON PARK
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 3,220 $ 3,220
Subtotal $ 287,312
POCOMOKE CITY
24 CH. OMNI/ICRM+/ATC 1 $148,305 $148,305
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 2,315 $ 2,315
Subtotal $ 157,770
EASTON
64 CH. 120 SECT/ICRM+/ATC 1 $344,150 $344,150
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 4,125 $ 4,125
Subtotal $ 355,425
KENT ISLAND
64 CH. 120 SECT/ICRM+/ATC 1 $344,150 $344,150
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 4,125 $ 4,125
Subtotal $ 355,425
OCEAN CITY NORTH
32 CH. 120 SECT/ICRM+/ATC 1 $214,312 $214,312
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 2,315 $ 2,315
Subtotal $ 223,777
OCEAN CITY SOUTH
24 CH. OMNI/ICRM+/ATC 1 $148,305 $148,305
Dual Mode Radio Unit Monitor 1 $ 7,150 $ 7,150
Small RF/CE Frame Power and Ground 1 $ 2,315 $ 2,315
Subtotal $ 157,770
</TABLE>
A-4
<PAGE>
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
MUTUAL BAMS
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
Small RF/CE Frame Power and Ground 1 $3,220 $3,220
Subtotal $287,312
OC INLET
32 CH. OMNI/ICRM+/ATC 1 $168,527 $168,527
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
Small RF/CE Frame Power and Ground 1 $2,315 $2,315
Subtotal $177,992
DENTON CITY
24 CH. OMNI/ICRM+/ATC 1 $148,305 $148,305
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
Small RF/CE Frame Power and Ground 1 $2,135 $2,135
Subtotal $157,770
FEDERALSBURG
24 CH. OMNI/ICRM+/ATC 1 $148,305 $148,305
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
Small RF/CE Frame Power and Ground 1 $2,315 $2,315
Subtotal $157,770
WICIMICO PARK
48 CH. 120 SECT/ICRM+/ATC 1 $276,942 $276,942
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
Small RF/CE Frame Power and Ground 1 $3,220 $3,220
Subtotal $287,312
QUEENSTOWN
64 CH. 120 SECT/ICRM+/ATC 1 $344,150 $344,150
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
Small RF/CE Frame Power and Ground 1 $4,125 $4,125
Subtotal $355,425
GROWTH CELL SITES
16 CH. OMNI/ICRM+/ATC w/Radios 11 $293,419 $3,227,609
(TRUII/SCLPA) DCCH and DLCR 104 $10,500 $1,092,000 $4,319,609
RADIOS:
(TRU-2/SCLPA) ACCH and ALCR 112 $10,500 $1,176,000
Dual Mode Radios (TRU-2 and SCLPA)s 671 $10,500 $7,045,500
Subtotal $8,221,500
SPARES
Cell Site Spares Kit (ICRM/DRU) 2 $54,974 $109,948 $109,948
Cell Site Equipment Subtotal $17,836,971
DISCOUNT $(6,985,288)
New Growth Incentive Credit $(4,319,609)
</TABLE>
A-5
<PAGE>
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
NORTEL CELL SITE E, F&I:
Engineering 22 $450 $9,900
Install & Commission 24/32 OMNI Cell Site 6 $15,912 $95,472
Install & Commission 24/48 SECT Cell Site 9 $29,520 $265,680
Install & Commission 64 SECT Cell Site 5 $35,424 $177,120
Install & Commission 96 SECT Cell Site 2 $41,328 $82,656
Subtotal $630,828
1.1.3 RF Engineering Services
RF Design Evaluation 22 $6,903 Included
RF Frequency Planning 22 $1,420 Included
MARYLAND RSA 2 NET CELL SITE PRICE $8,254,902
</TABLE>
1.2 FREDERICK SWITCH - (PA 10, Hagerstown, Cumberland and Maryland 3)
1.2.1 Switch Equipment and Training
1.2.1.1 Switch Equipment
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
MUTUAL BAMS
SuperNode SE Core Cabinet 1 $1,112,109 $1,112,109
MCAM Cabinet 1 $112,779 $112,779
MCGM Cabinet 2 $75,695 $151,390
MCTM-I Cabinet 2 $45,294 $90,588
240 Port ICP Packfill for ENET 3 $160,500 $481,500
240 Port ICP Packfill for Digital 3 $113,196 $339,588
480 Port DTC Packfill 1 $204,528 $204,528
MEDP Cabinet 1 $25,277 $25,277
EDSPM Shelf NTAX7604 3 $20,000 $60,000
NTEX93AA EDSP Cards 5 $32,000 $160,000
NTAX80AA Controller Cards 5 $2,520 $12,600
NT2X70AF Power Converter Cards 7 $3,255 $22,785
NT9X14EA 96M Cards 4 $99,456 $397,824
Turbolink Kit 1 $4,239 $4,239
SuperNode SE Spares w/Cabinet LOT $613,412 $613,412
SS7 Link Interface Units (V.35) 3 $13,352 $40,056
Multiprotocol Controller CP 3 $3,150 $9,450
X.25 Network Links NT6X91BB 2 $3,150 $6,300
I/O Control Cards 2 $580 $1,160
Supermode MAP Equipment w/Furniture 1 $32,215 $32,215
Subtotal $2,877,800
DISCOUNT ($1,551,120)
</TABLE>
A-6
<PAGE>
1.2.1.2 Switch Software (1997)
<TABLE>
QTY LIST EXTENDED
DESCRIPTION (SUBS) PRICE PRICE
<S> <C> <C> <C> <C>
MTX-04/06 Base Load & 97 S/W Release
License Fee 30,000 $6/Sub Included
ANSI ISUP TR-317 Included Included Included
DCCH Sleep Mode Included Included Included
DCCH PSID/RSID Included Included Included
Group Ringing Included Included Included
Calling Line ID Included Included Included
RDIO Remote Radio I/F Price per Radio Included Included Included
Software Application Fee 1 $25,000 Included
1997 Annual Software Fee Included
</TABLE>
1.2.1.3 Nortel Switch E, F&I
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
New Switch Install & Commission LOT $166,432 $166,432 $166,432
</TABLE>
1.2.1.4. Training
<TABLE>
LIST EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
MTX Maintenance 4 $6,000 $24,000
Transalations 4 $2,000 $ 8,000
Networking 4 $2,250 $ 9,000
Introduction to MTX MAP #925 4 $1,200 $ 4,800
Subtotal $45,800
NEW SWITCH DISCOUNT ($1,809,000)
NEW TOTAL FREDERICK SWITCH PRICE $729,912
</TABLE>
1.2.2 Cell Site Equipment Upgrade - (PA 10, Hagerstown, Cumberland and
Maryland 3)
1.2.2.1 Cell Site Equipment
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
EVERETT
16 CH. RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 9 $10,500 $94,500
Subtotal $253,657
</TABLE>
A-7
<PAGE>
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
SIDELING HILL
16. CH.RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 7 $10,500 $73,500
Subtotal $232,657
KINTON KNOB
16 CH.RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 10 $10,500 $105,000
Subtotal $264,157
CATOCIN
48 CH.RCMI SECT to ICRM+ SECT UPGRADE 1 $110,610 $110,610
48-64 CH. SECT Expansion 1 $36,599 $36,599
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 3 $11,000 $33,000
8 CH. ATC retrofit expansion 3 $11,000 $33,000
NT330BD RF Frame PA to ATC Cable 48 $110 $5,280
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 12 $10,500 $126,000
DualMode Voice Radios (TRU-2 and SCLPA)s 38 $10,500 $399,000
Subtotal $756,309
MONROVIA
16 CH. RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
16-32 CH. OMNI Expansion 1 $56,661 $56,661
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 15 $10,500 $157,500
Subtotal $373,318
</TABLE>
A-8
<PAGE>
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
THURMONT
16 CH. RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 10 $10,500 $105,000
Subtotal $264,157
BRUNSWICK
16-32 CH. OMNI Expansion 1 $56,661 $56,661
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 32 $110 $3,520
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 14 $10,500 $147,000
Subtotal $284,001
FREDERICK
48 CH. RCMI SECT to ICRM+ SECT UPGRADE 1 $110,610 $110,610
48-64 CH. SECT Expansion 1 $36,599 $36,599
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 3 $11,000 $33,000
8 CH. ATC retrofit expansion 3 $11,000 $33,000
NT330BD RF Frame PA to ATC Cable 48 $110 $5,280
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 12 $10,500 $126,000
DualMode Voice Radios (TRU-2 and SCLPA)s 44 $10,500 $462,000
Subtotal $819,309
URBANA
16-32 CH OMNI Upgrade 1 $56,661 $56,661
Digital CSM (NT3P70BC) 1 $4,975 $4,975
NTFM22CA 16CH. RF OMNI ATC FRAME 1 $49,000 $49,000
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 15 $10,500 $157,500
Subtotal $292,741
</TABLE>
A-9
<PAGE>
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
FUNKSTOWN
16 CH.RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
16-32 CH. OMNI Upgrade 1 $56,661 $56,661
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 15 $10,500 $157,500
Subtotal $373,318
170 EAST/HUYETT
48 CH.RCMI SECT to ICRM+ SECT UPGRADE 1 $110,610 $110,610
48-64 CH. SECT Expansion 1 $36,599 $36,599
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 2 $11,000 $22,000
8 CH. ATC retrofit expansion 2 $11,000 $22,000
NT330BD RF Frame PA to ATC Cable 48 $110 $5,280
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 12 $10,500 $126,000
DualMode Voice Radios (TRU-2 and SCLPA)s 25 $10,500 $262,500
Subtotal $597,809
MARTAIN MTN/CLEARSPRING
16 CH.RCMI OMNI to ICRM+ OMNI UPGRADE 1 $80,577 $80,577
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 8 $10,500 $84,000
Subtotal $243,157
QUARRY
32 CH.RCMI OMNI to ICRM OMNI UPGRADE 1 $93,295 $93,295
32-48 CH. OMNI Expansion 1 $56,716 $56,716
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 2 $11,000 $22,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 32 $110 $3,520
(TRU-2/SCLPA) DCCH, ACCH, DLCR, ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 29 $10,500 $304,500
Subtotal $545,851
</TABLE>
A-10
<PAGE>
<TABLE>
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
<S> <C> <C> <C> <C>
HAYSTACK
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
CE Bay ATC Upgrade 1 $695 $695
8 CH. ATC retrofit 1 $11,000 $11,000
8 CH. ATC retrofit expansion 1 $11,000 $11,000
NT330BD RF Frame PA to ATC Cable 16 $110 $1,760
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 7 $10,500 $73,500
Subtotal $152,080
WARFORDSBURG/HAGERSTOWN
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 15 $10,500 $157,500
Subtotal $211,625
NEW MARKET
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
SMALL RF/CE FRAME POWER & GROUND 1 $2,315 $2,315
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 15 $10,500 $157,500
Subtotal $213,940
BUCKEYESTOWN
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
SMALL RF/CE FRAME POWER & GROUND 1 $2,315 $2,315
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 14 $10,500 $147,500
Subtotal $203,440
EMMITSBURG
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
SMALL RF/CE FRAME POWER & GROUND 1 $1,410 $1,410
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 4 $10,500 $42,000
Subtotal $97,535
SIDELING SOUTH
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
SMALL RF/CE FRAME POWER & GROUND 1 $2,315 $2,315
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 15 $10,500 $157,500
Subtotal $213,940
BOONSBORO
Digital CSM (NT3P70BC) 1 $4,975 $4,975
Dual Mode Radio Unit Monitor 1 $7,150 $7,150
SMALL RF/CE FRAME POWER & GROUND 1 $1,410 $1,410
(TRU-2/SCLPA) DCCH,ACCH,DLCR,ALCR 4 $10,500 $42,000
DualMode Voice Radios (TRU-2 and SCLPA)s 14 $10,500 $147,000
Subtotal $202,535
A-11
<PAGE>
1.2.2.2 Installed Base Radio Credit
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
Installed Base DRU(s) Credited (49) ($10,500) ($514,500) ($514,500)
1.2.2.3 Spares
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
Cell Site Spares Kit(ICRM/DRU) 2 $54,974 $109,948 $109,948
Cell Site Equipment Subtotal $6,705,484
DISCOUNT ($2,984,393)
1.2.2.4 Nortel Cell Site E, F&I
UNIT EXTENDED
DESCRIPTION QTY PRICE PRICE
EF&I RCMI updates 11 $2,160 $23,760
EF&I DCSM and DRUM 20 $4,320 $86,400
RF Frame I&C 8 $5,304 $42,432
ATC Retrofit 33 $480 $15,840
RF Frame I&C 14 $5,304 $74,256
Subtotal $242,688
* Total EF&I to do all listed work at one time.
1.2.2.5 RF Engineering Services
RF Design Evaluation 20 $6,903 Included
FR Frequency Planning 20 $1,420 Included
MARYLAND RSA 3 NET CELL SITE UPGRADE PRICE $3,449,279
</TABLE>
1.3 RF SERVICES
Seller shall provide the RF design evaluation and frequency planning
Services included in the Price for Maryland RSA 2 and Maryland RSA 3 in
Subsections 1.1.3 and 1.2.2.5, respectively, of this Annex 1A in
accordance with the statement of work set out in Annex 8A of this
Agreement.
1.4 P-3 TRADE-IN CREDITS
Seller hereby agrees to grant a purchase credit in the amount of $750 to
Buyer for each P-3 radio unit it trades-in to Seller during the Extended
Term; provided, as follows:
A-12
<PAGE>
(a) Each trade-in credit may be applied only against the purchase Price
of one TRU-2 and SCLPA radio unit ("TRU-2 Unit") and only one credit
may be applied against the purchase Price of each such TRU-2 Unit;
(b) Buyer shall replace each P-3 (de-installed hereunder and traded-in
to Seller) with a TRU-2 Unit; and,
(c) Seller shall de-install each applicable P-3 prior to the applicable
Turnover of the TRU-2 Unit replacing it.
Seller shall remove such de-installed P-3(s) in accordance with the
applicable project schedule. Buyer warrants that title to such
de-installed equipment shall be free and clear and shall pass to Seller
upon de-installation.
2.0 SOFTWARE RELEASE LICENSE FEE
2.1 During the Extended Term, Buyer shall pay Seller the following fees
for each Switch in service as of the Extended Effective Date or
purchased thereafter by Buyer under this Agreement (including the
Extended Term Initial Purchase):
(a) based on the audit described in Subsection 2.1.2 below, or the
determination of the number of subscribers at Turnover as
described in Subsection 2.1.3 below, as applicable, a Software
license fee per Switch each calendar year during the Extended Term
equal to the product of $6.00 times the number of subscribers on
such applicable Switch at the time of such audit or Turnover, as
applicable ("Software License Fee"); and,
(b) a Software application fee of $25,000 ("Software Application Fee")
per Switch per calendar year,
(cumulatively, the "Annual Software Fee"); provided, subject to
Subsection 2.1.1 below, in no event shall such Annual Software Fee be
less than $50,000 or greater than $250,000 for each applicable Switch
during the Extended Term.
A-13
<PAGE>
Subject to Subsection 2.1.3 below, Seller shall invoice Buyer for the
applicable Annual Software Fee upon completion of the audit described
in Subsection 2.1.2 below and Buyer shall pay 100% of the applicable
invoice within thirty (30) days of the date of such invoice.
2.1.1 For the Switch in Buyer's Maryland 2 market only, no such $50,000
minimum Annual Software Fee shall apply in the event such audit
indicates that no subscriber database is datafilled on such Switch;
provided, Buyer shall pay the Software Application Fee for such Switch.
2.1.2 Except for the instances described in Subsection 2.1.3 hereinbelow,
commencing in 1998, at the beginning of each calendar year during the
Term, but not later than January 31st of each such calendar year,
Seller shall audit each applicable Switch under this Agreement (i.e.,
Buyer's Switches in its Cheyenne, Kansas, Maryland 2 and Maryland 3
markets) and any new Switch purchased by Buyer under this Agreement
for any other market(s) ("New Market Switch") to determine the number
of subscribers per Switch for purposes of calculating the applicable
Annual Software Fee for the calendar year during which the audit is
conducted. Buyer hereby gives Seller the right at its discretion to
conduct such audit remotely or visually on-site.
2.1.3 In the event Turnover of a New Market Switch occurs after January 31st
of any calendar year during the Term (including 1997), upon Turnover
of such New Market Switch, Seller may invoice Buyer for the $25,000
Software Application Fee and the applicable initial Software License
Fee based on the number of subscribers on such New Market Switch as
of the date of Turnover of such Switch, such initial Software License
Fee being prorated for the remainder of the calendar year in which
such New Market Switch is installed. Buyer shall pay 100% of the
applicable invoice within thirty (30) days of the date of such invoice.
2.2 For the Annual Software Fee Buyer shall be provided with one (1)
DMS-MTX standard, commercially available Software release per Switch,
as offered by Seller to its customers for 800 MHz AMPS/TDMA Equipment
application during the applicable calendar year. Buyer may license
additional Software releases offered by Seller to its customers for each
A-14
<PAGE>
such Switch in a given Extended Term calendar year in addition to the
Software release included in such Annual Software Fee by paying Seller
the $25,000 Software Application Fee. All Software releases licensed
by Buyer hereunder shall include all Software, whether base or optional
features, contained in the standard, commercially available DMS-MTX
Software ("DMS-MTX Core Software"). Such DMS-MTX Core Software shall
not include the following:
(a) all CDMA-specific Software features, including, but not limited to,
IS-634 open interface and all other CDMA-specific interfaces; and,
(b) Software operating on an Adjunct Platform.
In all cases the applicable Software License Fee and/or Software
application Fee is exclusive of any hardware/firmware required to
operate the Software, but includes TAS services as described in this
Agreement.
3.0 DISCOUNTS
3.1 All discounts are included in the Prices set forth in Section 1.0 for
the Extended Term Initial Purchase and such Prices are not subject to
any additional discounts.
3.2 Extended Term Additional Equipment shall be discounted as follows;
provided, no discounts shall apply to (i) Hardware or Software
operating on an Adjunct Platform, (ii) Services, or (iii) OEM
Equipment:
Description Discount
----------- --------
Switch Hardware 40%
Cell Site Hardware 45%
RF Hardware 50%
A-15
<PAGE>
SCHEDULE B
TO AMENDMENT NO. 2 OF
SUPPLY AGREEMENT BETWEEN
DOBSON COMMUNICATIONS CORPORATION
AND NORTHERN TELECOM INC.
ANNEX 8A
EXTENDED TERM
RF ENGINEERING PERFORMANCE
AND DESIGN EVALUATION
The purpose of this Statement of Work is (a) to describe the scope of work
for Seller's RF engineering and network planning of cellular services to
evaluate the performance of a network of cell sites configured for AMPS
applications for the purpose of determining the requirements for deploying
digital TDMA services ("RF Frequency Planning") and (b) to establish the
process for applying such evaluation to Seller's design of a digital TDMA
System in order to meet the coverage and capacity requirements of Buyer's
Maryland RSA 2 market ("RF Design Evaluation"). There are currently 22
tri-sectored cells operating in the AMPS mode in Maryland RSA 2 ("MD2
Cells"). Seller shall evaluate the MD2 Cells to provide hand held, in-car
portable coverage throughout the RF coverage area. This process involves the
following steps:
- - Evaluation of the existing AMPS cell sites and switching network and
establishing a baseline of current performance.
- - Making recommendations for improvement to the existing network for 600mw
in-car portable coverage.
- - Determining the general equipment requirements to enhance the coverage of
the network and the necessary switch and interconnect capacity.
B-1
<PAGE>
A cost estimate for System optimization will be provided on a per cell and/or
per channel basis after the RF Frequency Planning and Design Evaluation scope
of work is completed and approved by Buyer.
1.0 NETWORK PLANNING SYSTEM EVALUATION
The purpose of this section is to describe the scope of work for Seller
to provide a System plan for one DMS-MTX switch and to provide System
verification to validate such plan and its implementation. Seller may
provide recommended design changes based upon its planning process.
Should specific details of Seller's planning process not be implemented
by Customer, Seller shall be released from responsibility for that
portion of the plan not implemented.
1.1 CAPACITY PLANNING
Seller shall provide a detailed capacity projection analysis at the cell
sites, controller and MTX levels, based on typical models addressed
within BTA/RSA areas served by the customer. The scope includes Buyer
providing input for the applicable customer input questionnaire (see
Attachment 1), capacity planning and/or forecasting report.
1.2 CAPACITY MONITORING
Seller shall provide a detailed capacity performance analysis of
in-service Buyer equipment (cell sites, controller and MTX). The
monitoring service includes collecting switch operational measurements,
and delivering a capacity analysis report to Buyer.
Seller shall estimate call handling capacity of switch and radio
equipment to identify when equipment resources will be exhausted before
system outages occur, allowing the operating company to be pro-active
in determining where to apply engineering resources for the purposes of
avoiding potential system failures and/or outages.
B-2
<PAGE>
1.3 SELLER DELIVERABLES
Seller shall provide the following deliverables:
1. The high level Capacity Forecast/Projection Plan which provides
capacity requirements for the specific BTA/RSAs. The plan provides
preliminary estimates of busy hour call attempts demand versus
processor occupancy requirements at the System and subsystem levels.
2. A capacity planning Customer Information Questionnaire ("CIQ"),
which captures the customer inputs regarding Hardware and Software
Releases, features and/or services roll out, traffic call mix,
subscriber growth plan and traffic projections.
3. The detailed Capacity Plan, which is based on the CIQ, describes
the network and nodal capacity requirements for the specific Software
and Hardware included in the Equipment quoted. A statement of
modeling assumptions and the operating company's inputs from Buyer
shall be used by Seller as the basis for the capacity requirements.
4. The Capacity Monitoring Report, which provides in-depth analysis of
the busy hour call attempts handled by the in-service equipment and
the call processing occupancy of the processor in question. The
report is based on the operational measurements obtained from Buyer's
MD2 System, including but not limited to MTX, ICP, and ICRMs. The
report will include recommendations for growth plan or opportunities
for cell re-homing based on actual measurements of the processing
load.
2.0 RF ENGINEERING EVALUATION
A readiness evaluation phase is developed to determine if the RF portion
of the MD2 Cells is performing to the standards necessary for successful
B-3
<PAGE>
commercial deployment of digital services, and if not, to provide
recommendations to Buyer on how best to proceed. This phase also
includes the detailed coverage and capacity design evaluation
(excluding frequency planning) of macro cells necessary to provide the
grade of service specified by Buyer.
2.1 DATA COLLECTION
To begin the data collection process, RF engineering will contact Buyer
to obtain the current status, frequency plan and configuration of the
system or cluster of cells to be optimized, and to advise of the
general requirements for a deployment of digital TDMA operation. In
addition, the service requirements and operating parameters will be
mutually agreed upon in writing by Buyer and Seller, including the
grade of service, mobile versus in-car portable coverage, and RF
coverage area. A CIQ will be presented to Buyer for completion. When
completed by Buyer, this questionnaire will contain data describing the
current network and identifying necessary operating parameters such as
grade of service.
2.2. PERFORMANCE AUDIT AND BENCH MARKING
2.2.1 OPERATIONAL MEASUREMENTS
Seller will establish the general condition of the system in terms of
performance benchmarks that can be used to evaluate historical and
ongoing performance improvement or changes. The system performance
baseline will be established by Seller evaluating the Buyer provided
switch performance related to operational measurements ("OM")
maintained on the switch. Customer is required to provide remote access
to the Switch database to permit table set-up and data collection.
OM will be set-up and monitored by a member of the Seller deployment
team at least one week prior to the arrival of the RF Engineering
evaluation team to evaluate the existing system performance metrics and
establish a
B-4
<PAGE>
baseline prior to performance of applicable optimization Services;
provided Buyer purchases such Seller optimization Services. The OM will
be monitored during the deployment process and for at least one week
after such team leaves the market. This is to ensure that any
performance enhancements can be verified, and further serves to
establish the new System performance baseline.
2.2.2 RF PROPAGATION PREDICTION/INTERFERENCE ANALYSIS
Seller will perform a general RF Propagation Prediction/Interference
Analysis of the existing network. This task involves entering all
System specific information, such as coordinates, tower heights, power
levels, frequency plan, etc. into the PlaNET-Registered Trademark-
automated tool.
The information derived from the RF Propagation/Prediction Analysis
will include coverage analysis for each applicable cell, adjacent and
co-channel carrier to interference (C/I) evaluation, and terrain
considerations. Upon request by the Buyer, such information will be
made available to the Buyer as Confidential Information. Such report
will contain the following elements:
- Buyer requirements
- Buyer input data summary
- Other input data summary
- System coverage plots
- Composite coverage plots
- Cell coverage and C/I plots
- Current Frequency plan
2.2.3 CELL SITE AUDITS
For each cell site in the System to be evaluated, Seller will conduct a
cell site audit. Site audits consist of verifying the installation and
operation of
B-5
<PAGE>
the Seller radio Equipment. It is essential that the Equipment is
installed, configured, tested, and datafilled in the correct manner. The
audit ensures that the Equipment is working properly and is not
adversely affecting any existing equipment or service.
Site audits will be performed prior to any extensive performance
related adjustments being made. A Site Audit Report will be provided to
the Buyer within 30 days after completion of the audit.
2.2.4 SYSTEM DRIVE TEST DATA COLLECTION AND ANALYSIS
Seller RF Engineering group will perform a drive test of the MD2 Cells.
The drive routes will include all areas mutually agreed upon by Buyer
and Seller RF engineering as the primary RF coverage areas for the MD2
Cells. The data monitored and gathered will include hand-off points,
signal strength, C/I levels and path balance characteristics of the
System for both the forward and reverse paths. This data will then be
post-processed, plotted and analyzed to determine specific performance
anomalies. Further drive testing may be performed at Seller's
discretion, as determined by Seller's RF engineering team.
As the evaluation effort progresses through ongoing performance analysis
and drive testing, appropriate parameter changes that can be readily
implemented are identified and specifically recommended to Buyer to
improve system call processing performance.
2.3 EVALUATION REPORT
Following complete evaluation of the System, a report will be submitted
to the Buyer outlining performance and recommendations for further
actions. Recommendations may include (but not limited to) the addition
of cell sites for coverage, capacity, or performance improvements,
changes in the operating parameters of the network.
B-6
<PAGE>
3.0 SERVICE SUPPLY REQUIREMENTS
3.1 BUYER TO SUPPLY:
The Buyer will supply the following items in a timely manner:
- Non-billable phone numbers for test mobiles (3 minimum).
- Physical access to the switch databases and cell sites with Buyer's
technical staff available for interactive equipment audit and
alignment activities, as well as discussion during this service and
full authority to make database edits as required to successfully
perform the tasks necessary to optimize the System, provided, Buyer
purchases Seller's optimization services.
- Remote switch interface.
- Access to all System specific information (e.g. coordinates, tower
heights, frequency plan, ERP and azimuths).
- Tower climber, surveyor* or other contractor* for investigation and
correction of any physical problems identified during optimization;
provided, Buyer Purchases Seller's Optimization Services.
* TO BE PROVIDED AFTER IDENTIFICATION OF REQUIRED SCOPE OF WORK.
3.2 SELL TO SUPPLY:
Seller will supply drive test data collection and plot, and dropped call
and hand-off performance analysis, including required inputs and System
performance bench marking statistics.
- Tabulation of System parameters with specific recommendations for
change such as table and setting parameter change recommendations to
be provided interactively.
B-7
<PAGE>
- System configuration change recommendations, where appropriate,
including antenna height, cell location changes, capacity increases,
and sectorization.
- Results and recommendations from site audits and system inspection
including any observed anomalies such as undesirable hardware
configuration or settings.
B-8
<PAGE>
ATTACHMENT 1
CUSTOMER INFORMATION QUESTIONNAIRE
INITIAL DATA REQUIREMENTS
FOR NETWORK
(FOR EACH EXISTING SWITCH)
Networking requirements:
- List of networking partners
(Automatic Roaming & Call Delivery? Inter system Hand-off?)
- Connection to NACN, ITN, other Backbone Roaming Network?
- Connection to GTE FMR, FMR+, Pre-Call Validation Service?
- Connection to GTE, EDS or other Clearing House?
- IS-41 Rev. A, B or C?
- IS-41 via X.25 or SS7?
- Connection to other network entities not being proposed by Seller
(e.g. External HLR, Short Message Service Center, Authentication
Center, etc.)
- Major source of roaming traffic?
Tandeming requirements:
(SS7 INODE capability, IS-41+ tandeming)
PSTN interconnection requirements:
(ANSI ISUP, IS-41 Rev. A/B/C, Analog/Digital Trucks, Points of Presence,
Central Office connections)
B1-1
<PAGE>
Regulatory requirements on number/location of switches:
(One per LATA/MSA/RSA/State/Region)
Restrictions/Regulations on the type of services:
(Mobility, Restricted Coverage Areas, Equal Access, intra/inter system toll
traffic, dialing restrictions, E911 connectivity)
Minimum Service requirements:
(Grade of Service, Availability, Number Portability, seamless networking)
Wireless Data requirements:
(Circuit switched data, CDPD)
Projected Call Mix:
(L-M, M-L, M-M, L-L)
How MINs are provisioned
Required Number Plan
Billing requirements:
(Real-time billing, connection to downstream processor, etc.)
OEM requirements:
- Connection to Voice Mail System?
- Interconnection requirements (DS-1, DS-0, SS7? ANI spill?)
B1-2
<PAGE>
ATTACHMENT 2
CUSTOMER INFORMATION QUESTIONNAIRE
FOR RF ENGINEERING DATA REQUIREMENTS
(FOR EACH EXISTING SITE)
Frequency of each channel (voice, control)
Busy hour traffic for each sector
Grade of service required
Mobile vs. portable coverage requirements
Street/car/in-building coverage requirements
Coverage boundaries criteria (indicate on map)
Lat., long (deg., min., sec.)
Elevation (Ft, Mtr, AMSL)
Source of information on site location
Number of analog voice channels/sector
Number of digital voice channels/sector
Maximum transmitter power (Watts, dBw) per sector
Tower Height (Ft, Mtr, AMSL)
Highest Point (Ft, Mtr, AMSL)
Height to Antenna C.L. (Ft, Mtr, AMSL) per sector
Horizontal Antenna Spacing (Ft, Mtr) per sector
Antenna name and model number per sector
Antenna Gain (dB) per sector
Cable length to RF equipment (Ft, Mtr) per sector
B2-1
<PAGE>
SCHEDULE C
TO AMENDMENT NO. 2 OF
SUPPLY AGREEMENT BETWEEN
DOBSON COMMUNICATIONS CORPORATION
AND NORTHERN TELECOM INC.
ANNEX 9
ADJUNCT PLATFORMS
This Annex and the attached exhibits define the special terms and conditions
applicable to the sale and purchase of Adjunct Platforms. Except as set
forth herein, the terms of the Agreement shall continue to apply. In the
event of a conflict between the provisions of this Annex and the provisions
of the body of the Agreement, the provisions of this Annex shall take
precedence over the provisions of the body of the Agreement.
1.0 PRICE
1.1 Subject to Sections 2.2(b) and 4.0 of Annex 1A, if applicable, the
Price for an Adjunct Platform shall consist of (i) unit list prices for
applicable third-party hardware, and (ii) the license fees to use the
associated Value-added Software as set forth in the form of Exhibit A
hereto, "Adjunct Platform Prices." Any discounts set forth in the
Agreement do not apply to Adjunct Platform Prices.
1.2 Unless otherwise specified, the above noted Prices are exclusive of
Seller's charges for any Services associated therewith.
1.3 The Prices are also exclusive of any taxes, which shall be the
responsibility of Buyer pursuant to Section 5.5 of the Agreement.
1.4 Prices for future orders will be quoted upon Buyer request.
2.0 PAYMENT
2.1 Notwithstanding anything to the contrary contained in Section 5 of the
Agreement, Buyer shall pay Seller the appropriate Price in accordance
with the following schedule:
2.1.1 90% of the Purchase Order Price shall be invoiced by Seller upon
shipment of the Adjunct Platform to the Installation Site. Such payment
shall be paid to the Seller within thirty (30) days following the date of
Seller's invoice therefor.
C-1
<PAGE>
2.1.2 10% of the Purchase Order Price shall be invoiced by Seller after
Acceptance of the Adjunct Platform as defined in Section 6 of this
Annex 9. Such payment shall be paid to Seller within thirty (30) days
following the date of Seller's invoice therefor.
2.1.3 For Value-added Software components licensed separately (not part of
an Adjunct Platform), or other individual hardware units supplied by
Seller for use with the Adjunct Hardware, 100% of the Purchase Order
Price shall be invoiced by Seller upon delivery to Buyer. Such payment
shall be paid to Seller within thirty (30) days following the date of
Seller's invoice therefor.
3.0 WARRANTY
3.1 VALUE-ADDED SOFTWARE WARRANTY
Notwithstanding anything to the contrary contained in Section 7.2 of
the Agreement, Seller warrants that, provided the Value-added Software
is not altered by Buyer, and provided such Value-added Software is used
in conjunction with the applicable third-party hardware and Equipment
and such third-party hardware, Equipment and Value-added Software have
been maintained in accordance with the applicable third-party hardware
vendor's and Seller's recommended maintenance procedures, respectively,
the Value-added Software shall function during the Warranty Period
materially in accordance with Seller's specifications.
3.2 THIRD-PARTY HARDWARE
Third-party hardware, when furnished pursuant to this Annex, shall be
warranted by the applicable third-party hardware vendor in accordance
with such applicable vendor's standard warranty, which warranty shall be
passed through directly to Buyer. When requested by Buyer, Seller shall
furnish first echelon warranty support during Seller's regular business
hours, provided, however, that Buyer shall deal directly with such
applicable vendors for repair and return of defective material. The
Price includes warranty services from applicable vendor(s) for the first
year following shipment of the Adjunct Platform. Thereafter, Seller
recommends that Buyer also purchase an extended service plan from the
applicable third-party hardware vendor(s).
4.0 VALUE-ADDED SOFTWARE LICENSE
4.1 Buyer is hereby granted a non-exclusive license to use the Value-added
Software in accordance with Section 10 and Annex 6 of the Agreement and
the applicable NTPs. Notwithstanding anything to the contrary contained
in Annex 6, Buyer may use such Value-added Software in conjunction with
multiple processing units comprising the Adjunct Hardware.
4.2 From time to time, Seller may offer a corporate network right-to-use
fee, which right-to-use fee shall be limited to use by a specified number
of voice
C-2
<PAGE>
channels on Buyer's System(s) for that price, or such other measurable
unit as may be applicable for a particular feature.
5.0 VALUE-ADDED SOFTWARE UPGRADES
5.1 Seller shall offer an annual service plan for Value-added Software
maintenance, which service plan shall include Seller Technical Assistance
Service (TAS) and such Value-added Software upgrade(s) as Seller may make
available during the year.
5.2 Buyer shall keep the Value-added Software current, i.e., no more than
two (2) numbered releases behind Seller's then-current release. Any new
Value-added Software release may require the purchase of additional
Hardware by Buyer.
5.3 If Buyer has elected to remain on an outdated release and wishes to
upgrade such Value-added Software to Seller's then-current release, the
price therefor shall be the lesser of (i) the Value-added Software
maintenance License Fee for each year an upgrade was not implemented
pursuant to Section 5.1 hereinabove; or (ii) the price differential
between the then-current release and Buyer's release then-residing on
Buyer's Adjunct Platform.
6.0 SCHEDULE FOR INSTALLATION, TESTING AND ACCEPTANCE
6.1 Seller's standard acceptance test procedures "Acceptance Test
Procedures" [ATP's] shall be used for the testing and acceptance of the
applicable Adjunct Platforms in the form of Exhibit B, "Acceptance Test
Plan." (See Exhibit B for the MDS Acceptance Test Procedures.)
Prerequisite site preparation is the responsibility of Buyer as also
addressed in Exhibit B.
6.2 Seller shall install the third-party hardware in accordance with a
schedule to be mutually agreed by the parties, a sample of which is
attached hereto as Exhibit C, "MDS Sample Project Schedule." Seller
shall provide Buyer three (3) days prior notification that such Adjunct
Platform is ready for testing, and following such notification, Buyer
agrees to have a representative present to witness and acknowledge
completion of such testing. Seller shall test the Adjunct Platform in
accordance with the applicable ATP's to determine the Adjunct Platform
conformity with such applicable standards and specifications as set
forth in the ATP's.
6.3 At the end of testing, Buyer shall either accept the Adjunct Platform
in writing as herein provided or notify Seller in writing specifying in
reasonable detail those particulars in which the Adjunct Platform does
not meet the applicable ATPs. With respect to any such particulars,
Seller shall promptly proceed to take corrective action, and following
correction, Buyer shall accept the Adjunct Platform in writing.
Successful completion of the aforementioned ATP's shall be deemed to
constitute "Acceptance" of the applicable Adjunct Platform.
C-3
<PAGE>
SCHEDULE C (CONTINUED)
EXHIBIT A
ADJUNCT PLATFORM PRICING
(TO BE QUOTED UPON REQUEST)
Adjunct Platforms Price
----------------- -----
1.0 MTX Data Server ("MDS")
1.1 Hardware Components $_____________
1.2 MDS Software License Fees ($ per Voice Channel
License Fee)
1.2.1 Base Software $_____________
1.2.2 Modular Software
1.2.2.1 Accounting Mediation Services $_____________
1.2.2.2 Accounting Service Collection $_____________
1.2.2.3 CDPD Billing Service $_____________
1.2.3 Total Software License Fee $_____________
1.3 Total MDS Price $_____________
2.0 ADEPT
2.1 Hardware Components (Not offered for
purchase hereunder)
2.2 ADEPT Software ($ per Voice Channel
License Fee)
2.3 Total ADEPT Price $_____________
3.0 Integration/Installation $_____________
4.0 First-Year Warranty Services $_____________
5.0 Total Price $_____________
C-4
<PAGE>
SCHEDULE C (CONTINUED)
EXHIBIT B
MDS ACCEPTANCE TEST PLAN
(SAMPLE)
The following test plan is intended to verify standard functionality for the
MDS product with release 2.0 Software. As new releases are introduced this
plan will be updated.
The plan assumes that all site preparation activities have been completed,
that the DMS-MTX switch(es) are configured to support the necessary links to
the MDS, and that the client applications ("Clients") connected to LAN are
available for the MDS access. The MDS installation must be complete before
Acceptance activities can begin (i.e. HP has installed and powered up server).
Buyer and Seller will initial below as tests are completed.
1. ACCOUNTING MEDIATION SERVICE (AMS) TEST PLAN
1.1 AREAS OF TEST (AMS)
1.0.1 Verify product delivery for accuracy and completeness before beginning
Acceptance testing
1.0.2 BASE PERFORMANCE
Verify switch site datafill.
UNIX site configuration.
Threshold Parameters.
1.0.3 LINKS
Conform NT1X89BA/BB configuration.
Verify physical link connectivity.
Verify interoffice facilities (from MTX to MDS).
1.0.4 RELIABLE DATA TRANSFER
Single/Dual link.
Abnormal Termination Recovery.
Verify that AMS to ACS transfer is enabled.
Clients (unfiltered/filtered).
C-5
<PAGE>
1.0.5 GUI PERFORMANCE
Menu operation.
--------------- --------------
Buyer Seller
1.2 TEST CASES (AMS) (REFER TO NTPs 411-2141-520, 411-2141-523)
1. Confirm all relevant Switch datafill.
Verify physical connectivity from MTS to MDS.
NT1X89BA/BB: Verify cable is connected to correct port on MPC card.
Verify MPC is in shelf slot corresponding to datafill configuration.
WAN Connection: Confirm that WAN facilities are in place and active
(Cables connected to proper WAN ports, modems turned on, etc.).
Test Facilities: Set local/remote loopbacks and send test data.
2. Verify all GUI functionality. Examples are shown below.
A. Verify the following MDS GUI Configuration commands:
Configure, Edit, and Delete a Switch.
Configure, Edit, and Delete a Client.
Configure Switches and clients per specifications.
Verify Client filtering commands.
Verify reformatting commands.
Verify Topology Area is accurate.
B. Verify the following MDS GUI Performance Manager commands:
CPU Occupancy Tool.
Buffer Occupancy Tool.
C. Verify the following MDS GUI Fault Manager commands:
System Status.
Configuration of System Status Thresholds and Alarms.
D. Verify the following MDS GUI System Security commands:
Domain Maintenance.
User Maintenance.
Users can log in and access only configured domains.
3. Ensure MTX ability to transfer CDRs via two V.35 links, utilizing
the AFT/MNP protocol. Note that if CDRs are being transferred to
AMS,
C-6
<PAGE>
AFT/MNP must be used for CDR transfer. If TMS (see CBS Section
below) transfer is needed AFT/MTP can be used, but AFT/MNP can be
used for TMSs only if CDR transfer is not required.
4. Verify error recovery functions.
AFT/MNP: Disable one of dual X.25 links and verify that CDRs
continue to flow to MDS. Recover link and verify that next file
begins using both links.
Links: Disable both X.25 links. Recover links and verify that data
transfer resumes at the point where it was disrupted.
Hardware: Disable MDS circuit packs (e.g. Pull ACC card). Restore
hardware and verify that transfer automatically restarts and no
CDR data is lost.
5. Verify that all available clients can receive data.
NOTE: Nortel cannot be responsible for Client availability unless
the Client is supplied by Nortel. Once Acceptance activities have
begun, they must be completed in a timely fashion, and Acceptance
cannot be refused solely because non-Nortel clients are
unavailable for verification.
6. Verify that the Client interface can recover in the event of a
failure.
NOTE: Nortel cannot be responsible for the recovery of a Client
application unless it is supplied by Nortel. The intent of this
test is to verify that the MDS interface (e.g. LAN connection)
will recover.
7. Verify transfer audit functions.
8. Verify the following MDS GUI Operations commands:
Start Processes.
Terminate Processes.
View Logs.
Client Transfer Control.
Queue Purge Functions.
MTX to MDS Queue Transfer Status.
9. If 9-track tape option is present, verify the following MDS GUI
Operations commands:
Tape In/Tape Out and Export/Import Optionally.
10. If the 9-track tape option is present, verify the following MDS
GUI tapeopr login commands:
Tape In/Tape Out operations once configured by Security Manager.
No other screens are available to tapeopr.
C-7
<PAGE>
11. If 9-tract tape is not available, verify that AMA files can be
archived to Digital Audio Tape (DAT). Verify that the AMA files
can be restored from DAT to the AMS file buffer for re-processing.
---------- ----------
Buyer Seller
2.0 ACCOUNTING COLLECTION SERVICES (ACS) TEST PLAN (REFER TO NTP
411-2141-525)
2.1 AREAS OF TEST (ACS)
2.1.1 ACS CLIENT
Windows '95/3.1/Xterm.
2.1.2 CDR SEARCH
2.1.3 BASE PERFORMANCE
User Domain Management of Client Station.
Sybase Drivers.
Threshold Parameters.
2.1.4 GUI PERFORMANCE
Menu operation.
2.2 TEST CASES (ACS)
1. Verify DCDMON process is running.
2. Verify the following MDS GUI Configuration commands:
Configure and edit Client application preferences.
3. Verify the following MDS GUI Performance Manager commands:
CPY Occupancy Tool.
Query Database Occupancy.
4. Verify the following MDS GUI Fault Manager commands:
System Status.
Configuration of System Status Thresholds and Alarms.
5. Verify search application configuration:
SQLEDIT.
SYBPING.
C-8
<PAGE>
6. Verify CDR search application:
Customer Service search.
Adhoc Reports.
CDR Browsing.
---------- ----------
Buyer Seller
3. CDPD BILLING SERVICE (CBS) TEST PLAN 3.1
3.1 AREAS OF TEST (CBS) (REFER TO NTP 411-2141-524)
CBS can be a standalone application or it can be included with AMS
and/or other applications. If CBS is included with AMS, many of the
tests below will have been performed in conjunction with AMS testing.
3.1.1 BASE PERFORMANCE
Switch site datafill.
UNIX site configuration.
Threshold Parameters.
3.1.2 LINKS
Confirm NT1X89BA configuration.
Verify physical link connectivity.
Verify interoffice facilities (from MTX to MDS).
3.1.3 RELIABLE DATA TRANSFER
Single/Dual link.
Abnormal Termination.
Client.
3.1.4 GUI PERFORMANCE
Menu operation.
3.2 TEST CASES (CBS)
1. Verify physical connectivity from MTX to MDS:
NT1X89BA/BB: Verify cable is connected to correct port on MPC
card. Verify MPS is in shelf slot corresponding to datafill
configuration.
Confirm all relevant Switch datafill.
WAN Connection: Confirm that WAN facilities are in place and
active (Cables connected to proper WAN ports, modems turned on,
etc.).
Test Facilities: Set remote loopbacks and send test data.
C-9
<PAGE>
2. Verity the following MDS GUI Configuration commands:
Configure, Edit and Delete a Switch.
Configure, Edit and Delete a Client.
Configure Switches and Clients per specifications.
Verify Topology Area is accurate.
3. Verify the follwing MDS GUI Performance Manager commands:
CPU Occupancy Tool.
Buffer Occupancy Tool.
4. Verify the follwing MDS GUI Fault Manager commands:
System Status.
Configuration of System Status Thresholds and Alarms.
5. Verify the following MDS GUI System Security commands:
Domain Maintenance.
User Maintenance.
Users can log in and access only configured domains.
6. Ensure MTX ability to transfer Traffic Matrix Segment (TMS) blocks
via a single X.25 link, utilizing the AFT/MTP process. Note that if
CDRs are being transferred to AMS, AFT/MNP must be used for CDR
transfer. If TMS block transfer is needed AFT/MTP can be used, but
AFT/MNP can be used for TMSs only if CDR transfer is not required.
AFT/MTP can support only a single link per switch for TMS transfer.
7. Verify error recovery functions:
AFT/MNP: Disable X.25 link. Recover link and verify that TMS transfer
resumes to MDS.
Hardware: Disable MDS circuit packs (e.g. Pull ACC card). Restore
hardware and verify that transfer automatically restarts and no TMS data
is lost.
8. Verify that the CBS Client can receive data.
9. Verify that Client interface can recover in the event of a failure.
NOTE: Nortel cannot be responsible for the recovery of a Client
application unless it is supplied by Nortel. The intent of this test is
to verify that the MDS interface (e.g. LAN connection) will recover.
10. Verify that TMS Tape Archive (TAR) files can be stored to Digital Audio
Tape (DAT) for backup purposes, or for shipment to a billing
C-10
<PAGE>
center. Verify that the TAR file can be restored to the CBS buffer for
re-processing.
11. Verify the following MDS GUI Operations commands:
Start Processes.
Terminate Processes.
View Logs.
Delete processed files from backup directory.
MTX to MDS Queue Transfer Status.
12. If 9-track tape option is present, verify the following MDS GUI
Operations commands: TapeIn and Import Optionally.
13. If the 9-track tape option is present, verify the following MDS GUI
tapeopr login commands:
TapeIn operations once configured by Security Manager.
No other screens are available to tapeopr.
----------------- --------------
Buyer Seller
Accepted:
- --------------------------------- --------------
Buyer Date
C-11
<PAGE>
SCHEDULE C (CONTINUED)
EXHIBIT C
MDS SAMPLE PROJECT SCHEDULE
Responsible
Week Milestone Event Party
- ---- --------------- -----------
1 P.O accepted by Seller Both
2 Review the CI Document input with Buyer Seller
3 Review Site Prep Requirements with Buyer Seller
4 Engineer and Order Equipment Seller
5 Ship Documentation to Buyer Seller
5 Establish Equipment Receipt and Buyer Both
Installation dates
10 Verify Site Prep has been completed (UPS, LAN, Both
Power, Modem Line, Data Ckts to other sites,
Client access [fraud, billing, etc.])
12 Installation Start Seller
13 Adjunct Platform Acceptance complete Both
C-12
<PAGE>
TERM SHEET
OPERATING AGREEMENT
DOBSON CELLULAR / AWS WIRELESS
AT&T Wireless Services, Inc., ("AWS") and Dobson Communications Corporation
("DCC") agree in principle to enter into an Operating Agreement pursuant to
which AWS and DCC will agree to the following:
TECHNOLOGY
1. DCC agrees to deploy and maintain the latest version of IS-136 technology
as follows:
Within 12 months of the execution of the Operating Agreement, DCC will
deploy IS-136 technology in the following markets; Enid, OK, Cumberland,
MD, Hagerstown, MD, MSA markets, as well as the, TX-2, OK-2, OK-7, MD-2,
MD-3 RSA markets. IS-136 technology will also be deployed in CA-4 and
TX-16 RSA's contingent upon closing of the pending acquisition of these
markets by DCC.
Deployment of IS-136 and the applicability of this Operating Agreement in all
future acquired markets by DCC will be mutually determined on a market by market
basis.
2) DCC agrees, to the extent commercially feasible, to comply with the most
current standards and core features of the AWS IS-136 network to assure
consistent quality and performance.
3) AWS shall consider allowing DCC to broadcast it's system identification
number on a market by market basis, thereby eliminating the roaming
indicator when subscribers roam into our respective markets.
4) DCC will offer AWS long distance as its exclusive long distance service
in all markets identified above through this provider agreement, subject
to the negotiation of acceptable market based rates.
5) DCC agrees to build and operate its cellular systems to P.02 standards
with respect to call blocking and dropped calls. It also agrees to meet
the Direct Measures of Quality (DMOQ) standards which will be a part of
the Operating Agreement.
6) DCC agrees to use commercially reasonable efforts to deploy fraud defense
technology compatible with AWS's fraud defense technology, including
Authentication and Real Time Visibility to AWS roaming customers.
7) AWS will provide DCC with and DCC will meet, system interoperability
specifications to ensure system interoperability between the AWS and DCC
networks.
<PAGE>
MARKETING
1) AWS will work with the AT&T Corporate Brand Committee in an effort to
allow DCC to use the AWS name and logo on a tag line basis subject to a
mutually agreeable brand use agreement. Such agreement will be made only
after final AT&T corporate approval.
2) DCC agrees to participate in the AWS National Account Program.
3) AWS agrees to allow DCC to actively market to those accounts identified
as national accounts within the DCC properties and to represent itself as
a member of the AWS National Account Program.
INTERCARRIER ROAMER SERVICE AGREEMENT
1) AWS and DCC will enter into a 5 year roaming agreement.
2) Roaming rates between the markets will remain at the rate agreed to at
the time of closing for a period of twelve months.
3) On a market by market basis, after completion of twelve continuous months
of DCC control, the wholesale rate for the next twelve months and each
twelve month period going forward throughout the term of the agreement
will be adjusted in accordance with the following adjustment formula:
(OUTCOLLECT REVENUE FOR THE PRIOR TWELVE MONTH PERIOD * 1.2) * (Current rate per
minute) (Outcollect revenue for the most recent twelve month period)
= New Per Minute Rate
Note: The new rate per minute, once earned, shall not be increased throughout
the term of this Agreement.
4) Notwithstanding the above, to the extent DCC obtains ownership control of
the TX-16 market, the roaming rates between the parties shall be: 1998:
DCC shall charge AWS $.50 per minute, AWS shall charge DCC $.35 per
minute. 1999: DCC and AWS shall reciprocally charge $.35 per minute.
Remaining term of this Agreement: Formula per #3 above.
5) DCC and AWS agree that the following per minute toll rates will be
charged when customers are roaming between markets:
Term of the Agreement; The actual AWS average retail rates charged to
AWS customers roaming into DCC markets, as calculated on a national basis but
not less
<PAGE>
than $.15 per minute for the years 1998-2000, $.12 per minute for the year
2001 and $.10 per minute for the remaining term of the Agreement.
DCC and AWS agree to offer a toll free calling area within their respective
cellular areas which reasonably approximates, or is larger than, the toll free
area offered by the landline telephony company in the area.
5) DCC agrees to join and remain a member of the NACN or its successor
entity.
CUSTOMER SERVICE
1) DCC will provide twenty-four (24) hour customer service in its cellular
properties.
2) DCC will maintain a 80% service level for all subscribers. 80% of all
subscribers will be handled within 20 seconds and less than 5% will be
abandoned. DCC will agree to provide home customer care routing to AWS
subscribers if requested.
3) The parties agree to route 611 customer care calls back to their
respective home carrier when customers are roaming in each other's markets.
MARKET EXCLUSIVITY
1) AWS agrees to use DCC as the primary roaming partner for AWS cellular and
PCS subscribers when roaming in the following specific DCC markets:
Enid, OK, OK-2, CA-4, TX-16, and MD-2, MD-3 Cumberland, MD, and Hagerstown, MD.
[Note: The primary roaming status for the Maryland properties is subject to
approval by other parties.]
NON-BINDING NATURE OF TERM SHEET
This term sheet is for discussion purposes only and shall not constitute an
agreement by or among any of the parties mentioned herein. Any agreement between
or among any of the parties is subject to final review and approval by the
respective parties' corporations and appropriate committees thereof. No party is
entitled to rely on this Term Sheet or these negotiations in any way until a
final definitive document has been signed and approved.
AT&T Wireless Services, Inc. Dobson Communications Corporation
By: /s/ Don Adams By: /s/ Everett Dobson
---------------------------- ----------------------------
Name: Don Adams Name: Everett Dobson
-------------------------- --------------------------
Title: Vice President Carrier Title: CEO/President
Relations
<PAGE>
Exhibit 11
Dobson Communications Corporation
Earnings per Common Share
<TABLE>
Years ended December 31,
--------------------------------------------
1997 1996 1995
------------- ------------ ----------
<S> <C> <C> <C>
Income (loss) before extraordinary items $(15,166,938) $ (893,277) $1,104,180
Extraordinary item (1,567,147) (527,334) -
Dividends on preferred stock (2,603,362) (849,137) (591,300)
------------ ----------- ----------
Net income (loss) applicable to common stockholders $(19,337,447) $(2,269,748) $ 512,880
------------ ----------- ----------
------------ ----------- ----------
Basic net income (loss) applicable to common
shareholders per common share:
Weighted average common shares outstanding 473,152 473,152 473,152
------------ ----------- ----------
------------ ----------- ----------
Income (loss) before extraordinary items $ (32.06) $ (1.89) $ 2.33
Extraordinary item (3.31) (1.12) -
Dividends on preferred stock (5.50) (1.79) (1.25)
------------ ----------- ----------
Net income (loss) applicable to common stockholders per
common share $ (40.87) $ (4.80) $ 1.08
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
Diluted net loss per share has been omitted because the impact of stock options
and convertible preferred stock on the Company's net income (loss) per share is
anti-dilutive.
<PAGE>
Exhibit 12
Dobson Communications Corporation
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
<TABLE>
1997 1996 1995 1994 1993
------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $(16,734,085) $(1,420,611) $1,104,180 $ 462,000 $ 541,000
Extraordinary (gain) loss 1,567,147 527,334 - (228,278) -
Accounting changes - - - - (640,629)
Interest expense, net 27,257,794 6,476,576 3,823,305 2,925,695 2,276,269
Amortization of deferred financing - 267,000 87,859 6,415 -
Income tax provision (benefit) (3,287,740) (410,795) 738,235 119,436 (78,774)
------------ ----------- ---------- ---------- ----------
Earnings $ 8,803,116 $ 5,439,504 $5,753,579 $3,285,268 $2,097,866
Interest expense $ 27,257,794 $ 6,476,579 $3,823,305 $2,925,695 $2,276,269
Amortization of deferred financing - 267,000 87,859 6,415 -
------------ ----------- ---------- ---------- ----------
Fixed charges $ 27,257,794 $ 6,743,579 $3,911,164 $2,932,110 $2,276,269
Preferred dividends 2,603,362 849,137 591,300 83,388 -
------------ ----------- ---------- ---------- ----------
Combined Fixed Charges and Preferred
Stock Dividends $ 29,861,156 $ 7,592,713 $4,502,464 $3,015,498 $2,276,269
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
Ratio of Earnings to Fixed Charges (1) (2) 1.47 1.12 (3)
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends (4) (5) 1.28 1.09 N/A
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $18,454,678.
(2) Earnings were insufficient to cover fixed charges by $1,304,075.
(3) Earnings were insufficient to cover fixed charges by $178,403.
(4) Earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $21,058,040.
(5) Earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $2,153,209.
<PAGE>
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
OF INCORPORATION OR
NAME OF SUBSIDIARY ORGANIZATION
- ----------------------------------------------------------------- ---------------------------
<S> <C>
Dobson Operating Company Oklahoma
Dobson Telephone Company Oklahoma
Dobson Fiber Company, Inc. Oklahoma
Dobson Fiber/FORTE of Colorado, Inc. Oklahoma
Dobson Cellular Systems, Inc. Oklahoma
DCC PCS, Inc. Oklahoma
Dobson Cellular of Arizona, Inc. Oklahoma
Dobson Cellular of California, Inc. Oklahoma
Dobson Cellular of Southern California, Inc. Oklahoma
Dobson Cellular of Texas, Inc. Oklahoma
Dobson Cellular of Kansas/Missouri, Inc. Oklahoma
Dobson Cellular of Woodward, Inc. Oklahoma
Dobson Cellular of Enid, Inc. Oklahoma
Dobson Wireless Cable, Inc. Oklahoma
Call Center & Client Outreach Services, Inc. Oklahoma
Western Financial Services Corp. Oklahoma
Dobson Network Management, Inc. Oklahoma
Associated Telecommunications and Technologies, Inc. Oklahoma
Logix Communications Corporation Oklahoma
Trancell, Inc. Oklahoma
Dobson Wireline Company Oklahoma
Dobson Cellular Operations Company Oklahoma
DOC Cellular Subsidiary Company Oklahoma
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,006,668
<SECURITIES> 26,777,433
<RECEIVABLES> 16,444,838
<ALLOWANCES> 648,919
<INVENTORY> 1,470,207
<CURRENT-ASSETS> 41,790,362
<PP&E> 133,619,774
<DEPRECIATION> 45,269,496
<TOTAL-ASSETS> 383,214,260
<CURRENT-LIABILITIES> 25,468,024
<BONDS> 363,068,594
11,623,329
100,000
<COMMON> 473,152
<OTHER-SE> (25,332,821)
<TOTAL-LIABILITY-AND-EQUITY> 383,214,260
<SALES> 85,169,137
<TOTAL-REVENUES> 85,169,137
<CGS> 21,343,400
<TOTAL-COSTS> 21,343,400
<OTHER-EXPENSES> 53,368,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,098,327
<INCOME-PRETAX> (16,761,306)
<INCOME-TAX> (3,287,740)
<INCOME-CONTINUING> (15,166,938)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,567,147)<F1>
<CHANGES> 0
<NET-INCOME> (16,734,085)
<EPS-PRIMARY> (40.87)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Net of income tax expense of $960,508.
<F2>Diluted net loss per share has been omitted because the impact of stock options
and convertible preferred stock on the Company's net loss per share is
anti-dilutive.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,609,221
<SECURITIES> 0
<RECEIVABLES> 6,923,247
<ALLOWANCES> 339,144
<INVENTORY> 1,012,589
<CURRENT-ASSETS> 19,956,455
<PP&E> 97,680,165
<DEPRECIATION> 35,750,261
<TOTAL-ASSETS> 116,948,025
<CURRENT-LIABILITIES> 8,923,785
<BONDS> 104,303,802
10,000,000
0
<COMMON> 473,152
<OTHER-SE> 1,638,246
<TOTAL-LIABILITY-AND-EQUITY> 116,948,025
<SALES> 43,225,473
<TOTAL-REVENUES> 43,225,473
<CGS> 9,075,971
<TOTAL-COSTS> 9,075,971
<OTHER-EXPENSES> 26,714,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,477,651
<INCOME-PRETAX> (628,974)
<INCOME-TAX> (410,795)
<INCOME-CONTINUING> (893,277)
<DISCONTINUED> 0
<EXTRAORDINARY> (527,334)<F1>
<CHANGES> 0
<NET-INCOME> (1,420,611)
<EPS-PRIMARY> (4.80)
<EPS-DILUTED> 0
<FN>
<F1>Net of income tax expense of $323,205.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 2,944,481 2,349,600 1,665,753
<SECURITIES> 38,639,295 38,230,861 67,812,393
<RECEIVABLES> 9,092,690 11,203,495 10,835,295
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 27,913,022 41,911,546 41,831,356
<PP&E> 107,671,295 109,644,454 118,253,283
<DEPRECIATION> 37,821,128 40,130,034 42,466,983
<TOTAL-ASSETS> 314,325,778 313,791,052 373,001,805
<CURRENT-LIABILITIES> 13,100,911 16,831,755 25,910,743
<BONDS> 309,268,400 309,000,203 362,779,664
11,623,000 11,623,000 11,623,000
100,000 100,000 100,000
<COMMON> 473,152 473,152 473,152
<OTHER-SE> (12,020,901) (16,540,997) (20,534,105)
<TOTAL-LIABILITY-AND-EQUITY> 314,325,778 313,791,052 373,001,805
<SALES> 14,343,330 36,110,486 59,516,733
<TOTAL-REVENUES> 14,343,330 36,110,486 59,516,753
<CGS> 3,172,767 8,299,413 14,150,752
<TOTAL-COSTS> 3,172,767 8,299,413 14,150,752
<OTHER-EXPENSES> 9,171,048 22,765,876 36,813,652
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (3,901,925) 11,648,185 19,495,493
<INCOME-PRETAX> (1,631,669) (5,493,674) (8,888,488)
<INCOME-TAX> (74,976) (251,667) (418,755)
<INCOME-CONTINUING> (1,799,431) (6,043,324) (9,784,045)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (2,403,711) (2,403,711) (2,403,711)
<CHANGES> 0 0 0
<NET-INCOME> (4,203,142) (8,447,035) (12,187,756)
<EPS-PRIMARY> (9.30) (18.86) (27.30)
<EPS-DILUTED> 0 0 0
</TABLE>
