<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 333-23769 AND 333-50107
------------------------
DOBSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1110531
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13439 NORTH BROADWAY EXTENSION 73114
SUITE 200 (Zip Code)
OKLAHOMA CITY, OKLAHOMA
(Address of principal executive offices)
(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, 1999, there were 491,954 shares of the registrant's $.001
par value Class A Common Stock outstanding. The Common Stock is privately held.
The market value of Common Stock held by non-affiliates of the registrant as of
December 31, 1998 was approximately $11,323,000.
Documents incorporated by reference: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
- ------ ----
<S> <C> <C>
PART I
1 Business.............................................................. 3
2 Properties............................................................ 30
3 Legal Proceedings..................................................... 30
4 Submission of Matters to a Vote of Security Holders................... 30
PART II
5 Market for Registrant's Common Equity and Related Stockholder
Matters............................................................. 31
6 Selected Financial Data............................................... 32
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 33
7A Quantitative and Qualitative Disclosure About Market Risk............. 43
8 Financial Statements and Supplementary Data........................... 44
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 72
PART III
10 Directors and Executive Officers of the Registrant.................... 72
11 Executive Compensation................................................ 74
12 Security Ownership of Certain Beneficial Owners and Management........ 76
13 Certain Relationships and Related Transactions........................ 77
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 81
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Dobson Communications Corporation (the "Company") is a leading provider of
rural and suburban cellular telephone services. Since it began providing
cellular service in 1990 in Oklahoma and the Texas Panhandle, the Company has
rapidly expanded its cellular operations with an acquisition strategy targeting
rural and suburban areas which have a significant number of potential customers
with substantial needs for cellular communications. On December 23, 1998, a
subsidiary of the Company acquired all of the outstanding capital stock of
Sygnet Wireless, Inc. and its subsidiary, Sygnet Communications, Inc. (together,
"Sygnet") for $337.5 million (the "Sygnet Acquisition"). The newly created
subsidiary, Dobson/ Sygnet Communications Company ("Dobson/Sygnet") owns and
operates cellular telephone systems covering a population of 2.4 million in
northeastern Ohio, western Pennsylvania and western New York. At December 31,
1998, the Company's cellular systems covered a population of 5.7 million in
Arizona, California, Kansas, Maryland, Missouri, New York, Ohio, Oklahoma,
Pennsylvania and Texas.
The Company believes that its mix of rural and suburban cellular systems
generally provides strong growth opportunities due to lower penetration rates,
higher subscriber growth rates and a higher proportion of roaming revenue
compared to cellular systems located in larger MSAs. The Company focuses on
systems that are adjacent to major metropolitan areas and include a high
concentration of expressway corridors that tend to have a significant amount of
roaming activity. Management believes these areas are not as fully developed as
large MSAs, which were licensed earlier by the FCC, and have the potential for
increased cellular usage and superior financial performance. The Company has
entered into roaming agreements with operators of cellular systems in
neighboring MSAs and RSAs and other MSAs and RSAs that allow customers to roam
at competitive prices that, in certain instances, are comparable to the
Company's home area rates.
The Company was organized to establish and maintain a strong and visible
local presence while achieving economies of scale and synergies through the
centralization of certain functions. The Company's local management teams have
day-to-day operating authority, with the flexibility to respond to individual
market requirements and to foster a strong sense of customer service and
community spirit. In addition, the Company believes that its marketing and
customer service functions are more effective when tailored to the local market
population. The regional presence of the Company's call centers enhances its
knowledge of local markets, which improves the Company's ability to provide
customer service, credit and collection and order activation. However, the
Company retains centralized control of marketing, pricing, system design,
engineering, purchasing, financial and administrative functions to maximize
operating leverage and continuity over its cellular systems.
The Company has developed organizational, marketing and operational programs
designed to increase the number and retention of subscribers, promote superior
customer service, control subscriber acquisition costs and enhance operating
cash flow. The Company intends to apply these programs to the properties it
acquires.
STRATEGY
The Company's business strategy is to focus on the development and
acquisition of rural and suburban cellular systems. The principal elements of
the Company's strategy include:
INTEGRATE ACQUIRED OPERATIONS. The Company intends to integrate the
operations of systems it acquires with the Company's existing cellular
operations to achieve economies of scale. Management believes that these
increased efficiencies will come from the centralized control of pricing,
marketing, system design, engineering, purchasing, financial and administrative
functions and from the consolidation of billing functions. The Company expects
to consolidate Sygnet's three call service centers and one of the
3
<PAGE>
Company's call centers. The Company intends to use its increased leverage in
negotiating prices and services from third party service providers and equipment
vendors.
EXPAND STRATEGIC RELATIONSHIPS. The Company intends to continue to maintain
and expand strategic relationships with operators of cellular systems in major
metropolitan statistical areas ("MSAs") near the Company's systems. These
relationships include roaming agreements which allow the Company's subscribers
to use the system in the neighboring MSA or RSA at favorable rates. Under these
agreements, similar benefits are available to the MSA or RSA operator's
subscribers roaming in the Company's areas. In addition, the Company will deploy
digital technology in its system area which is the same as that selected by the
Company's roaming partner in the neighboring MSA. The Company also markets its
cellular products and services under the predominant brand name in the
neighboring MSA. Such brand names include CELLULAR ONE-Registered Trademark- and
AIRTOUCH-TM- CELLULAR. These strategic relationships and agreements enable the
Company to increase its roaming revenue, offer its subscribers larger home rate
areas and leverage the recognized brand names of its roaming partners and their
extensive marketing efforts.
AGGRESSIVE LOCAL MARKETING AND PROMOTION OF CELLULAR SERVICES. The
Company's marketing objective is to continue to distinguish itself as the local
market's leading cellular services provider, stressing its service quality,
local sales offices and commitment to the community. The Company's sales efforts
are conducted primarily through its retail outlets and its direct sales force
and, to a lesser extent, through independent agents.
TARGETED SALES EFFORTS. The Company seeks to attract subscribers who are
likely to generate high monthly revenue and low churn rates. Local management
conducts 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.
SUPERIOR CUSTOMER SERVICE. The Company intends to maintain a high level of
customer satisfaction through a variety of techniques, including maintaining
24-hour customer service. The Company supports local customer service through
the Company's direct sales force and its retail stores, and through regional
customer service centers.
CONTINUED SYSTEM DEVELOPMENT. The Company believes that increasing capacity
and upgrading its systems will attract additional subscribers, enhance the use
of its systems by existing subscribers, increase roaming activity and further
enhance the overall efficiency of the network. The Company intends to continue
to upgrade its systems with digital technology to enable it to increase roaming
(by servicing the increasing number of digital cellular subscribers and personal
communication services ("PCS") subscribers with dual mode phones) and provide
enhanced capabilities, including caller ID, longer battery life and zone
billing.
DISCIPLINED EXPANSION THROUGH ACQUISITIONS. The Company continually
evaluates opportunities to acquire additional rural and suburban cellular
systems. In evaluating acquisitions, the Company targets rural service areas
("RSAs") and small MSAs that have some or all of the following characteristics
in addition to others:
- are adjacent to major metropolitan areas;
- have positive population growth trends;
- include a high concentration of expressway corridors that have a
significant amount of roaming activity; and
- have the potential to develop strategic relationships with operators of
neighboring wireless systems and the ability to offer service under a
leading brand name.
4
<PAGE>
A subsidiary of the Company is party to an agreement to purchase the Federal
Communications Corporation ("FCC") license for, and certain assets related to,
Pennsylvania 2 RSA for $6.0 million (the "Pennsylvania 2 Acquisition"). Because
the seller's title to the license remains subject to administrative and judicial
review, the closing of such acquisition has been delayed. Pending such closing,
Dobson/Sygnet is managing the operation of the cellular system in the market
under the supervision and control of the seller. Recently, the Company entered
into an agreement for the purchase of the FCC license for, and certain assets
related to, Maryland 1 RSA and an unserved portion of Cumberland, Maryland MSA
for $9.1 million in cash (the "Maryland 1 Acquisition"), subject to adjustment.
The Company has no agreements with respect to any acquisitions other than the
Pennsylvania 2 Acquisition and the Maryland 1 Acquisition.
DISCONTINUED OPERATIONS
The Company, through its wholly owned subsidiary, Logix Communications
Enterprises, Inc. ("Logix"), provides integrated local, long distance, data and
other telecommunications services to small and medium-sized business customers
throughout the Southwest United States. Logix operates long-haul fiber optic
facilities in Oklahoma, Texas and Colorado. Logix offers switch-based integrated
communications provider services in Oklahoma City, Tulsa, Amarillo, Houston,
Austin, Dallas, Fort Worth and San Antonio. For the year ended December 31, 1998
and 1997, the discontinued operations had revenues of $67.7 million and $20.2
million, respectively, and net income (loss) of $(27.1) million and $.3 million,
respectively.
The Company intends to distribute the stock of Logix to certain of the
Company's shareholders in a tax-free spin-off. The timing of the spin-off is
subject to receipt of a favorable tax ruling or favorable tax opinion acceptable
to the Company and its shareholders.
RECENT DEVELOPMENTS--THE SYGNET ACQUISITION
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet, acquired
Sygnet for $337.5 million. In order to finance the Sygnet acquisition, the
following transactions were consummated:
- the Company issued and sold $50.0 million of 12 1/4% Senior Exchangeable
Preferred Stock ("Senior Exchangeable Preferred Stock");
- the Company received gross proceeds of $115.0 million from the issuance of
other classes of its preferred stock (the "Equity Investments");
- the Company made an equity contribution to Dobson/Sygnet of $145.0
million;
- Dobson/Sygnet obtained $430.0 million of financing pursuant to senior
secured facilities (the "Dobson/Sygnet Credit Facilities") from
NationsBank, N.A., consisting of a $50.0 million reducing revolving credit
facility and $380.0 million of term loans;
- Dobson/Sygnet sold $200.0 million aggregate principal amount of 12 1/4%
Senior Notes due 2008 (the "Dobson/Sygnet Notes"), and used $67.7 million
of the net proceeds to purchase a portfolio of U.S. government securities
(the "Pledged Securities") that are pledged for the first six semi-annual
interest payments on the Dobson/Sygnet Notes;
- all indebtedness outstanding under Sygnet's existing bank facility was
repaid;
- Sygnet repurchased all of its outstanding 11 1/2% Senior Notes due 2006
(the "Sygnet Notes") pursuant to Sygnet's offer to purchase the Sygnet
Notes;
- the Company repurchased certain shares of its outstanding common and
preferred stock with a portion of the net proceeds of the Equity
Investments and borrowings under one of its existing bank facilities; and
5
<PAGE>
- the Company's subsidiary, Dobson Tower Company ("Dobson Tower"), purchased
substantially all of the cellular towers owned by Sygnet for $25.0 million
in cash using funds provided to Dobson Tower under a separate bank
facility and from the sale of preferred stock to an affiliate, and leased
the cellular towers back to Dobson/Sygnet under operating leases (the
"Tower Sale Leaseback").
MARKETS AND SYSTEMS
The following table sets forth certain data with respect to the Company's
existing cellular systems at December 31, 1998:
<TABLE>
<CAPTION>
MARKET
TOTAL TOTAL PENETRATION YEAR
PROPERTIES POPS(1) OWNERSHIP NET POPS(2) SUBSCRIBERS (3) ACQUIRED
- --------------------------------------- ---------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION
Oklahoma 5 and 7..................... 148,500 64.4% 95,634 17,877 12.0% 1989
Texas Panhandle...................... 88,500 61.0 53,985 15,007 16.9 1989
Northwest Oklahoma................... 105,100 100.0 105,100 7,327 7.0 1991
Kansas/Missouri...................... 246,500 100.0 246,500 8,805 3.6 1996
Central Texas:
Texas 16........................... 334,000 100.0 334,000 6,290 1.9 1998
Texas 10........................... 317,900 100.0 317,900 (4) (4) 1998
Total.............................. 1,240,500 1,153,119 55,306
EASTERN REGION
East Maryland........................ 453,700 100.0 453,700 35,953 7.9 1997
West Maryland........................ 441,000 100.0 441,000 30,601 6.9 1997
Total.............................. 894,700 894,700 66,554
WESTERN REGION
Arizona 5............................ 202,100 75.0 151,575 10,844 5.4 1997
California 7......................... 149,300 100.0 149,300 3,028 2.0 1998
California 4......................... 377,300 100.0 377,300 19,139 5.1 1998
Santa Cruz........................... 245,600 86.9 213,426 18,383 7.5 1998
Total.............................. 974,300 891,601 51,394
NORTHERN REGION
Ohio 2............................... 262,100 100.0 262,100 (5) (5) 1998
Youngstown........................... 721,400 100.0 721,400 69,061 9.6 1998
Erie................................. 282,300 100.0 282,300 29,013 10.3 1998
Pennsylvania......................... 890,300 100.0 890,300 52,178 5.9 1998
New York............................. 480,000 100.0 480,000 28,499 5.9 1998
Total.............................. 2,636,100 2,636,100 178,751
Total All Regions...................... 5,745,600 5,575,520 352,005
</TABLE>
- ------------------------
(1) Pops is the estimated population of an MSA or RSA.
(2) Calculated as total Pops multiplied by ownership percentage.
(3) Determined by dividing total subscribers by the total Pops covered by the
applicable FCC cellular license or authorizations held or to be acquired by
the Company.
(4) The Company is negotiating to purchase the subscribers in Texas 10. The
previous operator of the system estimates the number of subscribers to be
approximately 1,400.
(5) On March 16, 1999, the Company purchased 13,611 subscribers in Ohio 2 from
the previous operator of the system.
6
<PAGE>
CENTRAL REGION
The Company's licensed systems and related assets in the Central Region
include properties in western Oklahoma (Oklahoma 5 RSA and Oklahoma 7 RSA), the
Texas Panhandle (Texas 2 RSA), Northwest Oklahoma (Enid, OK MSA and Oklahoma 2
RSA), Kansas/Missouri (Kansas 5, Missouri 1, Missouri 4 and Missouri 5 RSAs) and
Central Texas (Texas 10 RSA and Texas 16 RSA). The Company's FCC licenses for
Oklahoma 5 RSA and Oklahoma 7 RSA do not include Kingfisher and Blaine Counties,
approximately one-half of Dewey County (total Pops estimated by the Company to
be 3,000 for the area in Dewey County not covered by the Company's FCC license),
Harmon and Greer Counties. The Company also owns a 5% interest in a partnership
which owns the cellular system in Oklahoma 3 RSA which has total Pops of
205,600. Information regarding Oklahoma 3 is excluded because the Company does
not manage the system. The Company's license for Missouri 5 RSA covers only the
Linn County portion of the RSA.
OKLAHOMA AND TEXAS PANHANDLE
GENERAL. The Company initiated cellular operations in western Oklahoma and
the Texas Panhandle area in 1990 as a start-up operation, activated its first
cell site in March 1991, and acquired additional properties in the area and in
Northwest Oklahoma in 1991.
DEMOGRAPHICS. The Oklahoma and the Texas Panhandle properties cover a
contiguous area of approximately 27,000 square miles and extend west from
Oklahoma City along I-40 to Amarillo, Texas. The Northwest Oklahoma properties
are located north and northwest of Oklahoma City. The principal industries in
Oklahoma and the Texas Panhandle are agriculture and oil and gas.
MARKETING AND ROAMING. The Company operates under the brand name CELLULAR
ONE-Registered Trademark-in Northwest Oklahoma and Dobson Cellular-TM- in
Oklahoma 5 and 7 and in and the Texas Panhandle. The Company currently has 10
retail stores, six kiosks locations and approximately 72 agents in the area. The
Company has roaming agreements with SWBM, AT&T Wireless and several other
companies which include their respective market areas in Oklahoma City, Amarillo
and adjacent RSAs.
SYSTEMS. The Oklahoma and Texas Panhandle has one switch. There are 46 cell
sites covering substantially all of the total population in western Oklahoma,
Northwest Oklahoma and the Texas Panhandle. The Company has completed upgrading
its system in this area to analog/TDMA IS-136 digital service.
KANSAS/MISSOURI
GENERAL. In March 1996, the Company purchased the FCC license, and related
assets for, the Kansas 5 RSA, Missouri 1 RSA, Missouri 4 RSA and a portion of
the Missouri 5 RSA. The Kansas/Missouri properties are located in northeastern
Kansas and northwestern Missouri near Kansas City, and cellular services have
been provided in this area since 1992.
DEMOGRAPHICS. The Kansas and Missouri properties cover a contiguous area of
approximately 10,500 square miles. Leavenworth, Kansas, the largest city in the
Kansas and Missouri properties, serves primarily as a bedroom community to
Kansas City.
MARKETING AND ROAMING. The Company operates under the CELLULAR
ONE-Registered Trademark- service mark in its Kansas and Missouri properties.
Since March 1996, the Company has increased the number of retail locations from
one to four, and currently has 22 sales agents in this area. The Company has a
roaming agreement with CMT, a partnership between AirTouch and AT&T Wireless,
which includes the Kansas City and St. Joseph MSAs and adjacent RSAs. The
Company also has roaming agreements with Western Wireless and U.S. Cellular,
each of which has systems adjacent to the Kansas and Missouri properties.
7
<PAGE>
SYSTEMS. The Kansas and Missouri properties include 1 switch and 28 cell
sites which cover approximately substantially all of the population. Selection
of the digital technology to be deployed, and the timing of its installation, is
pending the choice of digital technology by the operator of the Kansas City MSA.
CENTRAL TEXAS
GENERAL. On January 26, 1998, the Company purchased the FCC cellular
license for, and certain assets relating to, the Texas 16 RSA which is located
in south-central Texas in an area bordered by Austin, Houston and San Antonio.
On December 2, 1998, the Company purchased the FCC licenses for Texas 10 RSA for
$55.0 million, subject to resolution of certain matters regarding the seller's
title to the FCC licenses. The Company is negotiating with AT&T Wireless for the
purchase of subscribers and certain equipment necessary to operate the Texas 10
system. Texas 10 is located in north-central Texas, in an area bordered by
Dallas, Austin, Tyler and Longview MSAs. The Company is negotiating with AT&T
Wireless for an agreement to purchase approximately 1,400 subscribers in Texas
10. The Company expects to convert Texas 10 subscribers to the Company's system
and assume all operations in the second quarter of 1999.
DEMOGRAPHICS. The Central Texas properties cover an area of approximately
19,900 square miles in central Texas in which the principal industries are
agriculture, oil and gas, manufacturing, steel and plastics. The service area
includes approximately 100 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 Austin. The areas also includes 90 miles of I-45
connecting Dallas and Houston, 30 miles of I-20 connecting Dallas and Shreveport
and 130 miles of US-79.
MARKETING AND ROAMING. With respect to Texas 16, the Company has entered
into roaming agreements with Houston Cellular, a partnership between AT&T
Wireless and BellSouth Mobility, for the Houston market, and with AT&T Wireless
for the San Antonio and Austin markets. The Company operates under the brand
name CELLULAR ONE-Registered Trademark- in Texas 16. The Company has six
existing retail outlets in Texas 16 and intends to open one additional outlet.
With respect to Texas 10, the Company expects to market its products and
services in Texas 10 under the CELLULAR ONE brand name. Additionally, the
Company intends to enter into roaming agreements with Houston Cellular and AT&T
Wireless similar to the existing agreements at Texas 16. There are currently no
retail outlets in Texas 10; however, the Company has identified locations for
three retail outlets which will be opened in the second quarter of 1999. The
Company intends to open additional outlets later in 1999 and 2000.
SYSTEMS. Texas 16 has one Lucent switch and 30 cell sites which cover
substantially all of the Pops in the market area. The Company has recently
completed upgrading its system in Texas 16, and currently provides analog/TDMA
IS-136 service. The system for Texas 10 will be operational in the second
quarter of 1999. Texas 10 will initially have 18 cell sites which will cover
substantially all of the Pops in the market area. Texas 10 and Texas 16 will
share the use of the Lucent switch currently in place in Texas 16.
EASTERN REGION
The Company's licensed systems and related assets in the Eastern Region
include its properties in eastern Maryland (Maryland 2 RSA) and western Maryland
and southeastern Pennsylvania (Cumberland MSA, Hagerstown MSA and Pennsylvania
10 West RSA) near the Washington-Baltimore area and along the eastern shore of
Maryland. The FCC license for the Pennsylvania 10 West RSA covers only Bedford
County.
GENERAL. On March 3, 1997, the Company purchased the FCC cellular license
for, and certain assets relating to, East Maryland for $75.8 million. The prior
owner of the East Maryland license had no
8
<PAGE>
employees, distribution facilities or cell sites, and the property was serviced
by Washington Baltimore Cellular Limited Partnership ("WBCLP"), an affiliate of
SWBM, under an interim operating authority. In October 1997, the Company assumed
control of customer service, billing and activations in East Maryland and in May
1998, the Company assumed all operations in East Maryland. The Company intends
to add additional cell sites and voice channels in East Maryland as its local
subscriber base and roaming traffic increase. On February 28, 1997, the Company
also purchased the FCC cellular licenses for, and certain assets relating to
West Maryland for $77.6 million. Cellular service has been provided in West
Maryland since 1991.
DEMOGRAPHICS. The Eastern Region covers approximately 6,200 square miles.
East Maryland encompasses suburban areas south and east of Washington, D.C. as
well as the eastern shore of Maryland. Many residents in Maryland commute to
Annapolis, Baltimore and Washington, D.C. and there is a heavy traffic pattern
in East Maryland during the summer months as tourists travel to and from several
popular vacation spots along the eastern shore, especially Ocean City. Maryland
properties are within 50 miles of Washington, D.C. and Baltimore. The areas has
numerous high-technology businesses and is considered a high-commuter market due
to its proximity to nearby metropolitan areas.
MARKETING AND ROAMING. In its Eastern Region, the Company operates under
the brand name CELLULAR ONE-Registered Trademark-, which is a dominant brand
name within the Washington/Baltimore area. The Company presently has nine retail
stores, six kiosks and 43 agents in its Eastern Region, and intends to open
additional retail locations.
The Company has a roaming agreement with AT&T Wireless which covers the
Company's entire Eastern Region. The Company also has roaming agreements with
SWBM, which operates under the CELLULAR ONE-Registered Trademark- brand name in
the Washington, D.C. area, that allows each party to include in its home
coverage footprint the other party's system, and with Vanguard, which operates a
system adjacent to certain of the Company's properties on the north and east of
the Eastern Region.
SYSTEMS. The Eastern Region has two switches. In addition, the Company has
45 cell sites in its Eastern Region which cover substantially all the population
in the market area. The Company has converted its Eastern Region systems to
analog/IS-136 TDMA digital technology.
WESTERN REGION
The Company's licensed systems and related assets in the Western Region
includes its properties in Arizona (Arizona 5 RSA) and southern California
(California 7 RSA) (together, "Arizona/Southern California") and California 4
RSA and Santa Cruz MSA in Northern California.
ARIZONA/SOUTHERN CALIFORNIA
GENERAL. On October 1, 1997, the Company acquired a 75% interest in the
partnership which owns the FCC license for, and certain assets relating to,
Arizona 5 RSA (the "Arizona 5 Partnership") for $39.8 million. The Company is
the operating manager of the Arizona 5 Partnership. On July 29, 1998, the
Company acquired the FCC license for, and certain assets relating to, California
7 RSA for $21.0 million.
DEMOGRAPHICS. The Arizona/Southern California properties cover an area of
approximately 10,100 square miles in southern Arizona between Phoenix and
Tucson, and an area of approximately 4,200 square miles between San Diego and
the Arizona state line bordering Mexico. The principal industries in Arizona 5
are mining and smelting. Arizona 5 experiences significant tourist traffic to
the local Indian dwellings and commuter traffic to Phoenix and Tucson.
California 7 experiences high roaming traffic as I-8, connecting San Diego to
Phoenix and Tucson, runs through California 7.
MARKETING AND ROAMING. In Arizona 5 and California 7, the Company has
roaming agreements with AirTouch. The Company is licensed to use the
AIRTOUCH-TM- CELLULAR service mark to identify and
9
<PAGE>
promote its cellular telephone service in Arizona 5 and California 7. The
roaming agreements provide for Airtouch and the Company to include each other's
service area in its home coverage footprint, allowing each party to offer a
wider service area. AirTouch's service area includes Phoenix, Tucson and San
Diego. At present, the Company has one retail location and 15 agents in Arizona
and 2 retail locations and 2 kiosks and 9 agents in California 7. The Company
intends to open additional retail locations, increase the number of agents, and
increase the use and marketing of the AIRTOUCH-TM- CELLULAR name in the coverage
area.
SYSTEMS. The Arizona/Southern California properties have one switch.
Arizona 5 has 22 cell sites which cover approximately 90% of the population in
the market area. The system is currently switched out of the Phoenix office of
US WEST. The core cell sites in Arizona 5 are analog/CDMA digital, which is the
digital technology used by AirTouch in the Phoenix and Tucson MSAs. California 7
has three cell sites and a central switching office, covering approximately 90%
of the population. The Company intends to replace all of the equipment in these
two markets in the second quarter of 1999 and install additional cell sites over
the next several years utilizing analog/CDMA digital technology.
NORTHERN CALIFORNIA
GENERAL. On April 1, 1998, the Company acquired the corporation that owned
the FCC license for, and certain assets related to, California 4 RSA for an
aggregate purchase price of $90.9 million. California 4 is located in northern
California approximately 50 miles inland from California's central coast in an
area between Fresno and Modesto. On June 16, 1998, the Company purchased 86.4%
of the outstanding stock of the corporation that owns the FCC cellular license
for, and the assets relating to, the Santa Cruz MSA, for $31.0 million.
Subsequently, the Company has acquired an additional 0.5% interest in the
corporation for $.2 million. The Santa Cruz property is adjacent to California 4
and is located southwest of San Jose and north of the Monterey Peninsula, on
California's Pacific coastline.
DEMOGRAPHICS. The Northern California properties cover an area of
approximately 5,900 square miles in northern and north-central California. The
principal industries in these areas are manufacturing and agriculture. In
addition, the areas experience significant tourist traffic as one of the
entrances to Yosemite National Park is located in the eastern segment of
California 4. The service area includes approximately 37 miles of Route 99
between Sacramento and Los Angeles, 60 miles of I-25 between San Francisco and
Los Angeles, 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 has entered into roaming agreements with
AT&T Wireless in California 4 which will permit the Company to include AT&T
Wireless's service area in its home rate area, allow the Company to offer a
wider service area. The AT&T Wireless service area includes San Francisco,
Fresno and Modesto. The Company has roaming agreements with AT&T Wireless and
Bay Area Cellular, a partnership between AT&T Wireless and AirTouch, for Santa
Cruz and California 4. The Company uses the brand name CELLULAR ONE-Registered
Trademark- to market its services in Northern California and currently operates
13 retail locations in the area.
SYSTEMS. California 4 has one switch and 23 cell sites which cover
substantially all of the population in the market area, and Santa Cruz has 16
cell sites which cover substantially all of the population in the market area.
The Company is in the process of upgradingthe systems and existing equipment in
Santa Cruz and California 4 and expects the upgrade to be complete in the second
quarter of 1999.
NORTHERN REGION
The Company's Northern Region is made up of licensed systems and related
assets in New York, Ohio and Pennsylvania. The Company acquired Youngstown,
Erie, Pennsylvania and New York in December 1998 from Sygnet. Ohio 2 was
purchased in September, 1998.
10
<PAGE>
YOUNGSTOWN
GENERAL. The Youngstown market is composed of the Youngstown, Ohio MSA, the
Sharon, Pennsylvania MSA and the Ohio 11 RSA. Sygnet initiated cellular
operations in the Youngstown market in 1985 when it acquired its license from
the FCC for the Youngstown, Ohio MSA.
DEMOGRAPHICS. The Youngstown market covers a contiguous area that is
located at a midway point between Pittsburgh and Cleveland along the Ohio
Turnpike and Interstate 76 and includes Interstate 80, a major transportation
access route from the midwest to New York City. The principal industries are
manufacturing, healthcare, high-technology and tourism.
MARKETING AND ROAMING. In the Youngstown market, the Company's cellular
products and services are marketed under the name "Wilcom Cellular" which has a
strong local identity. At December 31, 1998, the Company had 6 retail stores and
13 kiosks and agreements with over 26 independent sales agents.
SYSTEMS. There are 44 cell sites covering substantially all of the total
Pops in the Youngstown market. The Company has completed upgrading its system in
this area to analog/TDMA IS-136 digital service.
ERIE
GENERAL. The Erie market is composed of the Erie, Pennsylvania MSA. Sygnet
initiated cellular operations in the Erie market in 1995.
DEMOGRAPHICS. The Erie market covers a contiguous area that includes
Interstate 90, which connects Buffalo and Cleveland and Interstate 79, which
connects Erie directly to Pittsburgh. The principal industries are
manufacturing, healthcare, high-technology and tourism.
MARKETING AND ROAMING. The Company's operates under the brand name CELLULAR
ONE-Registered Trademark- in the Erie market. At December 31, 1998, the Company
had 3 retail stores and 5 kiosks and approximately 26 sales agents in the area.
SYSTEMS. There are 14 cell sites covering substantially all of the total
Pops in the Erie market. The Company has completed upgrading its system in this
area to analog/TDMA IS-136 digital service.
PENNSYLVANIA
GENERAL. The Pennsylvania market includes Pennsylvania 1 RSA, Pennsylvania
2 RSA, Pennsylvania 6 RSA and Pennsylvania 7 RSA. Sygnet has been operating
Pennsylvania 2 under a management and lease agreement with Pinnellas
Communications, which will continue in effect until the FCC's grant of the
license to Pinellas Communications is no longer subject to reconsideration or
judicial review.
DEMOGRAPHICS. The Pennsylvania market covers a contiguous area that
includes Interstate 79 and Interstate 80, which link the major population
centers in north-central Pennsylvania, including Pittsburgh and Erie. The
Pennsylvania market also includes Route 60, a recently completed toll road,
which serves as an expressway to Pittsburgh International Airport.
MARKETING AND ROAMING. The Company's operates under the brand name CELLULAR
ONE-Registered Trademark- in the Pennsylvania market. At December 31, 1998, the
Company had 8 retail stores and 5 kiosks and approximately 61 sales agents in
the area.
SYSTEMS. There are 75 cell sites covering substantially all of the total
Pops in the Pennsylvania market. The Company has completed upgrading its system
in this area to analog/TDMA IS-136 digital service. Upon the acquisition of
Pennsylvania 2 RSA from Pinellas Communications, the Company will build out this
system and install TDMA IS-136 digital service.
11
<PAGE>
NEW YORK
GENERAL. The New York market is composed of New York 3 RSA. Sygnet
initiated cellular operations in the New York market in 1996 when it acquired
its license in an acquisition.
DEMOGRAPHICS. The New York market includes six counties located in western
New York state. The system borders Buffalo and Rochester to the north, Erie,
Pennsylvania to the west and Binghamton/Elmira to the east. Interstates 90 and
390 and Route 17 runs through the New York region. Interstate 90, or the New
York Thruway, connects Buffalo, Rochester and Erie. Interstate 390 connects
Rochester, Corning, Binghamton and Elmira. Route 17 connects Interstate 390 west
to Interstate 90 in Erie. The principal industries are manufacturing,
healthcare, high-technology and tourism
MARKETING AND ROAMING. The Company's operates under the brand name CELLULAR
ONE-Registered Trademark- in the New York market. At December 31, 1998, the
Company had 9 retail stores and 4 kiosks and approximately 23 sales agents in
the area.
SYSTEMS. The New York market has one switch. There are 50 cell sites
covering substantially all of the total Pops in the New York market. The Company
has not upgraded its system in this area to digital service. The Company intends
to complete the upgrade in the New York market to TDMA IS-136 digital service in
the third quarter of 1999.
OHIO 2
GENERAL. On September 2, 1998, the Company purchased the FCC license for,
and related assets of, Ohio 2 RSA for $39.3 million, subject to resolution of
certain matters regarding the seller's title to the FCC licenses. Ohio 2 is
located in north-central Ohio bordered by Lake Erie on the north and Cleveland
on the east, and includes total Pops of 262,100. On March 16, 1999, the Company
purchased 13,611 subscribers and certain assets in Ohio 2 from AirTouch. The
Company expects to assume all operations of Ohio 2 in the second quarter of
1999. Until then, AirTouch will provide certain services to the Company
necessary to operate the system.
DEMOGRAPHICS. Ohio 2 covers an area of approximately 1,700 square miles in
north central Ohio in which the principal industries are manufacturing and
agriculture. The Ohio 2 market includes 54 miles of I-80, linking Sandusky to
Toledo, Akron and Cleveland, 56 miles of US-224 and 35 miles of State Highway 4.
MARKETING AND ROAMING. The Company will market its products and services in
Ohio 2 under the name AIRTOUCH-TM- CELLULAR. Ohio 2 currently has two retail
outlets and two sales agents. The Company plans to open three additional retail
outlets in 1999. The Company has a reciprocal roaming agreement with AirTouch
that will allow the Company and Airtouch to include each other's service area in
its home coverage footprint.
CELLULAR OPERATIONS
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 and uses free phone promotions 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 include single year
and, to a lesser extent, multi-year service contracts) are utilized.
12
<PAGE>
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.
CUSTOMER SERVICE
Customer service is an essential element of the marketing and operating
philosophies of the Company. 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 regional
customer service centers located in Oklahoma City, OK and Frederick, MD on a
toll-free access number (with no airtime charge). 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.
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 markets depends, to a large
extent, upon the service mark used in neighboring MSAs. The Company markets its
cellular products and services under the name Dobson Cellular-TM- in portions of
Oklahoma 5 and 7 and the Texas Panhandle. In its Northwest Oklahoma, Kansas and
Missouri, Central Texas and Eastern Region markets, the Company markets its
cellular service under the name CELLULAR ONE-Registered Trademark-, one of the
most recognized brand names in the cellular industry. The national advertising
campaign conducted by the Cellular One Group enhances the Company's advertising
exposure at a fraction of the cost of what could be achieved by the Company
alone. The Company uses the service mark AIRTOUCH-TM- CELLULAR in its southern
California and Arizona properties and Ohio 2 markets. In the former Sygnet
markets, the Company expects to continue use of the CELLULAR
ONE-Registered Trademark- brand name. See "Service Marks."
13
<PAGE>
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 currently has 97 direct sales
representatives.
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
voice-mail, call waiting and call forwarding.
The Company operated 67 retail outlets and 47 kiosks as of December 31,
1998. The Company's retail stores range in size from 420 square feet to 6,400
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
14
<PAGE>
instances, are comparable to home area rates. The following table lists the
Company's principal roaming partners in each of its cellular markets:
<TABLE>
<CAPTION>
PRINCIPAL CELLULAR ROAMING
CELLULAR MARKETS PARTNERS
- ------------------------------------------------------------------------------ ----------------------------------
<S> <C>
CENTRAL REGION:
Oklahoma 5 and 7............................................................ SWBM; AT&T Wireless
Texas Panhandle............................................................. SWBM; AT&T Wireless
Northwest Oklahoma.......................................................... SWBM; AT&T Wireless
Central Texas:
Texas 10.................................................................. AT&T Wireless
Texas 16.................................................................. AT&T Wireless; Houston Cellular
Kansas/Missouri............................................................. CMT; Western Wireless; U.S.
Cellular
EASTERN REGION:
East Maryland............................................................... SWBM; AT&T Wireless; Vanguard
West Maryland............................................................... SWBM
WESTERN REGION:
Arizona/California:
Arizona 5................................................................. AirTouch
California 7.............................................................. AirTouch
California 4................................................................ AT&T Wireless
Santa Cruz.................................................................. AT&T Wireless; Bay Area Cellular
NORTHERN REGION:
Youngstown.................................................................. AT&T Wireless; AirTouch
Erie........................................................................ AT&T Wireless; AirTouch
New York.................................................................... AT&T Wireless; AirTouch
Pennsylvania................................................................ AT&T Wireless; AirTouch
Ohio 2...................................................................... AirTouch
</TABLE>
The Company has agreements with the North American Cellular Network
("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 total 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
15
<PAGE>
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 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. The aggregate net cost to
the Company under this agreement is estimated to be $81.0 million. The Company
is also party to another equipment supply agreement, with Nortel, to purchase
approximately $65.0 million of cell site and switching equipment over the period
June 1997 to November 2001.
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.
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 a system using CDMA, only if it is a dual-mode handset that
permits the subscriber to use the digital 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. The Company has completed the conversion of many
16
<PAGE>
of its systems to digital technology and expects to convert the remainder of its
systems (except for Kansas/ Missouri) by the end of 1999.
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 following table reflects the digital technology currently used or
expected to be selected by the Company in each of its cellular markets.
<TABLE>
<CAPTION>
STATUS/EXPECTED COMPLETION
CELLULAR MARKET DIGITAL TECHNOLOGY DATE
- -------------------------------------------------------- ------------------------ ------------------------------
<S> <C> <C>
CENTRAL REGION:
Oklahoma 5 and 7...................................... analog/TDMA IS-136 Completed
Texas Panhandle....................................... analog/TDMA IS-136 Completed
Northwest Oklahoma.................................... analog/TDMA IS-136 Completed
Central Texas:
Texas 10............................................ analog/TDMA IS-136 Second quarter 1999
Texas 16............................................ analog/TDMA IS-136 Completed
Kansas/Missouri....................................... N/A Pending(1)
EASTERN REGION:
East Maryland......................................... analog/TDMA IS-136 Completed
West Maryland......................................... analog/TDMA IS-136 Completed
WESTERN REGION:
Arizona/California:
Arizona 5........................................... analog/CDMA Completed
California 7........................................ analog/CDMA Second quarter 1999
California 4.......................................... analog/TDMA IS-136 Second quarter 1999
Santa Cruz............................................ analog/TDMA IS-136 Second quarter 1999
NORTHERN REGION:
Youngstown............................................ analog/TDMA IS-136 Completed
Erie.................................................. analog/TDMA IS-136 Completed
New York.............................................. analog/TDMA IS-136 Third quarter 1999
Pennsylvania.......................................... analog/TDMA IS-136 Completed
Ohio 2................................................ analog/TDMA IS-136 Second quarter 1999
</TABLE>
- ------------------------
(1) The Company has not yet selected the digital technology to deploy in the
Kansas/Missouri market.
INFORMATION SYSTEMS. Billing functions for most of the Company's cellular
operations are 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. In the first quarter of 1999, the Company decided to replace ITDS with a
new billing vendor, H.O. Systems. The H.O. Systems' software is in place and
functioning in the Company's West Region markets and the Company is in the
process of implementing the H.O. Systems' software throughout its other markets
and expects to complete the implementation in the third quarter of 1999. The
Company uses complementing software to the billing system allowing the use of
credit, collection and switch interfaces.
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.
17
<PAGE>
SERVICE MARKS
The Company owns the service mark Dobson Cellular-TM- 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 brand names used, or intended to be used,
by the Company for products and services in each of its cellular markets:
<TABLE>
<CAPTION>
CELLULAR MARKET SERVICE MARK
- --------------------------------------------------- -----------------------------------------
<S> <C>
CENTRAL REGION:
Oklahoma 5 and 7................................. Dobson Cellular-TM-
Texas Panhandle.................................. Dobson Cellular-TM-
Northwest Oklahoma............................... CELLULAR ONE-Registered Trademark-
Central Texas.................................... CELLULAR ONE-Registered Trademark-
Kansas and Missouri.............................. CELLULAR ONE-Registered Trademark-
EASTERN REGION:
East Maryland.................................... CELLULAR ONE-Registered Trademark-
West Maryland.................................... CELLULAR ONE-Registered Trademark-
WESTERN REGION:
Arizona/California............................... AIRTOUCH-TM- CELLULAR
California 4..................................... CELLULAR ONE-Registered Trademark-
Santa Cruz....................................... CELLULAR ONE-Registered Trademark-
NORTHERN REGION:
Youngstown....................................... CELLULAR ONE-Registered Trademark-/Wilcom
Cellular
Erie............................................. CELLULAR ONE-Registered Trademark-
New York......................................... CELLULAR ONE-Registered Trademark-
Pennsylvania..................................... CELLULAR ONE-Registered Trademark-
Ohio 2........................................... AIRTOUCH-TM- CELLULAR
</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 that begin expiring in 2000 and may be
renewed at the Company's option, subject to the satisfaction of certain
operating standards, for two additional five-year terms.
AIRTOUCH-TM- CELLULAR is a registered service mark licensed by AirTouch. In
connection with the acquisition of Arizona 5, the Company entered into a
licensing agreement which permits the Company to use the AIRTOUCH-TM- 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-TM- CELLULAR
mark requires the Company to provide high-quality cellular telephone services to
its customers and to otherwise maintain reasonable standards set by AirTouch.
The licensing agreement is for an initial term of 20 years with automatic
extensions for additional five-year periods.
18
<PAGE>
COMPETITION
The Company competes with various companies in each of its markets. The
following table lists the Company's principal competitors in each of its
cellular markets:
<TABLE>
<CAPTION>
CELLULAR MARKET PRINCIPAL COMPETITORS
- ------------------------------------------------------ --------------------------------------
<S> <C>
CENTRAL REGION:
Oklahoma 5 and 7.................................... AT&T Wireless; Western Wireless
Texas Panhandle..................................... Western Wireless
Northern Oklahoma................................... Enid Cellular; Pioneer Cellular
Central Texas....................................... GTE
Kansas and Missouri................................. SWBM; Kansas Cellular; ALLTEL;
Chariton Cellular; NW Missouri
Cellular
EASTERN REGION:
East Maryland....................................... BAM; Sprint
West Maryland....................................... BAM; US Cellular; Sprint
WESTERN REGION:
Arizona/California.................................. BAM; Centennial Wireless
California 4........................................ GTE
Santa Cruz.......................................... GTE
NORTHERN REGION:
Youngstown.......................................... ALLTEL
Erie................................................ GTE
New York............................................ Frontier
Pennsylvania........................................ ALLTEL; BAM
Ohio 2.............................................. ALLTEL
</TABLE>
The telecommunications industry is experiencing significant technological
changes, 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
long distance, landline local exchange and internet access service, with their
cellular 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 cellular 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.
19
<PAGE>
Cellular carriers also face to a lesser extent competition from PCS,
enhanced specialized mobile radio ("ESMR") and mobile satellite service ("MSS")
providers, as well as from resellers of these services and cellular service. In
the future, cellular operators may also compete more directly with traditional
landline telephone service providers. Continuing technological advances in
telecommunications make it impossible to predict the extent of future
competition. However, due to the depth and breadth of these competitive services
offered by operators using these other technologies, such competition could be
significant and is expected to become more intense.
Recently, the FCC has created potential sources of new competition by
auctioning additional PCS licenses as well as licenses to provide wireless
communications services, local Multipoint Distribution Services and 220 to 222
MHz Service. Further, the FCC has announced plans to auction licenses in the
General Wireless Communication Services.
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 telecommunications
companies resell cellular service as a complement to their long distance, local
telephone, paging, cable television or internet offerings.
The most likely 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. 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 predecessors and affiliates already operate large
cellular telephone systems and thus bring significant wireless experience.
ESMR is a wireless communications service supplied by converting analog
specialized mobile radio ("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 providers 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 MSS and is
currently providing such services. The FCC has also licensed four entities to
provide MSS as low earth-orbit satellite-based systems. One such licensee,
controlled by Motorola, operates a low earth-orbit satellite-based system called
"Iridium" and recently initiated such service in some markets. None of the other
licensees have yet launched MSS service. 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 MSS
services. Mobile satellite systems could augment or replace communications
within land-based cellular systems. While the Company may experience increased
competition from low earth-orbit satellite-based 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
20
<PAGE>
industry 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.
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 ("Telecommunications Act") and
are currently the subject of administrative rulemakings and judicial proceedings
that are significant to the Company. 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 and designated as wireline and non-wireline. 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. However, 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 or entity 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
census population of the PCS licensed service area is within the CGSA (as
defined below) and/or the ESMR service area). The FCC is currently considering
whether this 45 MHz spectrum cap should be modified.
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, other entities may apply to serve portions
of the MSA or RSA of at least 50 square miles in size outside the licensee's
then designated CGSA. The five year build-out period has expired for most
licensees and the FCC has granted several "unserved area" applications filed by
parties other than the original MSA or RSA licensee. Sygnet's five year buildout
period has expired in all its markets with the exception of Pennsylvania 2 RSA.
The Company's buildout has been substantially completed in all of its markets
with the exception of the Ohio 2 RSA and the Texas 10 RSA.
21
<PAGE>
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 annual regulatory fees and
assessments to support the FCC's regulation of its cellular operations, as well
as fees necessary to support centralized administration of telephone numbering,
the provision of telecommunications relay service ("TRS") for the
hearing-impaired and application filing fees.
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,
including the Sygnet Acquisition. 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 customer's resale of their services or
unreasonably discriminate against resellers of their services. All resale
obligations for cellular, broadband PCS and ESMR operators will terminate on
November 24, 2002. Moreover, federal legislation enacted in 1993 requires the
FCC to reduce the disparities in the regulatory treatment of similar mobile
services (such as cellular, PCS and ESMR). Under this new regulatory structure,
all of the Company's cellular licenses are classified as CMRS. As a CMRS
provider, the Company is regulated as a common carrier. The FCC, however, has
exempted cellular services from some typical common carrier regulations such as
tariff filings. The FCC has also adopted requirements for cellular and other
CMRS providers to implement basic and enhanced 911 services. These services
provide emergency service providers with the ability to better identify and
locate callers using wireless services, including callers using special devices
for the hearing impaired. The Company's obligations to implement these services
is scheduled to occur in several stages ending in October 2001. Cellular and PCS
carriers are also required to provide law enforcement agencies with capacity to
support lawful wiretaps by March 12, 2001 and technical assistance for wiretaps
by June 30, 2000. 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,
broadband PCS, paging and ESMR licensees to offer fixed services on a co-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 local 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 offer number portability and roaming to ported numbers by
November 24, 2002. These requirements may result in added capital expenditures
for the Company to make necessary system changes, although the Company currently
has no plans for any such expenditures.
Cellular and PCS licenses are generally granted for ten-year terms and are
renewable upon application to the FCC. Near the conclusion of the license term,
licensees must file applications for renewal of licenses to obtain authority to
operate for an additional 10-year term. Licenses may be revoked and license
renewal applications denied for cause after appropriate notice and hearing. 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
22
<PAGE>
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. The initial term for three of the
Company's existing licenses expired in October 1998. Each license was renewed
for a new ten year term expiring in 2008. The balance of the Company's existing
licenses begin to expire in October 2000. Three of Sygnet's licenses have
already been renewed for a new ten year term, and the initial terms on the
balance of its licenses will expire over the next three years.
A PCS system operates under a protected geographic service area license
granted by the FCC for either a major trading area ("MTA") or basic trading area
("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. Currently, the FCC is in the process of
re-auctioning nearly 350 PCS licenses in the C, D, E and F spectrum blocks.
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. Additionally, 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 by licensees that
qualified for installment payments during the entire ten-year initial license
terms are subject to unjust enrichment penalties; i.e., acceleration of any
installment payment plans should the assignee or transferee not qualify for the
same benefits. Any transfers or assignments by licensees that qualified for
bidding credits during the first five years of the license term are subject to
unjust enrichment penalties; i.e., forfeiture of any bidding credit based upon
the amount of time the initial license has been held should the assignee or
transferee not qualify for these 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 prohibited from interfering 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
therefore need to relocate many of
23
<PAGE>
these incumbent licensees, at the Company's expense, to other frequencies or to
reimburse other previously-licensed PCS licensees for expenses they have
incurred in relocating incumbent licensees that the Company might have otherwise
been required to relocate. 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 benefiting 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. After the
voluntary and mandatory negotiation periods expire, the microwave user continues
to hold primary status until April 4, 2005, but may be involuntarily relocated,
albeit at the PCS licensee's expense. 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 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. If greater than
25 percent of the Company's equity is owned of record or voted by aliens or
their representatives, a foreign government or its representative, or any
corporation organized under the laws of a foreign country and the FCC determines
that the public interest would be so served, it may revoke the Company's
cellular licenses or require an ownership restructuring. However, the FCC will
generally permit additional indirect ownership in excess of the statutory 25
percent benchmark where that interest is to be held by an entity or entities
from member countries of the World Trade Organization ("WTO"). For investors
from non-WTO countries, however, the FCC will determine whether the home country
of the foreign investor extends reciprocal treatment called "equivalent
competitive opportunities" to U.S. entities. If such opportunities do not exist,
it is unlikely that the FCC will permit investment beyond the 25 percent
benchmark. These restrictions could adversely affect the Company's ability to
attract additional equity financing.
The Telecommunications Act, which made 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 Telecommunications Act requires state public utilities commissions
and/or the FCC to implement policies that mandate reciprocal compensation
between local exchange carriers, a category that will, for these purposes,
include cellular carriers, for interconnection services at rates more closely
related to cost. In a rulemaking proceeding pertaining to interconnection
between local exchange carriers ("LECs") and CMRS providers such as the Company,
the FCC concluded that LECs are required to compensate CMRS providers for the
reasonable costs incurred by such providers in terminating traffic that
originates on LEC facilities, and vice versa. Consistent with this ruling, the
FCC has determined that LECs may not charge a CMRS provider or other carrier for
terminating LEC-originated traffic. Nor may LECs charge CMRS providers for
number activation and use fees. Depending on further FCC disposition of these
issues, the
24
<PAGE>
Company may or may not be successful in securing refunds, future relief or both,
with respect to charges for termination of LEC-originated local traffic. If
these issues are ultimately resolved by the FCC in favor of CMRS providers, then
the Company will pursue relief through settlement negotiations, administrative
complaint procedures or both. If these issues are ultimately decided in favor of
the LECs, the Company likely would be required to pay all past due contested
charges and may also be assessed interest and late charges for the withhold
amounts. These requirements could in the future have a material effect on the
Company.
The Telecommunications Act requires, and the FCC has adopted, 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. These rules could
result in increased costs for the Company's cellular operations. The
Telecommunications 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.
Additionally, the Telecommunications Act specifically exempts all cellular
carriers from the obligation to provide equal access to interstate long distance
carriers. However, the Telecommunications 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 Telecommunications Act also imposes restrictions on a telecommunications
carrier's use of customer proprietary network information without prior customer
approval. FCC rules implementing these restrictions are being renewed but could
have the potential to impose new costly obligations on the Company and impose
burdens on its current marketing activities.
The overall impact of the Telecommunications Act on the business of the
Company is unclear and will likely remain so for the foreseeable future. New
limitations on local zoning requirements may facilitate the construction of new
cell sites and related facilities. See "State, Local and Other Regulation."
However, these restrictions on zoning authority may provide only limited
assistance to cellular carriers, and other provisions of the new statute
relating to interconnection, telephone number portability, universal service,
equal access, use of customer proprietary network information 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 CMRS 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.
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. Additionally, any proposed site must comply
with the FCC's environmental rules.
25
<PAGE>
Zoning and planning regulation may become more restrictive in the future as
many broadband PCS carriers are now seeking sites for network construction. The
Telecommunications Act may provide facilities some relief from state and local
laws that arbitrarily restrict the construction of personal wireless services,
which include cellular, PCS and ESMR systems. For example, under the
Telecommunications 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. Notwithstanding these new requirements, wireless carriers have had
various degrees of success in challenging offensive zoning requirements and it
is still 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 regulations.
The Company cannot assure you 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 could affect the
Company, either beneficially or adversely, is proposed by federal or state
legislators. The Company cannot assure you 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 for services that compete with the Company's business could adversely
affect the Company's operating results.
EMPLOYEES AND AGENTS
As of December 31, 1998, the Company had approximately 980 employees. In
addition, as of such date, the Company had agreements with 339 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
ADDITIONAL PREFERRED STOCK The issuance of an additional 64,646 shares of
our outstanding 12 1/4% Senior Exchangeable Preferred Stock Mandatorily
Redeemable 2008 originally issued on December 23, 1998.
AIRTOUCH AirTouch Communications, Inc. and its affiliates.
ALLEGIANCE Telecom Allegiance Telecom, Inc.
ALLTEL ALLTEL Corporation and its affiliates.
ARIZONA 5 ACQUISITION; ARIZONA 5 PARTNERSHIP; ARIZONA 5 Our acquisition of
a 75% interest in the partnership (the "Arizona 5 Partnership") which owns the
FCC license for and certain assets related to the system for Arizona 5 RSA
("Arizona 5"), completed on October 1, 1997.
ARIZONA/SOUTHERN CALIFORNIA Includes Arizona 5 RSA and California 7 RSA.
AT&T AT&T Corp.
AT&T WIRELESS AT&T Wireless Services, Inc. and its affiliates.
BAY AREA CELLULAR A Partnership between AT&T Wireless and AirTouch.
BAM Bell Atlantic Mobile.
26
<PAGE>
BELLSOUTH MOBILITY BellSouth Mobility, Inc.
BTA Basic Trading Area, an FCC-designated region for purposes of PCS
regulation.
CALIFORNIA 4 ACQUISITION; CALIFORNIA 4 PARTNERSHIP; CALIFORNIA 4 Our
acquisition of the outstanding stock of two corporations that own all interests
in the partnership ("California 4 Partnership") that owns the FCC license for
and assets related to California 4 RSA ("California 4"), completed on April 1,
1998.
CDMA A digital technology that uses code division multiple access.
CELL The service area of an individual transmitter located in a cellular
system.
CHARITON CELLULAR Missouri RSA No. 5 Partnership d/b/a Chariton Valley
Wireless Services.
CHILDS J.W. Childs Associates, L.P., a Delaware limited partnership.
CHURN The number of cellular subscriber cancellations per month as a
percentage of the total cellular subscribers at the end of such period. Churn is
stated as the average monthly churn rate for the period.
CMRS Commercial Mobile Radio Services, a defined FCC term.
CMT CMT Partners, a partnership between AT&T Wireless and AirTouch.
COMMUNICATIONS ACT Communications Act of 1934
DCC SENIOR NOTES The 11 3/4% Senior Notes due 2007 issued by Dobson
Communications Corporation.
DCOC Dobson Cellular Operating Company, a wholly-owned subsidiary of Dobson
Communications Corporation.
DCOC CREDIT FACILITY A senior secured revolving credit facility of DCOC
established pursuant to a credit agreement among DCOC, NationsBank, N.A. and
certain other lenders.
DOBSON PARTNERSHIP Dobson CC Limited Partnership, an Oklahoma limited
partnership. Everett R. Dobson is the president and sole director and
shareholder of RLD, Inc., the general partner of the partnership, and members of
his family and trusts established for certain of his family members are limited
partners.
DOBSON/SYGNET Dobson/Sygnet Communications Company, a wholly owned
subsidiary Dobson Communications Corporation.
DOBSON/SYGNET CREDIT FACILITIES A $430.0 million senior secured bank
facility consisting of a $50.0 million reducing revolving credit facility and
$380.0 million of term loan facilities provided by banks led by NationsBank,
N.A.
DOBSON/SYGNET NOTES The 12 1/4% Senior Notes due 2008 to be issued by
Dobson/Sygnet.
DOBSON TOWER Dobson Tower Company, a wholly owned subsidiary of Dobson
Communications Corporation.
DOC CREDIT FACILITY A senior secured bank credit facility of DOC
established pursuant to a credit agreement among DOC, NationsBank, N.A. and
certain other lenders.
DOC Dobson Operating Company, a wholly owned subsidiary of Dobson
Communications Corporation.
27
<PAGE>
EAST MARYLAND Our acquisition of the FCC license for and assets related to
Maryland 2 RSA ("East Maryland") completed on March 3, 1997.
ENID CELLULAR Enid MSA Partnership d/b/a Enid Cellular.
EQUITY INVESTMENTS Equity investments in Dobson Communications Corporation
aggregating $145.0 million to be made by the Dobson Partnership, Childs and
certain of Sygnet's existing stockholders.
ERICSSON Telefonaktiebolaget LM Ericsson and its affiliates.
ERIE Sygnet's 1995 acquisition of Erie Cellular Telephone Company which
owned the FCC license and the related system for the Erie, Pennsylvania MSA.
FCC Federal Communications Corporation.
FLEET INVESTORS Collectively, Fleet Venture Resources, Inc., Fleet Equity
Partners VI, L.P. and Kennedy Plaza Partners.
FOOTPRINT Refers to the total system coverage area served under an FCC
license by a given licensee.
FRONTIER New York RSA No. 3 Cellular Partnership d/b/a Frontier Cellular.
GTE GTE Corporation and its affiliates.
H.O. SYSTEMS H.O. Systems, Inc.
HORIZON ACQUISITION Sygnet's 1996 acquisition of the FCC licenses and
related systems for Pennsylvania 1 RSA, Pennsylvania 2 RSA, Pennsylvania 6 RSA,
Pennsylvania 7 RSA and New York 3 RSA.
HOUSTON CELLULAR A partnership between AT&T Wireless and BellSouth
Mobility.
INITIAL PURCHASER NationsBanc Montgomery Securities LLC.
ITDS International Telecommunications Data Service.
KANSAS CELLULAR Liberty Cellular, Inc. d/b/a Kansas Cellular.
LOGIX Logix Communications Enterprises, Inc., a wholly owned subsidiary of
Dobson Communications Corporation. Lucent Lucent Technologies Inc.
MARYLAND 1 ACQUISITION; MARYLAND 1 Our acquisition of the FCC license for,
and certain assets related to, Maryland 1 RSA ("Maryland 1").
MOTOROLA Motorola, Inc.
MSA Metropolitan Statistical Area, an FCC-designated cellular regulatory
region.
MTA Major Trading Area, an FCC-designated region for purposes of PCS
regulation.
NACN The North American Cellular Network.
NATIONSBANK NationsBank, N.A.
NET POPS The estimated population with respect to a given service area
multiplied by the percentage interest that we own in the license for, or the
entity licensed, in such service area.
NORTEL Northern Telecom, Inc.
28
<PAGE>
OHIO 2 Our acquisition on September 2, 1998 of the FCC license for, and
certain assets related to, Ohio 2 RSA ("Ohio 2").
OTHER PREFERRED STOCK Our Class A Preferred Stock, Class D Preferred Stock,
Class E Preferred Stock, Class F Preferred Stock, Class G Preferred Stock and
Class H Preferred Stock.
PCS Personal Communications Services.
PENNSYLVANIA 2 ACQUISITION; PENNSYLVANIA 2 Sygnet's acquisition of the FCC
license for, and certain assets related to, Pennsylvania 2 RSA ("Pennsylvania
2").
PLEDGED SECURITIES The Securities purchased to fund the first six
semi-annual interest payments on the Dobson/Sygnet Notes.
POPS The estimated population of an MSA or RSA, as derived from the Kagan
Cellular Telephone Atlas for 1998.
RESALE Resale by a provider of telecommunications services (such as a local
exchange carrier) of such services to other providers or carriers on a wholesale
or a retail basis.
RSA Rural Service Area, an FCC-designated cellular regulatory region.
SENIOR EXCHANGEABLE PREFERRED STOCK Our outstanding 12 1/4% Senior
Exchangeable Preferred Stock Mandatorily Redeemable 2008 originally issued on
January 22, 1998 and additional shares issued to pay dividends thereon.
SPRINT Sprint Corporation and affiliated companies.
SWBM Southwestern Bell Mobile Systems, Inc.
SYGNET Sygnet Wireless, Inc. and its wholly-owned subsidiary, Sygnet
Communications, Inc.
SYGNET ACQUISITION The merger of Dobson/Sygnet Operating with and into
Sygnet Wireless, Inc.
SYGNET FINANCING The sale of the Old Shares, the Equity Investments, the
issuance and sale of the Dobson/Sygnet Notes, the establishment of and funding
under the Dobson/Sygnet Credit Facilities, the repayment of Sygnet's credit
facility, and the purchase of Sygnet Notes in the Sygnet Tender Offer.
SYGNET NOTES Sygnet's 11 1/2% Senior Notes due 2006.
SYGNET TENDER OFFER Sygnet's offer to purchase all outstanding Senior
Notes.
SYSTEM An FCC-licensed cellular telephone system.
TELECOMMUNICATIONS ACT The Telecommunications Act of 1996.
TEXAS 10 Our acquisition on December 2, 1998 of the FCC license for, and
certain assets related to, the system for Texas 10 RSA ("Texas 10").
TDMA A digital technology that uses time division multiple access.
TOWER SALE LEASEBACK The sale of substantially all of the towers previously
owned by Sygnet to Dobson Tower and the subsequent leaseback to Dobson/Sygnet.
U.S. CELLULAR United States Cellular Corporation.
US WEST US WEST, Inc. and its affiliated companies.
VANGUARD Vanguard Cellular Systems, Inc.
29
<PAGE>
WBCLP Washington Baltimore Cellular Limited Partnership, an affiliate of
SWBM
WEST MARYLAND ACQUISITION; WEST MARYLAND PROPERTIES Our acquisition of the
FCC licenses for and assets related to the Cumberland, Maryland MSA, Hagerstown,
Maryland MSA and Pennsylvania 10 West RSA (the "West Maryland Properties")
completed on February 28, 1997 and March 3, 1997.
WESTERN WIRELESS Western Wireless Corporation.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Oklahoma City, Oklahoma.
The Company leases approximately 24,600 square feet at a monthly rental of
approximately $19,000. See Item 13, Certain Relationships and Related
Transactions. As of December 31, 1998, the Company's cellular operations leased
67 and owned 5 sales and administrative offices, at aggregate annual rentals of
approximately $1.6 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 recent 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 owned and leased 414
cell sites as of December 31, 1998.
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 state public utility commissions relating to its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 16, 1998, the Shareholders by unanimously written consent
adopted resolutions affirming and ratifying:
(i) the Sygnet Acquisition and the related financing,
(ii) the issuance of Dobson/Sygnet Notes,
(iii) the formation of Dobson Tower, the execution of short-term financing
for Dobson Tower and the Tower Sale Leaseback,
(iv) the execution into the Dobson/Sygnet Credit Facilities by
Dobson/Sygnet,
(v) the transfer of Dobson/Sygnet Operating Company to Dobson/Sygnet
Communcations Company,
(vi) the issuance of $50 million of Additional Preferred Stock,
(vii) the consummation of the Sygnet Tender Offer by Dobson/Sygnet for the
Sygnet Notes,
(viii) the acquisition of securities from Fleet Investors and the sale of
securities to Childs,
(ix) the Amended and Restated of the Certificate of Incorporation,
(x) the designation of Dobson/Sygnet, Dobson Tower and Dobson/Sygnet
Operating Company as unrestricted subsidiaries under the DOC and DCOC
Credit Facilities,
(xi) an amendment to Company's 1996 Stock Option Plan,
(xii) an amendment to the DOC and DCOC Credit Facilities, and
(xiii) election of Dana L. Schmaltz and Albert H. Pharis, Jr. as Directors.
30
<PAGE>
On December 23, 1998, the Shareholders adopted a Stockholder and Investor Rights
Agreement and terminated agreements with Fleet Investors. See Item 13, Certain
Relationships and Related Transactions.
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, 1999, there were three holders of record of the Company's Class A
Common Stock.
On December 23, 1998, the Company sold an additional 64,646 shares of its
12 1/4% Senior Exchangeable Preferred Stock ("Additional Preferred Stock")in a
private placement to NationsBanc Montgomery Securities, L.L.C. (the "Initial
Purchaser") pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). The Initial
Purchaser resold a portion of the shares of the Preferred Stock 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 of Additional Preferred Stock was $50 million, and
aggregate discounts and commissions were approximately $2.0 million.
On December 23, 1998, the holders of all outstanding shares of the Company's
Class B Convertible Preferred Stock fully exercised their conversion rights and
the Company issued an aggregate of 100,000 shares of its Class A Common Stock
into which the Class B Convertible Preferred Stock had been converted. No
commissions or other remuneration were paid or given, directly or indirectly, by
the Company in connection with such conversion. The 100,000 shares of Class A
Common Stock issued upon conversion of the Class B Convertible Preferred Stock
were exempt securities under Section 3(a)(9) of the Securities Act.
On December 23, 1998, the Company sold 75,093.7 shares of its Class D
Preferred Stock to a group of 33 purchasers in a private placement pursuant to
the exemption from registration provided by Rule 506 of Regulation D promulgated
under the Securities Act. One of the purchasers was the principal shareholder of
the Company. The Company believes each of such purchasers was an "accredited
investor" as that term is defined in Rule 501 of Regulation D. The aggregate
offering price for the shares of Class D Preferred Stock was $85.0 million. No
discounts or commissions were paid or given in connection with this transaction.
On December 23, 1998, the Company sold 30,000 shares of its Class F
Preferred Stock and warrants to purchase a maximum of 30,000 shares of the
Company's Class A Common Stock to a group of seven purchasers in a private
placement pursuant to the exemption from registration provided by Rule 506 of
Regulation D promulgated under the Securities Act. The Company believes that
each purchaser of Class F Preferred Stock and the warrants was an "accredited
investor" as that term is defined in Rule 501 of Regulation D. The aggregate
offering price for the shares of Class F Preferred Stock and warrants was $30.0
million of the Sygnet Acquisition price. No discounts or commissions were given
or paid in connection with this transaction.
On December 23, 1998, the Company sold 37,853 shares of its Class G
Preferred Stock to its principal shareholder in a private placement pursuant to
the exemption from registration provided by Section 506 of Regulation D
promulgated under the Securities Act. The Company believes that the purchaser
was an "accredited investor" as that term is defined in Rule 501 of Regulation
D. The aggregate offering price for the shares of Class G Preferred Stock was
$25 million which was paid with common stock. No discounts or commissions were
given or paid in connection with this transaction.
31
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical consolidated financial
with respect to each of the five years ended December 31, 1998. The consolidated
financial data has been derived from the Company's consolidated financial
statements. The historical consolidated financial data should be read in
conjunction with Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Company's audited consolidated
financial statements and the related notes thereto included in Item 8, Financial
Statements and Supplementary Data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
($ IN THOUSANDS EXCEPT PER SHARE
AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Service revenue................................................ $ 69,402 $ 38,410 $ 17,593 $ 13,949 $ 10,922
Roaming revenue................................................ 66,479 26,262 7,852 4,370 3,231
Equipment sales................................................ 4,130 1,455 662 671 1,016
Other revenue.................................................. 24 587 832 693 206
Total revenue.................................................. 140,035 66,714 26,939 19,683 15,375
Operating expenses:
Cost of service................................................ 33,267 16,431 6,119 4,654 2,991
Cost of equipment.............................................. 8,360 4,046 2,571 2,013 1,502
Marketing and selling.......................................... 22,393 10,669 4,462 3,103 3,098
General and administrative..................................... 26,051 11,555 3,902 3,035 3,193
Depreciation and amortization.................................. 47,110 16,798 5,241 2,529 1,885
Total operating expenses....................................... 137,181 59,499 22,295 15,334 12,669
Operating income................................................. 2,854 7,215 4,644 4,349 2,706
Interest expense................................................. (38,979) (27,640) (4,284) (1,854) (1,195)
Other income (expense), net...................................... 3,858 2,777 (1,503) (210) 106
Minority interests in income of subsidiaries(1).................. (2,487) (1,693) (675) (1,334) (1,105)
Income tax (provision) benefit................................... 11,469 3,625 593 (347) (168)
(Loss) income from continuing operations before extraordinary
items.......................................................... (23,285) (15,716) (1,225) 604 344
Income (loss) from discontinued operations, net of income taxes.. (27,110) 332 331 500 (110)
Extraordinary items, net of income taxes(2)...................... (2,166) (1,350) (527) -- 228
Net income (loss)................................................ $ (52,561) $ (16,734) $ (1,421) $ 1,104 $ 462
Dividends on preferred stock..................................... (23,955) (2,603) (849) (591) (83)
Net income (loss) applicable to common stockholders.............. $ (76,516) $ (19,337) $ (2,270) $ 513 $ 379
Net income (loss) applicable to common stockholders per common
share:
Before discontinued operations and extraordinary expense....... $ (99.75) $ (38.72) $ (4.38) $ .02 $ .55
Discontinued operations........................................ (57.25) .70 .70 1.06 (.23)
Extraordinary income (expense)................................. (4.57) (2.85) (1.12) -- .48
Net income (loss) applicable to common stockholders per common
share.......................................................... $ (161.57) $ (40.87) $ (4.80) $ 1.08 $ .80
Cash dividends declared per common share......................... $ -- $ 16.13 $ 1.18 $ 1.40 $ .11
Weighted average common shares outstanding....................... 473,564 473,152 473,152 473,152 473,152
OTHER FINANCIAL DATA:
Capital expenditures, excluding cost of acquisitions............. $ 55,289 $ 23,216 $ 17,438 $ 3,925 $ 5,267
OTHER DATA:
Cellular subscribers (at period end)............................. 352,005 100,093 33,955 26,614 21,481
Cellular penetration (at period end)(3).......................... 6.8% 6.1% 5.8% 8.0% 6.5%
Cellular churn(4)................................................ 2.0% 1.9% 1.8% 1.5% 0.9%
Average monthly revenue per cellular subscriber(5)............... $ 40 $ 41 $ 48 $ 50 $ 50
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
------------ ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 22,324 $ 2,752 $ 981 $ 732 $ 607
Restricted cash and investments.............................. 75,580 26,777 -- -- --
Net fixed assets............................................. 173,054 52,374 26,794 11,414 11,590
Total assets................................................. 1,703,427 359,645 95,376 37,711 33,111
Long-term debt, net of current portion....................... 1,103,857 335,570 75,750 24,319 20,661
Mandatorily redeemable preferred stock....................... 381,320 11,623 10,000 5,913 --
Stockholders' equity (deficit)............................... (156,783) (36,673) (9,802) (6,971) 28
</TABLE>
- ------------------------
(1) Reflects minority interests in partnerships in which the Company owns the
majority interests.
(2) Extraordinary items reflect gain or (loss) related to early extinguishment
of debt.
(3) Determined by dividing the Company's total ending cellular subscribers for
the period by the estimated total Pops covered by applicable FCC cellular
licenses.
(4) Churn means the number of cellular subscriber cancellations per period as a
percentage of the weighted average total cellular subscribers during such
period. Churn is stated as the average monthly churn rate for the period.
(5) Excludes roaming and equipment revenue.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading provider of rural cellular telephone services.
Since it commenced providing cellular services in 1990 in Oklahoma and the Texas
Panhandle, the Company has rapidly expanded its cellular operations with an
acquisition strategy targeting underdeveloped rural and suburban areas which
have a significant number of potential customers with substantial needs for
cellular communications. At December 31, 1998, the Company's cellular systems
covered a population of 5.7 million in Arizona, California, Kansas, Maryland,
Missouri, New York, Ohio, Oklahoma, Pennsylvania and Texas.
The following discussion and analysis is of the historical financial
condition and results of operation of the Company and should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in Item 8.
33
<PAGE>
ACQUISITIONS
The Company continually evaluates opportunities to acquire additional
cellular systems. The following table sets forth the cellular markets and
systems acquired by the Company since 1995 (ownership in parentheses if not 100%
owned by the Company):
<TABLE>
<CAPTION>
PURCHASE PRICE
ACQUISITION ($ IN MILLIONS) DATE
- ---------------------------------------------------------- --------------- ------------------
<S> <C> <C>
Sygnet.................................................... $ 337.5 December 1998
Texas 10.................................................. 55.0 December 1998
Ohio 2.................................................... 39.3 September 1998
California 7.............................................. 21.0 July 1998
Santa Cruz (86.9%)........................................ 31.2 June 1998
California 4.............................................. 90.9 April 1998
Texas 16.................................................. 56.6 January 1998
Arizona 5 (75%)........................................... 39.8 October 1997
East Maryland............................................. 75.8 March 1997
West Maryland............................................. 77.6 February 1997
Kansas/Missouri........................................... 30.0 March 1996
</TABLE>
REVENUE
The cellular revenues of the Company 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
cellular telecommunications subscribers and the number of minutes of usage per
subscriber. There has also been a broad trend in the cellular 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.
Roaming accounted for 47.5%, 39.4% and 29.1% of the Company's cellular
revenue for the years ended December 31, 1998,1997 and 1996, respectively. While
the industry trend is to reduce roaming rates, the Company believes that its
roaming rates are generally lower than rates offered by others in or near the
Company's systems and that such lower roaming rates mitigate against this trend;
however, there can be no assurance that such trend will not materially impact it
in the future. The Company's roaming yield (roamer service revenue, which
includes airtime, toll charges and surcharges, divided by roaming minutes of
use) was $.61, $.72 and $.70 per minute (excludes Arizona 5 for 1997, for which
the roaming minutes of use were not available) for the years ended December 31,
1998, 1997 and 1996.
The Company's overall cellular penetration rates increased in 1998 and 1997
compared to 1996 due to the incremental penetration gains in existing markets.
The Company believes that as its cellular penetration rates increase, the
increase in new subscriber revenue will exceed the loss of revenue attributable
to the cellular churn rate.
In recent years, the Company and other cellular providers, 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 equipment sales, which
have resulted in increased marketing and selling costs per gross additional
subscriber. While the Company expects to continue these discounts and
promotions, the Company believes that the use of such promotions will result in
increased revenue from increases in the number of cellular subscribers.
34
<PAGE>
COSTS AND EXPENSES
The Company's primary operating expense categories include cost of service,
cost of equipment, marketing and selling, general and administrative and
depreciation and amortization.
The Company's cost of service consists primarily of costs to operate and
maintain the Company's facilities utilized in providing service to customers and
amounts paid to third-party cellular providers for providing service to the
Company's subscribers.
The Company's cost of equipment represents the cost associated with
telephone equipment and accessories sold to customers.
The Company's marketing and selling costs include advertising, compensation
paid to sales personnel and independent agents and all other costs to market and
sell cellular products and services and costs related to customer retention.
Commissions are paid to direct sales personnel for new business generated.
Independent sales agents receive commissions for generating new sales and
ongoing sales to existing customers.
The Company's general and administrative costs include all infrastructure
costs such as customer support, billing, collections, and corporate
administration.
DISCONTINUED OPERATIONS
The Company, through its wholly-owned subsidiary, Logix, provides integrated
local, long distance, data and other telecommunications services to small and
medium-sized business customers throughout the Southwest United States. Logix
operates long-haul fiber optic facilities in Oklahoma, Texas and Colorado. Logix
offers switch-based integrated communications provider services in Oklahoma
City, Tulsa, Amarillo, Houston, Austin, Dallas, Fort Worth and San Antonio.
The Company intends to distribute the stock of Logix to certain of the
Company's shareholders in a tax-free spin-off. The timing of the spin-off is
subject to receipt of a favorable tax ruling or favorable tax opinion acceptable
to the Company and its shareholders.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUE. For the year ended December 31, 1998, total operating
revenue increased $73.3 million, or 109.9%, to $140.0 million from $66.7 million
for the comparable period in 1997. Total service, roaming and equipment revenue
represented 49.6%, 47.5% and 2.9%, respectively, of total operating revenue
during the year ended December 31, 1998 and 57.6%, 39.4% and 2.2%, respectively,
of total operating revenue during the year ended December 31, 1997.
The following table sets forth the components of the Company's revenue for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
---------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Service revenue...................................................... $ 69,402 $ 38,410
Roaming revenue...................................................... 66,479 26,263
Equipment sales...................................................... 4,130 1,455
Other revenue........................................................ 24 586
---------- ---------
Total.............................................................. $ 140,035 $ 66,714
---------- ---------
---------- ---------
</TABLE>
35
<PAGE>
Service revenue increased $31.0 million, or 80.7%, to $69.4 million in the
year ended 1998 from $38.4 million in the same period of 1997. Of the increase,
$15.8 million was attributable to acquisitions. The remaining $15.2 million was
primarily attributable to increased penetration and usage in the Central and
Eastern Regions. The Company's subscriber base increased 251.7% to 352,005 at
December 31, 1998 from 100,093 at December 31, 1997. Approximately 220,626
subscribers were added since December 31, 1997 as a result of acquisitions. The
Company's average monthly service revenue per subscriber decreased 2.5% to $40
for the year ended December 31, 1998 from $41 for the comparable period in 1997
due to the addition of new lower rate subscribers in the East Region and
competitive market pressures.
Roaming revenue increased $40.2 million, or 153.1%, to $66.5 million in the
year of 1998 from $26.3 million for the comparable period of 1997. Of the
increase, $25.0 million was attributable to acquisitions. The remaining $15.2
million was primarily attributable to increased roaming minutes in the Central
and Eastern Regions due to expanded coverage areas and increased usage in these
markets.
Equipment sales of $4.1 million in the year of 1998 represented an increase
of $2.7 million, or 183.8%, from $1.5 million in the same period of 1997, as the
Company sold more equipment during the year of 1998 as a result of growth in
subscribers.
COST OF SERVICE. For the year ended December 31, 1998, the total cost of
service increased $16.8 million, or 102.5%, to $33.3 million from $16.4 million
for the comparable period in 1997. Of the increase, $9.0 million was
attributable to acquisitions. The remaining $7.8 million was primarily
attributable to increased subscribers and minutes of use in the Central and
Eastern Regions and expanded use of rerating agreements with providers adjacent
to the Company's markets. As a percentage of service and roaming revenue, cost
of cellular service remained constant at 24.5% in 1998 compared to 1997.
COST OF EQUIPMENT. For the year ended December 31, 1998, cost of equipment
increased $4.3 million, or 106.6%, to $8.4 million during 1998 from $4.0 million
in 1997, primarily from increases in the volume of equipment sold due to the
growth in subscribers.
MARKETING AND SELLING COSTS. Marketing and selling costs increased $11.7
million, or 109.9%, to $22.4 million in 1998 from $10.7 million in 1997. As a
percentage of total operating revenue, marketing and selling costs remained
constant to 16.0% in 1998 from 16.0% in the same period of 1997. Gross
subscribers added in 1998 was 65,665. The number of gross subscribers added in
1997 was 33,354.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs
increased $14.5 million, or 125.5%, to $26.1 million in 1998 from $11.6 million
for the same period in 1997. As a percentage of total operating revenue, general
and administrative costs increased to 18.6% in 1998 from 17.3% in the comparable
period of 1997. The increase year over year is a result of increased
infrastructure costs such as customer service, billing, collections and
administrative costs as a result of the overall growth of the Company. The
increase as a percentage of total operating revenue is a result of
inefficiencies created in administrative areas impacted by the fourth quarter
operational split of the Company's wireless and wireline business segments. In
addition, the Company experienced a higher than expected levels of bad debt
expenses in certain markets in the fourth quarter.
DEPRECIATION AND AMORTIZATION EXPENSE. For the year ended December 31,
1998, depreciation and amortization expense increased $30.3 million, or 180.5%
to $47.1 million in 1998 from $16.8 million in 1997. Depreciation and
amortization of assets acquired in acquisitions accounted for $21.1 million of
the increase in 1998 compared to 1997.
INTEREST EXPENSE. For the year ended December 31, 1998, interest expense
increased $11.3 million, or 41.0%, to $39.0 million in 1998 from $27.6 million
in 1997. The increase was primarily a result of increased borrowings in 1998 to
finance the Company's acquisitions.
36
<PAGE>
OTHER INCOME (EXPENSE), NET. For the year ended December 31, 1998, other
income increased $1.1 million, or 38.9%, to $3.9 million in 1998 from $2.8
million in 1997. Of the increase, $.9 million was attributable to increased
interest income in 1998. In 1998, the Company had higher investment balances
related to proceeds from the Senior Preferred Stock and escrow deposits relating
to the Ohio 2 and Sygnet Acquisitions.
EXTRAORDINARY EXPENSE. In 1998 and 1997, the Company incurred an
extraordinary pretax loss of approximately $3.3 million and $2.2 million,
respectively, as a result of writing off previously capitalized financing costs
associated with revolving credit facilities that were refinanced in March 1998
and February 1997.
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 $39.8 million, or 147.6%, to $66.7 million from $26.9 million
in 1996. Total service, roaming and equipment revenue represented 57.6%, 39.4%
and 2.2% of total operating revenue, respectively, in 1997 and 65.3%, 29.1% and
2.5% of total operating revenue, respectively, in 1996.
The following table sets forth the components of the Company's revenue for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Service revenue....................................................... $ 38,410 $ 17,593
Roaming revenue....................................................... 26,263 7,852
Equipment sales....................................................... 1,455 662
Other revenue......................................................... 586 832
--------- ---------
Total............................................................... $ 66,714 $ 26,939
--------- ---------
--------- ---------
</TABLE>
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 and Arizona
properties in 1997 and the inclusion of the operations of the Kansas/Missouri
properties for all of 1997. The remaining increase was primarily attributable to
increased penetration and usage in the Central Region. The Company's 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
East Maryland and West Maryland markets. The Company's average monthly 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 Eastern Region and competitive market pressures.
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, $15.6
million was attributable to the acquisition of the Maryland and Arizona
properties in 1997 and the inclusion of the operations of the Kansas/Missouri
markets for all of 1997. The remaining increase was primarily attributable to
increased roaming minutes in the Central Region due to expanded coverage areas
in these markets and an increase in minutes of use. Equipment sales of $1.5
million in 1997 represented an increase of $0.8 million, or 119.9%, from $0.7
million in 1996, as the Company sold more equipment in 1997.
COST OF SERVICE. For the year ended December 31, 1997, the total cost of
service increased $10.3 million, or 168.5%, to $16.4 million from $6.1 million
in 1996. Of the increase, $8.4 million was attributable to the acquisition of
the Maryland and Arizona properties in 1997 and the inclusion of the operations
of the Kansas/Missouri markets for all of 1997. The remaining increase was
primarily attributable to increased
37
<PAGE>
subscribers and minutes of use in the Central Region and expanded use of
rerating agreements with providers adjacent to the Company's markets. As a
percentage of service and roaming revenue, cost of service increased to 25.4% in
1997 from 24.0% in 1996. This is primarily due to the expanded use of rerating
agreements noted above, as well as additional facility lease costs in East
Maryland.
COST OF EQUIPMENT. For the year ended December 31, 1997, the total cost of
equipment increased $1.4 million, or 57.3% to $4.0 million from $2.6 million in
1996, primarily from increases in the volume of equipment sold due to the growth
in subscribers.
MARKETING AND SELLING COSTS. Marketing and selling costs increased $6.2
million, or 139.1%, to $10.7 million in 1997 from $4.5 million in 1996. The
increase was primarily due to the higher level of subscribers added period to
period. Gross subscribers added in 1997 was 33,354 with subscribers added in the
Eastern Region and in Arizona 5 since their acquisitions making up 16,469 and
1,307, respectively, of the gross subscribers added. The number of gross
subscribers added in 1996 was 11,970. As a percentage of total operating
revenue, marketing and selling costs decreased to 16.0% in 1997 from 16.6% in
1996.
GENERAL AND ADMINISTRATIVE COSTS. For the year ended December 31, 1997,
general and administrative costs increased $7.7 million, or 196.2%, to $11.6
million from $3.9 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 1997 Acquisitions, the inclusion of the Kansas/Missouri markets
for all of 1997, and increased salary costs resulting from additional personnel.
As a percentage of total operating revenue, general and administrative costs
increased from 14.5% in 1996 to 17.3% in 1997. This increase is a result of
additional personnel necessary to support the Company's expanded operations.
DEPRECIATION AND AMORTIZATION EXPENSE. For the year ended December 31,
1997, depreciation and amortization expense increased $11.6 million, or 220.5%,
to $16.8 million from $5.2 million in 1996. There was a $12.1 million increase
as a result of the amortization of assets acquired in the acquisition of the
Maryland and Arizona properties in 1997 and the Kansas/Missouri Acquisition in
1996 offset by a slight decrease related to assets in the Central Region.
INTEREST EXPENSE. For the year ended December 31, 1997, interest expense
increased $23.3 million to $27.6 million from $4.3 million in 1996. The increase
was primarily the result of increased borrowings to finance the acquisitions of
the Maryland and Arizona properties.
OTHER INCOME (EXPENSE), NET. For the year ended December 31, 1997, total
other income (expense), net (consisting of interest income, and other
income/expense) increased $4.3 million to $2.8 million from $(1.5) million in
1996. The increase was primarily a result of interest earned on securities
purchased which were pledged to secure payment of the first four semi-annual
interest payments on the DCC Senior Notes.
EXTRAORDINARY EXPENSE. In 1997 and 1996, the Company incurred an
extraordinary pretax loss of approximately $2.2 million and $0.9 million,
respectively, as a result of writing off previously capitalized financing costs
associated with a revolving credit facility that was refinanced in February 1997
and March 1996.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications,
including those embedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data that
includes it, potentially causing data miscalculations, inaccuracies, operational
malfunctions or failures.
In April 1998, the Company established a multi-disciplined team to perform a
Year 2000 impact analysis for the Company. The team consists of representatives
from each of the lines of business, as well as representatives from key
corporate departments, and is headed by a full-time Year 2000 compliance
38
<PAGE>
manager. The team created a Year 2000 assessment methodology which brought a
structured approach to the assessment and management reporting process, as well
as disaster recovery approach.
To date, the Company has completed an inventory of its automated systems and
services and an impact analysis that identified significant risk areas by line
of business, specific compliance requirements and costs and estimated completion
dates for affected systems. We have been in contact with all of the vendors of
products and services that we believe are critical to our operations. The
representation from our vendors pertaining to Year 2000 compliance has come in
writing directly to us, in contracts, and by accessing Year 2000 information
available at their Web sites. While all of the vendors have provided some type
of assurance that their products will be Year 2000 compliant, not all have
provided us expressly with a "Year 2000 Compliance Statement" and/or a "Year
2000 Warranty." Our focus with our vendors has been directed toward what
assurances of Year 2000 compliance they can provide in the form of documented
Year 2000 planning and testing and third party audits.
The Company does not have large scale legacy applications used by many
telecommunications providers. From an information systems standpoint, the
Company has historically relied on outsourcing relationships for most of its
business and operational support applications. Those applications that have not
been outsourced to service providers have been deployed using packaged software
from outside vendors. As a result, the remediation phase is not focused on a
large scale in-house effort, but on identification of third party systems and
services that are not currently Year 2000 compliant and oversight of third party
compliance efforts.
The results of the impact analysis revealed that for most of the Company's
information systems, services and telecommunications infrastructure, Year 2000
compliant versions will be included as a part of existing maintenance and/or
service agreements at no additional cost to the Company and should be in place
and tested by the second quarter of 1999. However, there are two critical
systems that will not be replaced until third quarter 1999. Those systems are
one Ericsson cellular switch in New York and our Eastern Region ITDS billing
system. The Ericsson switching equipment will be replaced with Year 2000
compliant Nortel equipment. In the first quarter of 1999, the Company decided to
replace its current billing system vendor, ITDS, with a new vendor, H.O.
Systems, which is Year 2000 compliant. The H.O. Systems software is in place and
functioning in the Company's West Region markets. The Company is in the process
of implementing the H.O. Systems software throughout its other markets and
expects to complete the implementation in the third quarter of 1999. The Company
estimates total costs of approximately $.75 million to upgrade or replace those
systems that are not Year 2000 compliant and will not be upgraded through
existing maintenance or service agreements. The estimated costs for Year 2000
compliance do not include the costs of upgrading the New York system or
replacing the billing vendor, as those decisions were made for business reasons
outside of the Year 2000 issue and would have been made regardless of whether
the systems currently in place were Year 2000 compliant. All of the Company's
automated systems and services are or will be Year 2000 compliant by the end of
the third quarter of 1999.
The Company's contingency planning is being addressed in two parts. First,
in the event that a product or service is not compliant by the end of the second
quarter of 1999, where feasible, the Company has identified alternate compliant
products or services that can replace them. Second, possible disruptions to
operations after the rollover to the Year 2000 are being addressed as a part of
the Company's overall disaster recovery plan, which will be completed by the end
of 1999.
The Company will continue to analyze systems and services that utilize
date-embedded codes that may experience operational problems when the Year 2000
is reached. The Company will continue communicating with third party vendors of
systems software and equipment, suppliers of telecommunications capacity and
equipment, roaming partners customers and others with which it does business to
coordinate Year 2000 compliance. To further mitigate risks, if a critical vendor
does not provide adequate assurance that its product is Year 2000 compliant
through test plans, test results or third party audit results, the Company
39
<PAGE>
will either replace the product with one that has provided proof of compliance
or will conduct its own Year 2000 tests.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cellular operations require substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company has financed its operations through bank debt and the
sale of debt and equity.
At December 31, 1998, the Company had working capital of $13.5 million (a
ratio of current assets to current liabilities of 1.1:1) and an unrestricted
cash balance of $22.3 million, which compares to working capital of $15.9
million (a ratio of current assets to current liabilities of 1.7:1) and an
unrestricted cash balance of $2.8 million at December 31, 1997.
The Company's net cash provided by operating activities totaled $28.0 for
1998 compared to $6.9 million for 1997 and $5.2 million for 1996. The increase
of $21.1 million from 1997 to 1998 was primarily due to depreciation and
amortization and the change in current assets and liabilities offset by the
Company's net loss for the period. The increase of $1.7 million from 1996 to
1997 was primarily due to net changes in current assets and liabilities,
depreciation and amortization and deferred income taxes, offset by the Company's
net loss for the period.
Net cash used in investing activities, which totaled $999.1 million, $217.6
million and $43.9 million for the years ended December 31, 1998, 1997 and 1996,
respectively, principally related to acquisitions and capital expenditures in
all periods. Acquisitions accounted for $945.4 million, $190.7 million and $30.0
million in 1998, 1997 and 1996, respectively, and capital expenditures were
$55.3 million, $17.8 million and $13.5 million in 1998, 1997 and 1996,
respectively.
Net cash provided by financing activities was $990.6 million for 1998
compared to $212.5 million for 1997 and $38.9 million for 1996, respectively.
Financing activity sources for the year ended December 31, 1998 consisted
primarily of $740.0 million of proceeds from bank borrowings, the issuance of
$200.0 million of Dobson/Sygnet Notes, the issuance of $225.0 million of Senior
Preferred Stock, net and the issuance of $115.0 million of other preferred
stock. These activities were offset by financing activity uses, including the
purchase of $67.7 million of restricted investments to be used to fund the first
six semi-annual interest payments on the Dobson/Sygnet Notes and $62.0 million
of deferred financing costs relating to the new credit facilities and financing
the Sygnet Acquisition. Proceeds from long-term debt exceeded repayment thereof
by $768.5 million, $256.3 million and $39.4 million in 1998, 1997, and 1996,
respectively.
In April 1997, the Company entered into an interest rate hedge agreement
terminating on April 24, 2002 to hedge the Company's interest expense on $160.0
million of indebtedness under its revolving credit facilities. In 1998, the
counterparty exercised its rights under the swap agreement, fixing the interest
rate at 6.13% plus a factor based on the Company's leverage. The Company
accounts for this as a hedge. The Company is currently negotiating an interest
rate swap agreement to establish a fixed interest rate on $75 million of its
indebtedness under the Dobson/Sygnet Credit Facilities.
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. 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 to the Company is paid or
extinguished.
The Company's capital expenditures (excluding cost of acquisitions and
discontinued operations) were $55.3 million for the year ended December 31, 1998
and the Company expects its capital expenditures (excluding cost of
acquisitions) to be approximately $45 million to $50 million for 1999. The
Company has not budgeted any amounts to be expended in 1999 with respect to the
systems which may be acquired in other acquisitions or the Company's PCS system.
The amount and timing of capital expenditures may vary
40
<PAGE>
depending on the rate at which the Company expands and develops its cellular
systems and whether the Company consummates additional acquisitions.
On December 23, 1998, a subsidiary of the Company acquired all of the
outstanding capital stock of Sygnet for $337.5 million. The Sygnet Acquisition
was financed through borrowings under the Dobson/ Sygnet Credit Facilities, the
net proceeds of offering the Additional Preferred Stock, the Equity Investments
and the Tower Sale Leaseback ("Sygnet Financing").
The Company has agreed to purchase approximately $65 million of cell site
and switching equipment between June 1997 and November 2001. Of this commitment,
approximately $32.3 million remained at December 31, 1998. Under another
equipment supply agreement, the Company agreed to purchase approximately $81.0
million of cell site and switching equipment by January 13, 2002. Of this
commitment, $58.4 million remained at December 31, 1998.
In April 1997, the Company was granted PCS licenses in nine markets in
Oklahoma, Kansas and Missouri. The Company financed $4.1 million of the $5.1
million 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 1999 with respect to the buildout of a PCS system.
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"). Under the terms of the DCOC Credit Facility, an additional
$75.0 million revolving credit facility may be established for acquisitions.
This uncommitted facility requires that the Company have borrowings outstanding
of at least two-thirds of the committed amount under the DCOC Credit Facility.
DCOC's obligations under the DCOC Credit Facility are secured by all existing
and future assets of DCOC, and are guaranteed by DCOC's subsidiaries. In
addition, the Company's subsidiary, Dobson Operating Company ("DOC"),
established a $250.0 million senior secured credit facility (the "DOC Credit
Facility") to replace a prior bank facility. The DOC Credit Facility is secured
by all of DOC's stock and the stock or partnership interests of its subsidiaries
and all assets of DOC and its restricted subsidiaries. The Company and DOC's
subsidiaries, other than Logix and the Arizona 5 Partnership, have guaranteed
DOC's obligations under the DOC Credit Facility. The DCOC Credit Facility and
the DOC Credit 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. To date, the Company has met the required financial ratios. The DOC
Credit Facility and DCOC Credit Facility each amortize quarterly beginning June
30, 2000 and terminate on June 30, 2006. At December 31, 1998, the Company had
credit available of $117.0 million under the DOC Credit Facility, subject to
covenant limitations and no availability under the DCOC Credit Facility. The
Company expects to borrow $9.1 million under the DOC Credit Facility to close
the Maryland 1 Acquisition and $6.0 million under the Dobson/Sygnet Credit
Facilities to close the Pennsylvania 2 Acquisition.
Dobson/Sygnet is a party to a credit agreement with NationsBank for an
aggregate $430.0 million, consisting of a $50.0 million revolving credit
facility and $380.0 million of term loan facilities. The obligations under the
Dobson/Sygnet Credit Facilities are secured by a pledge of the capital stock of
Dobson/Sygnet's operating subsidiary as well as a lien on substantially all of
the assets of Dobson/Sygnet and its operating subsidiary. The Dobson/Sygnet
Credit Facilities require Dobson/Sygnet and the Company to maintain certain
financial ratios. The failure to maintain such ratios would constitute an event
of default, notwithstanding Dobson/Sygnet's ability to meet its debt service
obligations. The ability of
41
<PAGE>
Dobson/Sygnet to borrow under the Dobson/Sygnet Credit Facilities will be
limited by the requirement that, on a quarterly basis beginning December 31,
2000, the amount available under the Dobson/Sygnet Credit Facilities will reduce
until they terminate. At December 31, 1998, the Company had credit available of
$23.0 million under the Dobson/Sygnet Credit Facilities, subject to covenant
limitations.
As part of the Sygnet Financing, Sygnet sold to Dobson Tower, a wholly owned
subsidiary of the Company, substantially all of the towers it owned for $25.0
million. Dobson Tower then leased these towers back to Sygnet under an operating
lease, with net annual lease payments of approximately $1.4 million. Dobson
Tower obtained the funds for such purchase from borrowings under a new credit
facility of $17.5 million and the sale of $7.7 million of preferred stock of
Dobson Tower to an affiliate of the Company.
The Company, through Dobson/Sygnet's predecessor, is party to an agreement
to purchase the FCC license for, and certain assets related to, Pennsylvania 2
RSA for $6.0 million (the "Pennsylvania 2 Acquisition"). Because the seller's
title to the license remains subject to administrative and judicial review, the
closing of such acquisition has been delayed. Pending such closing,
Dobson/Sygnet is managing the operation of the cellular system in the market
under the supervision and control of the seller. Recently, the Company entered
into an agreement for the purchase of the FCC license for, and certain assets
related to, Maryland 1 RSA and an unserved portion of Cumberland, Maryland MSA
for $9.1 million in cash (the "Maryland 1 Acquisition"), subject to adjustment.
The Company has no agreements with respect to any acquisitions other than the
Pennsylvania 2 Acquisition and the Maryland 1 Acquisition.
Although the Company cannot provide any assurance, the Company believes
that, assuming successful implementation of the Company's strategy, including
the further development of its cellular systems and significant and sustained
growth in its cash flow, borrowings under the Dobson/Sygnet Credit Facilities,
the DOC Credit Facility, the Tower Sale Leaseback, the DCOC Credit Facility and
cash flow from operations, will be sufficient to consummate the Maryland 1
Acquisition and the Pennsylvania 2 Acquisition and are expected to be sufficient
to satisfy the Company's currently expected capital expenditure, working capital
and debt service obligations. However, the Company will need to refinance the
Dobson/Sygnet Credit Facilities, the DOC Credit Facility, the DCOC Credit
Facility, the DCC Senior Notes and the Dobson/ Sygnet Notes at their maturities
and refinance its mandatory redemption obligations with respect to its preferred
stock, including the Additional Preferred Stock and Senior Exchangeable
Preferred Stock. The Company's ability to do so will depend on, among other
things, its financial condition at the time, the restrictions in the instruments
governing its indebtedness and other factors, including market conditions beyond
the control of the Company. The actual amount and timing of the Company's future
capital requirements may differ materially from the Company's estimates as a
result of, among other things, the demand for the Company's services and
regulatory, technological and competitive developments. Sources of additional
financing may include commercial bank borrowings, vendor financing and the sale
of equity or debt securities. The Company cannot assure you that any such
financing will be available on acceptable terms or at all.
EFFECT OF NEW ACCOUNTING STANDARDS
In July 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Derivatives and Hedging ("SFAS 133").
SFAS 133 establishes uniform hedge accounting criteria for all derivatives
requiring companies to formally document, designate and assess the effectiveness
of transactions that receive hedge accounting. Under SFAS 133, derivatives will
be recorded in the balance sheet as either an asset or liability measured at its
fair value, with changes in the fair value recognized in current earnings. SFAS
133 will be effective for fiscal years beginning after June 15, 1999. Under SFAS
133, the Company would record a liability of $5.4 million relating to its
interest rate hedge valuation at December 31, 1998. The Company has not
determined the timing or method of adoption of SFAS 133.
42
<PAGE>
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
The Company's primary market risk relates to changes in interest rates.
Market risk is the potential loss arising from adverse changes in market prices
and rates, including interest rates. The Company does not enter into derivatives
or other financial instruments for trading or speculative purposes. The
objective of our financial risk management is to minimize the negative impact of
interest rate fluctuations on our earnings and equity. The counterparty is a
major financial institution. During 1998, the Company had an interest rate hedge
on $160 million of its outstanding indebtedness under the DOC Credit Facility.
Losses on the interest rate hedge in 1998 were reflected in income and were
immaterial. The Company did not recognize any gains or losses in 1997 or 1996.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair values of our total long-term fixed rate and our variable-rate
debt are shown in Note 15 to Notes to Consolidated Financial Statements. Based
on our market risk sensitive instruments outstanding at December 31, 1998, we
have determined that there was no material market risk exposure to our
consolidated financial position, results of operations or cash flows as of such
date.
43
<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................................................................. 44
Consolidated balance sheets as of December 31, 1998 and 1997............................................. 46
Consolidated statements of operations for the years ended December 31, 1998, 1997 and 1996............... 48
Consolidated statements of stockholders' deficit for the years ended December 31, 1998, 1997 and 1996.... 50
Consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996............... 51
Notes to consolidated financial statements............................................................... 53
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT PUBLIC 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, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 1998. 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 consolidated 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 consolidated financial position of
Dobson Communications Corporation and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Oklahoma City, Oklahoma,
February 18, 1999
45
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,323,734 $ 2,752,399
Accounts receivable--
Due from customers, net of allowance for doubtful accounts of $2,043,200
and $632,661 in 1998 and 1997, respectively.............................. 43,299,568 14,003,688
Affiliates................................................................. -- 633,146
Restricted cash and investments.............................................. 30,074,946 17,561,231
Inventory.................................................................... 5,158,512 1,229,420
Prepaid expenses and other................................................... 2,026,538 2,384,683
Deferred income taxes........................................................ 1,404,000 214,000
---------------- --------------
Total current assets....................................................... 104,287,298 38,778,567
---------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net............................................. 173,054,329 52,373,866
---------------- --------------
OTHER ASSETS:
Receivables--Affiliates...................................................... 227,990 529,107
Notes receivable--Affiliates................................................. 7,047,272 5,852,282
Restricted investments....................................................... 45,505,020 9,216,202
Cellular license acquisition costs, net of accumulated amortization of
$43,879,184 and $13,814,229 in 1998 and 1997, respectively................. 1,250,790,448 206,694,474
Deferred financing costs, net of accumulated amortization of $2,511,661 and
$2,628,777 in 1998 and 1997, respectively.................................. 66,640,301 9,884,308
Other intangibles, net of accumulated amortization of $2,071,047 and $851,107
in 1998 and 1997, respectively............................................. 52,795,841 9,328,031
Investments in unconsolidated subsidiaries and other......................... 3,078,134 6,911,002
Net assets of discontinued operations........................................ -- 20,077,167
---------------- --------------
Total other assets......................................................... 1,426,085,006 268,492,573
---------------- --------------
Total assets............................................................... $ 1,703,426,633 $ 359,645,006
---------------- --------------
---------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
46
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable............................................................. $ 47,536,672 $ 11,708,420
Accrued expenses............................................................. 14,222,306 7,641,021
Notes payable................................................................ 17,500,000 --
Deferred revenue and customer deposits....................................... 5,738,381 1,979,508
Current portion of long-term debt............................................ 198,871 --
Accrued dividends payable.................................................... 5,603,856 1,595,238
---------------- --------------
Total current liabilities.................................................. 90,800,086 22,924,187
---------------- --------------
Net liabilities of discontinued operations..................................... 7,033,166 --
Payables--affiliates........................................................... 5,011,438 8,206,935
Long-term debt, net of current portion......................................... 1,103,857,333 335,570,059
Deferred Tax Liabilities....................................................... 245,630,000 1,039,000
Minority Interests............................................................. 26,557,203 16,954,165
Commitments (Note 14)
Senior Exchangeable Preferred Stock, net....................................... 241,320,000 --
Class B Convertible Preferred Stock............................................ -- 10,000,000
Class C Preferred Stock........................................................ -- 1,623,329
Class D Convertible Preferred Stock............................................ 85,000,000 --
Class F Preferred Stock........................................................ 30,000,000 --
Class G Preferred Stock........................................................ 25,000,000 --
STOCKHOLDERS' DEFICIT:
Class A preferred stock...................................................... 100,000 100,000
Class A common stock, $.001 par value, 1,438,000 shares authorized and
573,152 issued in 1998 and 473,152 issued in 1997.......................... 573 473
Paid-in capital.............................................................. 18,512,358 5,980,964
Retained deficit............................................................. (119,269,863) (42,754,106)
---------------- --------------
(100,656,932) (36,672,669)
---------------- --------------
Less--
Class A Common Stock held in treasury (81,198 shares), at cost............... (56,125,661) --
---------------- --------------
Total stockholders' deficit................................................ (156,782,593) (36,672,669)
---------------- --------------
Total liabilities and stockholders' deficit................................ $ 1,703,426,633 $ 359,645,006
---------------- --------------
---------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
47
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE:
Service revenue................................................. $ 69,402,405 $ 38,410,263 $ 17,593,317
Roaming revenue................................................. 66,479,068 26,262,370 7,852,532
Equipment sales................................................. 4,129,633 1,455,088 661,632
Other........................................................... 24,283 586,206 831,802
-------------- -------------- -------------
Total operating revenue....................................... 140,035,389 66,713,927 26,939,283
-------------- -------------- -------------
OPERATING EXPENSES:
Cost of service................................................. 33,267,093 16,430,603 6,118,734
Cost of equipment............................................... 8,359,739 4,045,500 2,571,531
Marketing and selling........................................... 22,392,927 10,669,485 4,462,227
General and administrative...................................... 26,051,564 11,555,355 3,901,631
Depreciation and amortization................................... 47,109,937 16,797,780 5,241,446
-------------- -------------- -------------
Total operating expenses...................................... 137,181,260 59,498,723 22,295,569
-------------- -------------- -------------
OPERATING INCOME.................................................. 2,854,129 7,215,204 4,643,714
-------------- -------------- -------------
INTEREST EXPENSE.................................................. (38,978,898) (27,639,739) (4,283,482)
OTHER INCOME (EXPENSE), net....................................... 3,858,290 2,776,730 (1,502,776)
-------------- -------------- -------------
LOSS BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES, INCOME
TAXES AND EXTRAORDINARY ITEMS................................... (32,266,479) (17,647,805) (1,142,544)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES...................... (2,487,441) (1,693,372) (675,098)
-------------- -------------- -------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.................. (34,753,920) (19,341,177) (1,817,642)
INCOME TAX BENEFIT................................................ 11,469,000 3,624,610 593,307
-------------- -------------- -------------
LOSS FROM CONTINUING OPERATIONS................................... (23,284,920) (15,716,567) (1,224,335)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of income tax
expense (benefit) of $(13,352,877) in 1998, $470,170 in 1997 and
$182,512 in 1996 (Note 3)....................................... (27,110,387) 332,141 331,058
-------------- -------------- -------------
LOSS BEFORE EXTRAORDINARY ITEMS................................... (50,395,307) (15,384,426) (893,277)
</TABLE>
48
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
EXTRAORDINARY EXPENSE, net of income tax benefit of $1,149,000 in
1998, $827,210 in 1997 and $323,205 in 1996 (Note 6)............ $ (2,165,439) $ (1,349,659) $ (527,334)
-------------- -------------- -------------
NET LOSS.......................................................... (52,560,746) (16,734,085) (1,420,611)
DIVIDENDS ON PREFERRED STOCK...................................... (23,955,011) (2,603,362) (849,137)
-------------- -------------- -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS........................ $ (76,515,757) $ (19,337,447) $ (2,269,748)
-------------- -------------- -------------
-------------- -------------- -------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON SHARE:
Before discontinued operations and extraordinary expense........ (99.75) (38.72) (4.38)
Discontinued operations......................................... (57.25) .70 .70
Extraordinary expense........................................... (4.57) (2.85) (1.12)
-------------- -------------- -------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE........................................................... $ (161.57) $ (40.87) $ (4.80)
-------------- -------------- -------------
-------------- -------------- -------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 473,564 473,152 473,152
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B STOCK OWNED BY
PREFERRED STOCK COMMON STOCK COMMON STOCK SUBSIDIARY
-------------------- -------------------- -------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- --------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995............ -- $ -- 300 $ 1,000 1,000 $ 1,000 1,000 $ (1,000) $ 5,980,437
Net loss................... -- -- -- -- -- -- -- -- --
Recapitalization (Note 8).. -- -- 472,852 (527) (1,000) (1,000) (1,000) 1,000 527
Cash dividends declared on
preferred stock.......... -- -- -- -- -- -- -- -- --
Cash dividends declared on
common stock............. -- -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ------------
DECEMBER 31, 1996............ -- -- 473,152 473 -- -- -- -- 5,980,964
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 (100,000) --
--------- --------- --------- --------- --------- --------- --------- --------- ------------
DECEMBER 31, 1997............ 100,000 100,000 473,152 473 -- $ -- 100,000 (100,000) 5,980,964
Net loss................... -- -- -- -- -- -- -- -- --
Conversion of Class B
Preferred Stock.......... -- -- 100,000 100 -- -- -- -- 12,531,394
Purchase of treasury stock,
at cost.................. -- -- -- -- -- -- -- -- --
Preferred stock dividend... -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ------------
DECEMBER 31, 1998............ 100,000 $ 100,000 573,152 $ 573 -- $ -- 100,000 $ 100,000 $ 18,512,358
--------- --------- --------- --------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- --------- --------- --------- ------------
<CAPTION>
TREASURY RETAINED
STOCK, AT EARNINGS
COST (DEFICIT)
------------- --------------
<S> <C> <C>
DECEMBER 31, 1995............ $ (11,913,000) $ (1,040,000)
Net loss................... -- (1,420,611)
Recapitalization (Note 8).. 11,913,000 (11,913,000)
Cash dividends declared on
preferred stock.......... -- (849,137)
Cash dividends declared on
common stock............. -- (560,291)
------------- --------------
DECEMBER 31, 1996............ -- (15,783,039)
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.................... -- --
------------- --------------
DECEMBER 31, 1997............ -- (42,754,106)
Net loss................... -- (52,560,746)
Conversion of Class B
Preferred Stock.......... --
Purchase of treasury stock,
at cost.................. (56,125,661)
Preferred stock dividend... -- (23,955,011)
------------- --------------
DECEMBER 31, 1998............ $ (56,125,661) $ (119,269,863)
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
50
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations.......................... $ (25,450,359) $ (17,066,226) $ (1,751,669)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization.............................. 47,109,937 16,797,780 5,241,446
Deferred income taxes and investment tax credits, net...... (14,677,558) (4,108,699) (97,287)
Loss on disposition of assets, net......................... 158,067 205,694 1,799,570
Extraordinary loss on financing cost....................... 3,314,439 2,176,867 850,539
Minority interests in income of subsidiaries............... 2,487,441 1,693,372 675,098
Equity in income of unconsolidated partnerships............ (283,798) (140,227) (125,000)
Changes in current assets and liabilities--
Accounts receivable........................................ (8,358,070) (7,279,109) (1,089,370)
Inventory.................................................. (860,921) (143,890) (546,907)
Income taxes receivable.................................... 845,000 288,063 (1,133,063)
Prepaid expenses and other................................. 418,482 (1,422,629) 26,518
Accounts payable........................................... 30,206,977 8,656,849 1,310,062
Accrued expenses........................................... (7,888,703) 6,459,876 (50,933)
Deferred revenue and customer deposits..................... 1,003,412 789,889 129,699
--------------- --------------- --------------
Net cash provided by operating activities................ 28,024,346 6,907,610 5,238,703
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (55,288,571) (17,773,118) (13,535,759)
Purchase of cellular license and properties.................. (945,420,000) (190,719,765) (30,000,000)
Proceeds from sale of property, plant and equipment.......... 12,600 332,331 377,178
Proceeds from sale of investment in unconsolidated
subsidiary................................................. -- -- 967,000
(Increase) decrease in deposits.............................. (149,379) 1,583,706 (1,350,000)
Decrease in receivable--affiliate............................ 301,117 (2,537,600) 953,736
Decrease in payable--affiliate............................... (3,195,497) -- --
Increase in notes receivable................................. (1,194,990) (2,585,517) (1,004,435)
Deferred costs............................................... -- -- 124,739
Investment in unconsolidated subsidiaries and other, net..... 5,871,788 (5,940,344) (426,811)
--------------- --------------- --------------
Net cash used in investing activities.................... (999,062,932) (217,640,307) (43,894,352)
--------------- --------------- --------------
</TABLE>
51
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................................. $ 17,500,000 $ -- $ --
Proceeds from long-term debt................................. 940,000,000 343,500,000 63,738,694
Repayments of long-term debt................................. (171,513,855) (87,171,765) (24,318,859)
Dividend distributions--
Preferred stock.............................................. -- (117,186) (176,748)
Common stock................................................... -- (7,633,620) (549,564)
Distributions to partners.................................... (911,223) (458,378) (145,005)
Issuance of preferred stock.................................. 340,000,000 -- 10,000,000
Purchase of treasury stock................................... (31,125,661) -- (5,913,000)
Minority investment in Dobson Tower Company.................. 7,718,750 -- --
Purchase of restricted investments........................... (67,733,293) (38,389,299) --
Maturities of restricted investments......................... 17,483,654 10,836,243 --
Deferred financing costs..................................... (62,038,663) (9,725,288) (3,731,741)
Amortization of deferred financing costs and bond premium.... 1,230,212 1,663,818 --
--------------- --------------- --------------
Net cash provided by financing activities................ 990,609,921 212,504,525 38,903,777
--------------- --------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................... 19,571,335 1,771,828 248,128
CASH AND CASH EQUIVALENTS, beginning of year................... 2,752,399 980,571 732,443
--------------- --------------- --------------
CASH AND CASH EQUIVALENTS, end of year......................... $ 22,323,734 $ 2,752,399 $ 980,571
--------------- --------------- --------------
--------------- --------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest (net of amounts capitalized)...................... $ 39,113,948 $ 19,858,250 $ 5,055,749
Income taxes............................................... $ -- $ -- $ 463,100
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of Class G Preferred Stock for the purchase of
treasury stock............................................. $ 25,000,000 $ -- $ --
Conversion of Class B Preferred Stock........................ $ 12,531,394 $ -- $ --
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...................................................... $ 16,320,000 $ 1,623,329 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Dobson Communications Corporation ("DCC" or the "Company"), through its
predecessors, was organized in 1936 as Dobson Telephone Company and adopted its
current organizational structure in 1998. The Company is a provider of rural and
suburban cellular telephone services.
1997 REORGANIZATION
DCC was incorporated as an Oklahoma corporation in February 1997. Under an
Agreement and Plan of Reorganization effective February 28, 1997 ("1997
Reorganization"), 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 1997 Reorganization, DCC became the parent company
of DOC and the stock of certain subsidiaries of DOC was distributed to DCC.
1998 REORGANIZATIONS
In conjunction with the January 1998 issuance of 175,000 shares of 12.25%
Senior Exchangeable Preferred Stock mandatorily redeemable in 2008 (see Note 6),
the Company formed three new subsidiaries: Dobson Cellular Operating Company
("DCOC"), DOC Cellular Subsidiary Company ("DOC Cellular Subsidiary") and Logix
Communications Enterprises, Inc. ("Logix"), formerly named Dobson Wireline
Company (collectively, the "January 1998 Reorganization"). DCOC was created as
the holding company for subsidiaries formed to effect certain cellular
acquisitions. DCOC has been designated an unrestricted subsidiary under the
Senior Note Indenture which covers the DCC Senior Notes discussed in Note 6. DOC
Cellular Subsidiary was created as the holding company for the then existing
cellular subsidiaries. Logix was created as the holding company for the
Company's incumbent local exchange carrier ("ILEC"), fiber and integrated
communications provider ("ICP") operations. Logix was designated an unrestricted
subsidiary under the Senior Note Indenture and the Certificate of Designation
establishing the Senior Exchangeable Preferred Stock.
On September 30, 1998, the Company adopted a plan to spin off Logix as
discussed in Note 3 (the "September 1998 Reorganization").
In conjunction with the December 1998 acquisition of Sygnet Wireless, Inc.
("Sygnet Acquisition"), the Company formed a new subsidiary, Dobson/Sygnet
Communications Company ("Dobson/Sygnet") (the "December 1998 Reorganization").
Dobson/Sygnet was created as the holding company for the subsidiaries acquired
in the Sygnet Acquisition. Collectively, the January 1998 Reorganization, the
September 1998 Reorganization and the December 1998 Reorganization are known as
the "1998 Reorganizations."
CAPITAL RESOURCES AND GROWTH
The Company's total indebtedness and debt service requirements have
substantially increased as a result of the transactions described in Note 9 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 6, including financial covenants, the
Company will be unable to borrow under
53
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION: (CONTINUED)
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.
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
cellular 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.
The Company is responsible for managing and providing administrative
services for certain partnerships of which the Company is the majority partner.
The Company is accountable to the partners and shareholders 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 and corporation.
The books and records of these partnerships and corporation are also maintained
by the Company.
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.
54
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 fifteen years. Amortization
expense of $30,064,955, $10,528,125 and $1,596,794 was recorded in 1998, 1997
and 1996, 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.
DEFERRED COSTS
Deferred costs consist primarily of fees incurred to secure long-term debt.
Deferred financing costs are being amortized on a straight-line basis over the
term of the debt of eight to ten years. Amortization expense related to these
costs of $1,965,461, $1,074,845 and $401,871 was recorded in 1998, 1997 and
1996, respectively.
OTHER INTANGIBLES
Other intangibles consist of amounts paid to acquire FCC licenses to provide
PCS service and amounts paid to acquire cellular customer lists. 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 $1,219,940,
$851,107 and $0 was recorded in 1998, 1997 and 1996, respectively.
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 $3,445,000 and $1,209,000 as of December 31, 1998 and
1997, respectively, which are included in accounts receivable in the
accompanying consolidated balance sheets. Monthly access charges are billed in
advance and are 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.
55
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." As a
result, the Company's reported net loss per common share for 1996 was restated.
Basic loss per common share is computed by the weighted average number of shares
of common stock outstanding during the year. 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 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
59% and 45% of the Company's cellular roaming revenue was earned from three
cellular carriers during the years ended December 31, 1998 and 1997,
respectively, while 56% of the Company's cellular roaming revenue was earned
from two cellular carriers during the year ended December 31, 1996.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Derivatives and Hedging ("SFAS 133").
SFAS 133 establishes uniform hedge accounting criteria for all derivatives
requiring companies to formally document, designate and assess the effectiveness
of transactions that receive hedge accounting. Under SFAS 133, derivatives will
be recorded in the balance sheet as either an asset or liability measured at its
fair value, with changes in the fair value recognized as a component of
comprehensive income or in current earnings. SFAS 133 will be effective for
fiscal years beginning after June 15, 1999. Under SFAS 133, the Company would
record a liability of $5.4 million relating to its interest rate hedge valuation
at December 31, 1998. The Company has not determined the timing or method of
adoption of SFAS 133.
3. DISCONTINUED OPERATIONS
The Company intends to distribute the stock of Logix to certain of the
Company's shareholders in a tax-free spin-off. The timing of the spin-off is
subject to receipt of a favorable tax ruling or favorable tax opinion acceptable
to the Company and its shareholders. The wireline segment, or Logix and its
subsidiaries, operates as an integrated communications provider under the
LOGIXSM brand name in Oklahoma and Texas, owns local telephone exchanges in
Oklahoma and operates regional fiber optic transmission networks in Oklahoma,
Texas and Colorado. Pursuant to Accounting Principles Board Opinion ("APB") No.
30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring
Events and Transactions," the consolidated financial statements have been
restated for all periods presented to reflect the wireline operations, assets
and liabilities as discontinued operations. The assets and liabilities of such
operations
56
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS (CONTINUED)
have been classified as "Net assets (liabilities) of discontinued operations" on
the consolidated balance sheets and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
($ IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................ $ 31,675 $ 254
Restricted investments--current.................................. 37,572 --
Other current assets............................................. 36,747 2,758
Property, plant and equipment, net............................... 89,508 35,976
Restricted investments--non-current.............................. 61,988 --
Goodwill......................................................... 126,244 --
Other assets..................................................... 21,769 12,965
------------ ------------
Total assets................................................... 405,503 51,953
Current liabilities.............................................. 36,299 2,544
Long-term debt, net of current portion........................... 376,149 27,498
Other liabilities................................................ 88 1,834
------------ ------------
Total liabilities.............................................. 412,536 31,876
------------ ------------
Net assets (liabilities) of discontinued operations.............. $ (7,033) $ 20,077
------------ ------------
------------ ------------
</TABLE>
The net income from operations of the wireline segment was classified on the
consolidated statement of operations as "Income (loss) from discontinued
operations." Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $ 67,703 $ 20,177 $ 17,908
Income (loss) before income taxes........................... (40,196) 886 514
Income tax benefit (provision).............................. 12,924 (337) (183)
Extraordinary item, net..................................... -- (217) --
Cumulative effect of change inaccounting principle, net..... (699) -- --
Income from discontinued operations......................... (27,110) 332 331
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Newly constructed
cellular 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, 1998, 1997 and 1996, 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.
57
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. 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, 1998 and 1997:
<TABLE>
<CAPTION>
USEFUL LIFE 1998 1997
----------- -------------- -------------
<S> <C> <C> <C>
Cellular systems and equipment........................ 2-10 $ 143,501,214 $ 42,279,323
Buildings and improvements............................ 5-40 25,089,448 10,387,759
Vehicles, aircraft and other work equipment........... 3-10 4,402,975 1,895,477
Furniture and office equipment........................ 5-10 14,461,676 3,716,401
Plant under construction.............................. 15,232,700 4,456,878
Land.................................................. 1,915,733 217,892
-------------- -------------
Property, plant and equipment....................... 204,603,746 62,953,730
Accumulated depreciation.............................. 31,549,417 10,579,864
-------------- -------------
Property, plant and equipment, net.................. $ 173,054,329 $ 52,373,866
-------------- -------------
-------------- -------------
</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.
5. NOTES PAYABLE:
On December 23, 1998, the Company's subsidiary, Dobson Tower Company,
obtained a $17,500,000 term loan maturing on December 22, 1999. Interest on the
term loan accrues at 8.0%. Proceeds were used to finance the Sygnet Acquisition
discussed in Note 9. The term loan is secured by all assets of Dobson Tower
Company.
6. LONG-TERM DEBT:
The Company's long-term debt as of December 31, 1998 and 1997, consisted of
the following:
<TABLE>
<CAPTION>
1998 1997
---------------- --------------
<S> <C> <C>
Revolving credit facilities................................ $ 740,000,000 $ 171,513,855
Dobson/Sygnet Senior Notes................................. 200,000,000 --
DCC Senior Notes........................................... 160,000,000 160,000,000
Other notes payable........................................ 4,056,204 4,056,204
---------------- --------------
Total debt............................................. 1,104,056,204 335,570,059
Less--Current maturities................................... 198,871 --
---------------- --------------
Total long-term debt................................... $ 1,103,857,333 $ 335,570,059
---------------- --------------
---------------- --------------
</TABLE>
58
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
REVOLVING CREDIT FACILITIES
The Company's revolving credit facilities consist of the following:
<TABLE>
<CAPTION>
AMOUNT INTEREST RATE
OUTSTANDING AT (WEIGHTED AVERAGE
MAXIMUM DECEMBER 31, RATE AT DECEMBER
CREDIT FACILITY AVAILABILITY 1998 31, 1998)
- ----------------------------------------- -------------- -------------- -------------------
<S> <C> <C> <C>
Dobson/Sygnet Credit Facilities.......... $ 430,000,000 $ 407,000,000 8.9%
DCOC Credit Facility..................... 200,000,000 200,000,000 8.2%
DOC Credit Facility...................... 250,000,000 133,000,000 7.0%(1)
</TABLE>
- ------------------------
(1) Weighted average computation is based on actual interest rates without
giving effect to the interest rate hedge discussed below.
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet, obtained $430
million of senior secured credit facilities ("Dobson/Sygnet Credit Facilities")
from NationsBank, N.A., consisting of (a) a $50.0 million, 7 3/4 year reducing
revolving credit facility ("Revolving Credit Facility"), (b) a $125.0 million,
7 3/4 year term loan ("Term Loan A"), (c) a $155.0 million, 8 1/4 year term loan
("Term Loan C") and (d) a $100.0 million, 9 year term loan ("Term Loan C").
Dobson/Sygnet's obligations under the Dobson/Sygnet Credit Facility are secured
by all current and future assets of Dobson/Sygnet. Initial proceeds were used
primarily to finance the Sygnet Acquisition described in Note 9. The Company
expects to use the remaining availability to finance Dobson/Sygnet's capital
expenditures and general operations.
Commencing with the quarter ending December 31, 2000, the borrowing under
the Revolving Credit Facility and Term Loan A will reduce quarterly under the
following annual amortization schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL AMORTIZATION
- ------------------------------------------------------------------------- -------------------
<S> <C>
2000..................................................................... 5.0%
2001..................................................................... 7.5%
2002..................................................................... 7.5%
2003..................................................................... 12.5%
2004..................................................................... 15.0%
2005..................................................................... 25.0%
2006..................................................................... 27.5%
</TABLE>
59
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Commencing with the quarter ending December 31, 2000, the borrowing under
the Term Loan B will reduce quarterly under the following annual amortization
schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL AMORTIZATION
- ------------------------------------------------------------------------- -------------------
<S> <C>
2000..................................................................... 2.5%
2001..................................................................... 2.5%
2002..................................................................... 2.5%
2003..................................................................... 7.5%
2004..................................................................... 15.0%
2005..................................................................... 25.0%
2006..................................................................... 27.5%
2007..................................................................... 17.5%
</TABLE>
Term Loan C will amortize annually under the following schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL AMORTIZATION
- ------------------------------------------------------------------------- -------------------
<S> <C>
1999-2006................................................................ 1.0%
2007..................................................................... 92.0%
</TABLE>
On March 25, 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. At the same time, the Company's subsidiary DOC established a $250 million
senior secured credit facility (the "DOC Credit Facility") to replace its
existing revolving credit facility established on February 28, 1997 ("1997
Credit Facility") and discussed below. The DOC Credit Facility is 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. DCOC is
designated an unrestricted subsidiary with regard to the DOC Facility. The
Company and DOC's wholly owned subsidiaries other than Logix and the Arizona 5
Partnership have guaranteed DOC's obligations under the DOC Credit Facility.
Initial proceeds from the DCOC Credit Facility and DOC Credit Facility were used
primarily to refinance existing indebtedness and finance the 1998 acquisitions
described above. The Company expects to use the remaining availability under the
DCOC Credit Facility and DOC Credit Facility to finance capital expenditures,
consummate future acquisitions and fund general corporate operations. The
facilities will terminate in 2006.
The Dobson/Sygnet Credit Facilities, the DCOC Credit Facility and the DOC
Credit 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 connection with the closing of the DOC Credit Facility, the Company
extinguished its 1997 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 the Company's consolidated statement of operations, net of tax, for
the year ended December 31, 1998 as an extraordinary expense.
On February 28, 1997, the Company amended and restated its existing bank
credit agreement ("1996 Credit Facility") and established the 1997 Credit
Facility. In connection with the closing of the 1997 Credit
60
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Facility, the Company extinguished its 1996 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 1996 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 its existing bank credit
agreement ("Old Credit Facility") and established the 1996 Credit Facility. In
connection with this amendment, the Company extinguished its Old Credit Facility
and recognized 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.
SENIOR NOTES
On December 23, 1998, the Company's subsidiary issued $200 million of 12.25%
Senior Notes maturing in 2008 ("Dobson/Sygnet Senior Notes"). The net proceeds
were used to finance the Sygnet Acquisition described in Note 9 and to purchase
$67.7 million of securities pledged to secure payment of the first six
semi-annual interest payments on the Dobson/Sygnet Senior Notes, which begin on
June 15, 1999. The pledged securities are reflected as restricted cash and
investments in the Company's consolidated balance sheets. The Dobson/Sygnet
Senior Notes are redeemable at the option of the Company in whole or in part, on
or after December 15, 2003, initially at 106.125%. Prior to December 15, 2001,
the Company may redeem up to 35% of the principal amount of the Dobson/Sygnet
Senior Notes at 112.25% with proceeds from equity offerings, provided that at
least $130 million remains outstanding.
On February 28, 1997, the Company issued $160 million of 11.75% Senior Notes
maturing in 2007 ("DCC Senior Notes"). The net proceeds were used to finance the
Maryland/Pennsylvania Acquisition described in Note 9 and to purchase securities
pledged to secure payment of the first four semi-annual interest payments on the
DCC Senior Notes, which began on October 15, 1997. The pledged securities are
reflected as restricted cash and investments in the Company's consolidated
balance sheets. The DCC 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
DCC Senior Notes at 111.750% with proceeds from equity offerings, provided that
after any such redemption at least $104 million remains outstanding.
OTHER NOTES PAYABLE
Other notes payable represents the amount financed with the United States
Government for nine PCS licenses as discussed in Note 6.
61
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Minimum future payments of long-term debt for years subsequent to December
31, 1998, are as follows:
<TABLE>
<S> <C>
1999......................................................... $ 198,871
2000......................................................... 54,066,729
2001......................................................... 80,918,390
2002......................................................... 80,946,762
2003......................................................... 109,651,942
2004 and thereafter.......................................... 778,273,510
-------------
$1,104,056,204
-------------
-------------
</TABLE>
INTEREST RATE HEDGES
In April 1997, the Company entered into an interest rate hedge agreement
terminating on April 24, 2002 to hedge the Company's interest expense on $160
million of its indebtedness under the DOC Credit Facility. In 1998, the
counterparty exercised its rights under the swap agreement, fixing the interest
rate at 6.13% plus a factor based on the Company's leverage. The Company
accounts for this as a hedge.
The Company is currently negotiating an interest rate swap agreement to
establish a fixed interest rate on $75 million of its indebtedness under the
Dobson/Sygnet Credit Facilities.
7. RESTRICTED CASH AND INVESTMENTS:
Restricted cash and investments consist of interest pledge deposits for the
Dobson/Sygnet Senior Notes and the DCC Senior Notes. The Dobson/Sygnet Senior
Notes interest pledge deposit includes the initial deposit of $67.7 million (as
discussed in Note 6), plus interest earned. The DCC Senior Notes interest pledge
deposit of approximately $9.3 million includes an initial deposit of $38.4
million (as discussed in Note 6), net of interest earned and payments issued to
bondholders. Amortization expense of $269,101 and $322,850 was recorded in 1998
and 1997, respectively, for bond premiums recorded with the purchase of the
restricted investments. At December 31, 1998, the carrying value of these
investments exceeded the market value by approximately $326,000.
62
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' DEFICIT:
As of December 31, 1998, the Company's authorized and outstanding capital
stock is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
# OF SHARES # OF SHARES PAR VALUE PREFERENCE
CLASS TYPE AUTHORIZED ISSUED PER SHARE DIVIDENDS PER SHARE REDEMPTION DATE
- -------------- ----------------- ----------- ----------- ----------- -------------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Common Stock 1,438,000 573,152 $ .001 As declared -- --
Class B Common Stock 31,000 -- $ .001 As declared -- --
Class C Common Stock 31,000 -- $ .001 As declared -- --
----------- -----------
1,500,000 573,152
Senior
Exchangeable Preferred Stock 550,000 191,320 $ 1.00 12.25% Cumulative $ 1,000 Jan. 15, 2008
Additional Preferred Stock 184,000 64,646 $ 1.00 12.25% Cumulative $ 1,000 Jan. 15, 2008
Class A Preferred Stock 150,000 100,000 $ 1.00 5% Non-cumulative $ 70 --
Class B Preferred Stock 100,000 -- $ 1.00 8% Cumulative $ 100 --
Class C Preferred Stock 100,000 -- $ 1.00 8% Cumulative $ 16.23 --
Class D Preferred Stock 85,000 75,094 $ 1.00 15% Cumulative $1,131.92 after
Dec. 23, 2010
Class E Preferred Stock 517,000 -- $ 1.00 15% Cumulative $1,131.92 after
Dec. 23, 2010
Class F Preferred Stock 205,000 30,000 $ 1.00 16% Cumulative $ 1,000 Dec. 31, 2010
Class G Preferred Stock 62,000 37,853 $ 1.00 16% Cumulative $ 660.40 90 days after an
initial public
offering
Class H Preferred Stock 62,000 -- $ 1.00 16% Cumulative $ 660.45 after
Dec. 23, 2010
Other Preferred Stock 485,000 -- $ 1.00 -- -- --
----------- -----------
2,500,000 498,913
<CAPTION>
OTHER
FEATURES,
RIGHTS,
PREFERENCES
CLASS AND POWERS
- -------------- -------------
<S> <C>
Class A Voting
Class B Non-voting
Class C Non-voting
Senior
Exchangeable Non-voting
Additional Non-voting
Class A Non-voting
Class B Voting,
Convertible
Class C Non-voting
Class D Convertible
Class E Non-voting
Class F Non-voting
Class G Non- voting,
convertible
Class H Non-voting
Other --
</TABLE>
On December 23, the Company issued 75,093.7 shares of Class D Convertible
Preferred Stock, including 3,534 shares to its majority shareholder for
aggregate proceeds of $85 million. The Company also issued 30,000 shares of
Class F Preferred Stock to the former shareholders of Sygnet as consideration
for the Sygnet Acquisition. In addition, the Company issued 37,853 shares of
Class G Preferred Stock to its majority shareholder in exchange for 40,000
shares of the Company's Class A Common Stock which are held in treasury at
December 31, 1998.
On December 23, 1998, Fleet, the holder of Class B Preferred Stock,
converted all of its shares to Class A Common Stock. In addition, the Company
redeemed all of the outstanding shares of Class C Preferred Stock which were
held by Fleet for $1.9 million. On December 23, 1998, the Company purchased
43,345 shares of its Class A Common Stock from Fleet for approximately $31.1
million. In addition, the Company purchased 37,853 shares of its Class A Common
Stock from its majority shareholder. In exchange, the Company issued 37,853
shares of Class G Preferred Stock to its majority shareholder. These Class A
Common Stock shares are held in treasury stock at cost.
As discussed in Note 1, 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,
63
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' DEFICIT: (CONTINUED)
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 cellular 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 6, 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 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.
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 stockholders have
the right, as a class, to elect two members of the board of directors of the
Company.
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.
9. 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.
64
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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. 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.
On January 26, 1998, the Company purchased the FCC cellular license for, and
certain assets relating toTexas 16 RSA for $56.6 million. The property is
located in south-central Texas in an area bordered by Austin, Houston and San
Antonio.
On April 1, 1998, the Company acquired all of the capital stock of the
corporations which owned the Cellular 2000 Partnership. The Cellular 2000
Partnership owns the FCC cellular license and system for, and certain assets
relating to, the California 4 RSA. The total purchase price paid by the Company
was $90.9 million. The property is located in central California adjacent to
Fresno, Modesto and Yosemite National Park.
On June 16, 1998, the Company acquired an 86.4% interest in the Santa Cruz
Cellular Telephone Partnership ("SCCTP") for $31 million. SCCTP owns the
cellular license and other assets for the Santa Cruz MSA. The Santa Cruz MSA is
located adjacent to the California 4 RSA purchased in April 1998. Subsequent to
September 30, 1998, the Company acquired an additional .5% interest in SCCTP for
$.2 million.
On July 29, 1998, the Company purchased the FCC cellular license and certain
assets of California 7 RSA for $21 million. California 7 is located in the
Imperial Valley extending from east of San Diego to the Arizona state line.
On September 2, 1998, the Company completed the acquisition of the FCC
license of Ohio 2 RSA. The Company is currently negotiating with AirTouch for
the purchase of subscribers and the lease of certain equipment necessary to
operate the system. The purchase price of $39.3 million is being held in escrow
pending resolution of claims made against the titles to the FCC licenses of the
sellers. Ohio 2 is located in north central Ohio and covers an estimated
population of 262,100.
On December 2, 1998, the Company completed the acquisition of the FCC
license for Texas 10 RSA. The Company is currently negotiating with AT&T
Wireless for the purchase of subscribers and the lease of certain equipment
necessary to operate the system. The purchase price of $55.0 million is being
held in escrow pending resolution of claims made against the titles to the FCC
licenses of the sellers. Texas 10 is located in central Texas and covers an
estimated population of 317,900.
65
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS: (CONTINUED)
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet acquired
Sygnet Wireless, Inc. for $337.5 million. The newly acquired Sygnet markets
include cellular systems in Ohio, Pennsylvania and New York covering an
estimated population base of 2.4 million.
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 the years ended 1998 and 1997, respectively, as if the purchases occurred at
the beginning of 1997. 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>
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Operating revenue................................................... $ 254,447 $ 211,300
Loss before discontinued operations and extraordinary items......... (81,977) (83,000)
Net loss............................................................ (124,130) (117,181)
Net loss applicable to common stockholders.......................... (148,978) (142,022)
Basic net loss applicable to common stockholders per common share... $ (314.59) $ (300.16)
</TABLE>
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
6). Interest only payments are due quarterly on January 15, April 15, July 15
and October 15 for the first two years. The principal obligations will be
amortized quarterly over an eight-year period beginning in 1999.
10. 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 were approximately
$274,000, $179,000 and $109,000 during the years ended December 31, 1998, 1997
and 1996, respectively.
STOCK OPTION PLAN
The Company has adopted a stock option plan, the 1996 Stock Option Plan, as
amended (the "Plan"). The Company accounts for the Plan under APB Opinion 25,
under which no compensation cost is recognized in the accompanying consolidated
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.
66
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Under the Company's 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 and Class C Common Stock. Since the 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 and 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, otherwise, the additional 8% of such
shares become fully vested at the end of the ten year term. The remaining
options issued in 1997 and all of the options issued in 1998 and 1996 vest at a
rate of 20% per year. The Company has reserved 30,166 shares of authorized but
unissued Class B Common Stock ("Class B") and 30,166 shares of authorized but
unissued Class C Common Stock ("Class C") for issuance under the Plan.
Stock options outstanding under the Plan are presented for the periods
indicated.
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------- -------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES RANGE SHARES RANGE
----------- ------------ ----------- ------------
<S> <C> <C> <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 -- --
----------- ------------ ----- ------------
Granted...................................................... 8,540 $ 300-$665 2,414 $ 400-$420
Exercised.................................................... -- -- -- --
Canceled..................................................... 1,207 $ 100 -- --
----------- ------------ ----- ------------
Outstanding December 31, 1998................................ 29,766 $ 100-$665 2,414 $ 400-$420
----------- ------------ ----- ------------
Exercisable at December 31, 1997............................. 1,675 $ 100 -- --
----------- ------------ ----- ------------
Exercisable at December 31, 1998............................. 7,122 $ 100-$150 -- --
----------- ------------ ----- ------------
</TABLE>
The following schedule shows the Company's net loss and net loss per share
for the last three years, had compensation expense been determined consistent
with the Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. The pro forma information presented
67
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
below is based on several assumptions and should not be viewed as indicative of
the Company in future periods.
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) 1998 1997 1996
- -------------------------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported................................................................... $ (76,516) $ (19,337) $ (2,270)
Pro forma..................................................................... $ (76,943) $ (19,540) $ (2,309)
Basic net loss applicable to common stockholders per common share:
As reported................................................................... $ (161.57) $ (40.87) $ (4.80)
Pro forma..................................................................... $ (162.48) $ (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 1998, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------- -----------
(AMOUNTS EXPRESSED IN PERCENTAGES) 1998 1997 1996 1998
- ----------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Interest rate.............................................. 5.60% 6.60% 6.98% 5.80%
Dividend yield............................................. -- -- -- --
Expected volatility........................................ 39.79% 40.27% 39.88% 40.20%
</TABLE>
The weighted average fair value of options granted using the Black-Scholes
option pricing model for Class B in 1998, 1997 and 1996 was $205.88, $71.42 and
$64.84, respectively, and for Class C in 1998 was $255.23 assuming an expected
life of ten years.
11. TAXES:
Benefit for income taxes for the years ended December 31, 1998, 1997 and
1996, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -----------
<S> <C> <C> <C>
Federal income taxes--
Current......................................... $ -- $ -- $ (452,000)
Deferred........................................ (10,883,000) (3,243,000) (83,000)
State income taxes (current and deferred)......... (586,000) (382,000) (58,000)
-------------- ------------- -----------
Total income tax benefit...................... $ (11,469,000) $ (3,625,000) $ (593,000)
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
68
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TAXES: (CONTINUED)
The provisions for income taxes for the years ended December 31, 1998, 1997
and 1996, differ from amounts computed at the statutory rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -----------
<S> <C> <C> <C>
Income taxes at statutory rate (34%).............. $ (11,816,000) $ (6,576,000) $ (618,000)
State income taxes, net of Federal income tax
effect.......................................... (1,390,000) (774,000) (73,000)
Losses for which no benefit is recognized......... 1,608,000 3,747,000 --
Other, net........................................ 129,000 (22,000) 98,000
-------------- ------------- -----------
$ (11,469,000) $ (3,625,000) $ (593,000)
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Current deferred income taxes:
Allowance for doubtful accounts receivable................. $ 812,000 $ 152,000
Accrued liabilities........................................ 592,000 45,000
Deferred expenses.......................................... -- 17,000
--------------- -------------
Net current deferred income tax asset.................... 1,404,000 214,000
--------------- -------------
Noncurrent deferred income taxes:
Fixed assets............................................... (2,440,000) (1,566,000)
Intangible assets.......................................... (291,375,000) (9,859,000)
Tax credits and carryforwards.............................. 48,185,000 10,386,000
--------------- -------------
Net noncurrent deferred income tax asset (liability)..... (245,630,000) (1,039,000)
--------------- -------------
Total deferred income taxes.............................. $ (244,226,000) $ (825,000)
--------------- -------------
--------------- -------------
</TABLE>
At December 31, 1998, the Company had NOL carryforwards of approximately
$124 million, which may be utilized to reduce future Federal income taxes
payable.
12. RELATED PARTY TRANSACTIONS:
At December 31, 1998 and 1997, the Company had notes and interest receivable
of $7,047,272 and $5,852,282 due from related parties, including $290,150 and
$295,612 at December 31, 1998 and 1997, 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, 1998.
69
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Interest......................................................... $ 5,846,071 $ 6,006,257
Sygnet acquisition costs (see Note 9)............................ 5,439,095 --
Vacation, wages and other........................................ 2,937,140 1,839,144
------------- ------------
Total accrued expenses......................................... $ 14,222,306 $ 7,845,401
------------- ------------
------------- ------------
</TABLE>
14. COMMITMENTS:
The Company entered into an equipment supply agreement on June 24, 1997, and
as amended, the Company agreed to purchase approximately $65 million of cell
site and switching equipment between June 24, 1997 and November 23, 2001, to
update the cellular systems for the newly acquired and existing MSAs and RSAs.
Of the commitment, approximately $32.3 million remained at December 31, 1998.
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 site 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. Of this commitment, approximately $58.4 million remained
at December 31, 1998.
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, 1998, are as follows:
<TABLE>
<S> <C>
1999................................ $ 6,207,303
2000................................ 5,062,326
2001................................ 3,946,908
2002................................ 2,774,654
2003................................ 2,188,040
2004 and thereafter................. 15,151,228
</TABLE>
Lease expense under the above leases was approximately $3,034,000, $866,000
and $226,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
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.
70
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
Indicated below are the carrying amounts and estimated fair values of the
Company's financial instruments as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revolving credit
facilities............... $ 740,000,000 $ 740,000,000 $ 171,513,855 $ 171,513,855
Dobson/Sygnet Senior
Notes.................... 200,000,000 205,000,000 -- --
DCC Senior Notes........... 160,000,000 163,200,000 160,000,000 169,200,000
Other notes payable........ 4,056,204 4,057,164 4,056,204 4,200,695
Interest rate hedge........ -- (5,407,420) -- (2,644,414)
</TABLE>
71
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors consists of seven directors, four
designated by Dobson CC Limited Partnership, ("the Dobson Partnership"), one
designated by J.W. Childs Associates, L.P. ("Childs") and two selected jointly
by the Dobson Partnership and Childs. See Item 12, Security Ownership of Certain
Beneficial Owners and Management. Two additional directors may be designated by
Senior Exchangeable Preferred Stock holders, two by Additional Preferred Stock
holders and one by the holders of Class F Preferred Stock in the event certain
voting rights triggering events occur.
The Company's Board of Directors currently includes six directors, with one
vacancy to be filled by an independent director jointly selected by the Dobson
Partnership and Childs. On December 23, 1998, Albert H. Pharis, Jr., former
President and Chief Executive Officer of Sygnet, and Dana L. Schmaltz, an
executive officer of Childs, became directors of the Company, and Thadeus J.
Mocarski resigned as a director of the Company. 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, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Everett R. Dobson(1).................................... 39 Chairman of the Board, President and Chief
Executive Officer
G. Edward Evans......................................... 37 President and Chief Operating Officer of cellular
subsidiaries
Bruce R. Knooihuizen.................................... 42 Vice President and Chief Financial Officer
R. Thomas Morgan........................................ 42 Vice President and Chief Information Officer
Richard D. Sewell, Jr................................... 41 Treasurer
Stephen T. Dobson(1).................................... 35 Secretary and Director
Russell L. Dobson(1).................................... 63 Director
Justin L. Jaschke....................................... 40 Director
Albert H. Pharis, Jr.................................... 48 Director
Dana L. Schmaltz........................................ 31 Director
</TABLE>
- ------------------------
(1) Everett R. Dobson and Stephen T. Dobson are sons of Russell L. Dobson.
The Company was incorporated in February 1997 in connection with a corporate
reorganization (the "Reorganization") pursuant to which the Company 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 the Company.
72
<PAGE>
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.
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.
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.
RICHARD D. SEWELL, JR. joined the Company as Treasurer in September 1998.
Prior to joining the Company, Mr. Sewell was employed by Dal-Tile International
Inc., a ceramic tile manufacturer and distributor, as Vice President-Finance
from 1997 to 1998, as Vice President-Treasury from 1995 to 1997 and as Vice
President-Financial Reporting from 1990 to 1995. From 1979 to 1989, Mr. Sewell
was employed by Ernst & Young, a public accounting firm, concluding as a
principal in their Entrepreneurial Service Group. Mr. Sewell received a B.S. in
accounting from the University of Missouri-Kansas City.
STEPHEN T. DOBSON has been a director of the Company since 1990. He served
as Treasurer of the Company from 1990 until September 1998, and he has served as
Secretary of the Company since 1990. He has also served as General Manager and
Secretary of the Company's ILEC operations ("Telco") since 1994 and 1990,
respectively. He became President of Logix 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.
73
<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, Mr. Jaschke served as Chief
Operating Officer for Nextel Communications, Inc. following its merger with
OneComm Corporation ("OneComm") in July 1995. Mr. Jaschke served as OneComm's
President and a member of its Board of Directors from 1993 until the merger with
Nextel Communications, Inc. From May 1990 to April 1993, Mr. Jaschke served as
President and CEO of Bay Area Cellular Telephone Company. Mr. Jaschke currently
serves as Chairman of the Board of Directors of Metricom, Inc., a wireless data
communications provider. 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.
ALBERT H. PHARIS, JR. has been a director of the Company since December
1998. Previously, Mr. Pharis served as President, Chief Executive Officer and
Director of Sygnet since Sygnet's inception in 1985. He has been active as a
board member of CTIA since 1985 and as a member of the CTIA Executive Committee
since 1989. He has also been Chairman of CTIA's Small Operators Caucus.
DANA L. SCHMALTZ became a director of the Company in accordance with the
terms of the Stockholders' Agreement dated December 23, 1998 between the Company
and J.W. Childs Associates, L.P. Mr. Schmaltz is a Vice President of J.W. Childs
Associates, L.P. and has been at J.W. Childs Associates, L.P. since February
1997. From 1995 to 1997, Mr. Schmaltz was an associate at DLJ Merchant Banking,
Inc. Mr. Schmaltz graduated from the Harvard Graduate School of Business
Administration in 1995.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation during
1998, 1997 and 1996 earned by the Company's chief executive officer and its
other three most highly compensated executive officers as of December 31, 1998
("the Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTION AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) ($)(2) (# OF SHARES) ($)(3)
- ----------------------------------- --------- ---------- ---------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Everett R. Dobson ................. 1998 $ 380,400 $ -- $ 39,700(4) -- $ 6,400
Chairman of the Board and Chief 1997 300,000 250,000 54,800(4) -- 9,500
Executive Officer 1996 300,000 142,400 77,100(4) -- 6,000
1998 155,200 80,000 32,600(5) -- 4,700
Stephen T. Dobson ................. 1997 100,000 75,000 13,800(5) -- 6,500
Secretary, Treasurer and Director 1996 97,000 75,000 20,600(5) -- 3,900
G. Edward Evans ................... 1998 152,500 76,000 -- 1,000 4,300
President and Chief Operating 1997 113,600 80,000(6) -- 6,033 --
Officer 1996 -- -- -- -- --
Bruce R. Knooihuizen. ............. 1998 165,000 102,500 -- 1,000 4,100
Vice President and Chief 1997 152,500 82,500 -- -- 1,400
Financial Officer 1996 65,900 37,500 57,600(7) 7,541 --
R. Thomas Morgan .................. 1998 135,000 60,000 -- -- --
Vice President and Chief 1997 6,000 40,000(8) -- 1,207 --
Information Officer 1996 -- -- -- -- --
</TABLE>
- ------------------------
(1) The bonus amounts for Everett R. Dobson with respect to services performed
in 1998 have not yet been determined. The bonus for 1997 represents the
bonus paid in 1998 with respect to services
74
<PAGE>
performed in 1997. The bonus 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.
(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 $26,000, $36,600 and $62,900 for personal use of Company aircraft
and $12,300, $18,200 and $12,500 for a Company-provided vehicle in 1998,
1997 and 1996, respectively.
(5) Includes $16,100, $10,400 and $7,400 for personal use of Company aircraft
and $16,300, $3,400 and $6,500 for a Company-provided vehicle in 1998, 1997
and 1996, respectively.
(6) Includes $20,000 received upon commencement of employment.
(7) 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.
(8) Represents $40,000 received upon commencement of employment.
The Named Executive Officers listed below were granted options to purchase
shares of the Company's Class B Common Stock in 1998. No stock options were
exercised by the Named Executive Officers in 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------ VALUE AT ANNUAL RATES
PERCENT OF TOTAL OF STOCK APPRECIATION
NUMBER OF OPTIONS GRANTED EXERCISE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED 1998 ($/SHARE) DATE $5%($) 10%($)
- ------------------------------ ----------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
G. Edward Evans............... 1,000 9.1% $ 300 01/29/08 $ 188,668 $ 478,123
Bruce R. Knooihuizen.......... 1,000 9.1% $ 300 01/29/08 $ 188,668 $ 478,123
</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.
1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
OPTIONS AT 12/31/98(#) 12/31/98($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------------- ----------------------- --------------------------
<S> <C> <C>
G. Edward Evans.......................... 1,206/5,827 $681,390/$3,092,255
Bruce R. Knooihuizen..................... 3,016/5,525 $1,704,040/$2,921,625
R. Thomas Morgan......................... 241/966 $124,321/$372,963
</TABLE>
- ------------------------
(1) The value of unexercised in-the-money options at December 31, 1998 is
computed as the product of (i) stock value at December 31, 1998 less stock
option exercise price and (ii) number of underlying securities at December
31, 1998.
75
<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.
Effective September 1, 1998, the Company entered into a consulting agreement
with Russell L. Dobson. Under the terms of the agreement, Mr. Dobson has been
retained by Dobson Communications from September 1, 1998 through August 31,
2008. In exchange for Mr. Dobson's services, the Company will provide monthly
compensation of $15,000 and insurance benefits commensurate with the Company's
employee plan. Mr. Dobson's responsibilities will include representing the
Company at various functions, assisting with regulatory matters and assisting
executive officers of the Company in strategic planning and forecasting. In
addition, Mr. Dobson has agreed not to compete with the Company. During 1998,
Mr. Dobson was paid approximately $195,000 by the Company.
Effective December 23, 1998 Albert H. Pharis, Jr. became a consultant to the
Company, to assist the Company on an as-needed basis, for term of five years.
Mr. Pharis will receive a fee of $40,000 for the first 90 days of such
consulting period and an annual fee of $60,000 thereafter. In addition, Mr.
Pharis received options to purchase 833 shares of the Company's Class B Common
Stock at an exercise price of $665 per share. Mr. Pharis's option vests ratably
over a five-year period and fully vests upon a change of control of the Company.
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 1998, the members of the Compensation Committee were Russell L. Dobson,
Justin L. Jaschke and Thadeus J. Mocarski, a former director. 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information concerning beneficial ownership of
the Company's voting securities at December 31, 1998, by (a) each person known
by the Company to beneficially own more than
76
<PAGE>
5% of such stock, (b) each director, nominee and Named Executive Officer, and
(c) all directors, nominees and executive officers as a group:
<TABLE>
<CAPTION>
CLASS A CLASS D CLASS G
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------------------ ------------------------ ------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS
- ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Everett R. Dobson(2) .......................... 471,388 95.8% 3,534 4.7% 37,853 100.0%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson ............................. 3,154 * -- -- -- --
13439 N. Broadway Ext.
Oklahoma City, OK 73114
J.W. Childs ................................... 17,412 3.5% 71,560 95.3% -- --
Associates, L.P.(3)
One Federal St.
Boston, MA 02110
All directors, nominees and executive 491,954 100.0% 75,094 100.0% 37,853 100.0%
officers ....................................
as a group (11 persons)
<CAPTION>
PERCENT OF
TOTAL
VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER POWER(1)
- ----------------------------------------------- -----------
<S> <C>
Everett R. Dobson(2) .......................... 84.8%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson ............................. *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
J.W. Childs ................................... 14.7%
Associates, L.P.(3)
One Federal St.
Boston, MA 02110
All directors, nominees and executive 100.0%
officers ....................................
as a group (11 persons)
</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 D Preferred Stock
(presently equivalent to one vote per share) is aggregated.
(2) All such shares are held by the Dobson 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) All such shares are beneficially owned by Dana L. Schmaltz, who became a
director following the closing of the Sygnet Financing.
Except as set forth above, no director, nominee or executive officer of the
Company owns or has the right to acquire within 60 days any of the Company's
voting securities.
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.
The Everett R. Dobson Irrevocable Family Trust, Steven T. Dobson Irrevocable
Family Trust and Robbin L. Dobson Irrevocable Family Trust, (collectively, the
"Dobson Trusts") are the limited partners of the Dobson Partnership, which holds
95.8% of the Company's Class A Common Stock. See Item 12, Security Ownership of
Certain Beneficial Owners and Management.
Prior to November 1, 1998, the Company leased 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 was approximately $23,000, or $.93 per square foot. In October 1998,
WillRuss sold this building to an unrelated third party. As part of the sale
transaction, the Company entered into an agreement with the buyer to lease the
building for a one-year term at a monthly rent of approximately $19,000.
77
<PAGE>
The Company made a $300,000 home mortgage loan to G. Edward Evans in
February 1997 in connection with his employment. See Item 10, Directors and
Executive Officers of the Registrant-Employment Agreements. 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 November 1997, Everett R. Dobson purchased an interest in the Company's
loan to Gila River Telecommunications Subsidiary, Inc., a wholly owned
subsidiary of the Gila River Indian Community. The Company repurchased this
interest in June 1998.
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 Logix for $105,000. In addition,
in June, 1998, Logix purchased certain long distance customers and related
assets for approximately $4.7 million. In connection with the purchase of these
assets of Zenex, a note payable in the amount of $284,765, including accrued
interest, from Zenex to Everett R. Dobson was paid in full.
In connection with the Sygnet Financing, the Company purchased for $1.9
million all of its outstanding shares (100,000 shares) of Class C Preferred
Stock held by the Fleet Investors and also purchased 43,348 shares of its Class
A Common Stock from Fleet Investors for $31.1 million. Thadeus J. Mocarski, a
principal of the Fleet Investors, was a director of the Company and resigned as
a director upon consummation of the Sygnet Acquisition. As part of the Sygnet
Financing, the Dobson Partnership acquired 37,853 shares of Class G Preferred
Stock from the Company in exchange for 37,853 shares of Class A Common Stock.
In the Tower Sale Leaseback, Dobson Tower purchased cellular towers from
Sygnet for $25.0 million and leased the towers back to Dobson/Sygnet. Everett R.
Dobson, a director, executive officer and principal shareholder of the Company,
owns preferred stock issued by Dobson Tower. All of Dobson Tower's common stock
is owned by the Company.
In connection with the Company's acquisition of Sygnet and the related
financing, the Company engaged in certain transactions with the Dobson
Partnership. The Company issued 37,853 shares of its Class G Preferred Stock to
the Dobson Partnership in exchange for 37,853 shares of its Class A Common
Stock. In addition, the Company sold 3,533.8 shares of its Class D Preferred
Stock to the Dobson Partnership for $4.0 million in cash.
Also as part of the Sygnet acquisition and the related financing, the
Company purchased an aggregate of 17,412 shares of its Class A Common Stock from
Fleet Ventures Resources, Inc., Fleet Equity Partners VI, L.P. and Kennedy Plaza
Partners (collectively, the "Fleet Investors"). At the time of the purchase,
Thadeus J. Mocarski, a managing director of Fleet Equity Partners VI, L.P. and
an affiliate of the Fleet Investors, was a director of the Company.
In conjunction with the Sygnet acquisition and the related financing, the
Company entered into certain agreements with its affiliates and Childs.
On December 23, 1998, Childs and the Dobson Partnership purchased shares of
the Company's Class D Preferred Stock for $85.0 million pursuant to an
investment and transaction agreement (the "Class D Purchase Agreement") and
entered into a stockholder and investor rights agreement (the "Investors
Agreement") with the Company and certain other shareholders of the Company,
excluding the holders of the Class F Preferred Stock (collectively, the
"Shareholders"). The Dobson Partnership purchased $4.0 million of the Class D
Preferred Stock and Childs purchased the remaining $81.0 million of Class D
Preferred Stock. Each share of Class D Preferred Stock is convertible into one
share of Class A Common Stock and one share of Class E Preferred Stock. The
following summary of the Class D Preferred Stock, the Class E Preferred Stock,
the Class D Purchase Agreement and the Investors Agreement does not purport to
be complete and is qualified in its entirety by reference to the applicable
certificates of designation and such agreements.
78
<PAGE>
The Class D Purchase Agreement contains various covenants which, among other
things, give the holders of Class D Preferred Stock certain preemptive rights
with respect to the issuance of the Company's equity securities (including
rights, options or warrants with respect to such securities and other securities
convertible into equity securities), restrict its ability and that of its
subsidiaries to pay dividends, purchase outstanding equity securities, make
investments, acquire or dispose of material amounts of assets, engage in sale
and leaseback transactions, or merge, consolidate or dispose of all or
substantially all of their assets. In addition, holders of Class D Preferred
Stock are entitled to participate in the spin-off of Logix.
The certificate of designation for the Class D Preferred Stock (the "Class D
Preferred Stock Certificate of Designation") provides for the following voting
rights. Except as otherwise provided by law, the shares of its Class A Common
Stock and Class D Preferred Stock vote together on all matters submitted to a
vote of the shareholders. Each share of Class D Preferred Stock, which is
initially convertible into one share of Class A Common Stock and one share of
Class E Preferred Stock, is entitled to the number of votes that the shares of
Class A Common Stock issuable upon conversion of the Class D Preferred Stock
would have on the record date fixed for any meeting, or the effective date of
action taken by written consent, of shareholders.
Approval of the holders of a majority of the outstanding Class D Preferred
Stock is necessary to:
- authorize or increase the authorized number of shares of, or issue, any
class or a series of capital stock ranking prior to, or on a parity with,
the Class D Preferred Stock other than preferred stock issued to finance
acquisitions and capital projects,
- make any change in the Company's Certificate of Incorporation which would
adversely affect the powers, preferences or rights, including voting
rights, of the Class D Preferred Stock,
- authorize or effect the sale of all or substantially all of the Company's
assets, its merger or consolidation resulting in the change of control, or
its liquidation, dissolution or winding up,
- amend the Company's Certificate of Incorporation or Bylaws to change the
authorized number of directors or
- authorized redemption, repurchase or payment of dividends on any junior or
parity stock, except for scheduled or mandatory redemptions thereof and
repurchases of management stock pursuant to contractual rights.
Upon the earliest to occur of December 23, 2005, a "Change of Control" (as
defined below) or the consummation by us of an initial public offering of the
Company's common stock, and if the holders of a majority of Class E Preferred
Stock vote to require the purchase of their stock, each holder will have the
right to require the Company to purchase Class E Preferred Stock for its per
share liquidation preference plus Class E Accrued Dividends, subject to the
terms of the Financing Agreements. A "Change of Control" means any transaction
that results in the voting power of voting stock controlled by Everett R. Dobson
and his affiliates being less than 50.1% and the sale of all or substantially
all of the Company's capital stock, business or assets, but does not include the
sale or redemption by the Dobson Partnership of up to $25.0 million of the
Company's capital stock or an initial public offering of its common stock. To
the extent the Company has cash available, it must pay cash to purchase the
Class E Preferred Stock. To the extent it does not have available cash, the
Company is obligated to issue one or more junior subordinated promissory notes
ranking senior to all preferred stock existing on December 23, 1998, other than
Class F Preferred Stock and bearing interest at an initial annual rate of 17%,
payable quarterly. Quarterly payments of interest and principal on the notes are
required to the extent the Company has available cash and subject to the
additional condition that the Company have a ratio of cash flow to interest
expense of at least 1 to 1 for such quarter, after giving effect to the payment
of interest and principal. To the extent unpaid, the notes will mature upon the
last to the occur of
- termination of the Company's bank credit facilities,
79
<PAGE>
- termination of the DCC Senior Notes indenture,
- the repurchase, payment or defeasance of the DCC Senior Notes, and
- the redemption of all outstanding Senior Exchangeable Preferred Stock and
Additional Preferred Stock or the elimination of the financial covenants
contained in the certificates of designation for the Senior Exchangeable
Preferred Stock and the Additional Preferred Stock.
In connection with an initial public offering of its common stock, the
Company has the option to purchase all or any outstanding shares of its Class E
Preferred Stock for the liquidation preference thereof, plus Class E Dividends,
payable in cash. Notwithstanding the foregoing, in the case of a Change of
Control in which (i) prior to an initial public offering, Everett R. Dobson and
his affiliates cease to control at least 50.1% of the voting stock or (ii)
following an initial public offering, Everett R. Dobson and his affiliates cease
to control at least 35% of the voting stock, the Company may not pay the holders
subordinated notes in lieu of cash.
INVESTORS AGREEMENT. Under the Investors Agreement, Childs and the Dobson
Partnership have certain demand rights for their shares of Class A Common Stock,
issuable upon conversion of the Class D Preferred Stock or otherwise held and
all Shareholders shall have "piggy-back" registration rights for their Class A
Common Stock. The Investors Agreement provides that seven directors will
constitute the Board, one designated by Childs, four designated by the Dobson
Partnership, and two selected jointly by Childs and the Dobson Partnership. So
long as Childs beneficially owns at least 35% of the Company securities held by
it upon completion of the Equity Investments, in addition to the director it may
designate, Childs may also designate an observer to attend each meeting of the
Board and each meeting of any committee of the Board. Notwithstanding the
foregoing, an additional two directors may be designated by the holders of
Senior Preferred Stock, an additional two directors may be designated by the
holders of the Preferred Stock and one additional director by the holders of the
Class F Preferred Stock in the event of the non-payment of dividends for certain
periods (a voting rights triggering event).
The Shareholders have preemptive rights with respect to issuances of new
common stock or securities which are convertible into common stock (excluding
securities issued in a public offering, upon the exercise of employee stock
options, warrants or conversion rights, or in connection with acquisitions,
financing capital projects or the incurrence of indebtedness) and rights to
participate with the Shareholders in a sale of their shares. Childs generally
may not sell its shares except to its affiliates, another of the Company's
shareholders or in a public sale. The transfer restrictions in the Investors
Agreement will terminate upon the earliest of the Company's initial public
offering, a Change of Control or December 23, 2003.
The Shareholders are obligated to sell their shares of the Company's common
stock, Class D Preferred Stock and Class E Preferred Stock to any unaffiliated
party pursuant to an agreement which
- treats equally, on an "as-if-converted" basis, the common value of all
holders of the Company's common stock, Class D Preferred Stock and Class E
Preferred Stock,
- is approved by the Company's board of directors as fair to all
stockholders, and
- is approved by the Company's stockholders holding 50.1% of its outstanding
common stock (calculated on an "as-if-converted" basis).
Notwithstanding the foregoing, the Shareholders are not obligated to sell any
shares of Class D Preferred Stock or Class E Preferred Stock unless such holder
receives cash consideration at least equal to the liquidation preference of such
Class D or Class E Preferred Stock, and are not obligated to sell any shares of
its common stock unless all shares of Class D Preferred Stock and Class E
Preferred Stock then held by Childs are also sold in the transaction.
The Shareholders have the right to participate pro rata in certain sales of
the outstanding common stock, Class D Preferred Stock and Class E Preferred
Stock by any other stockholder, except in the case of
80
<PAGE>
- the sale by the Dobson Partnership of the Company's capital stock for
$25.0 million or less, together with accrued but unpaid dividends thereon,
or
- transfers made after the Company's initial public offering.
The right to participate in such sale is pro rata based upon a fraction, the
numerator of which is the value of such shareholder's Class A Common Stock and
Class E Preferred Stock (valued at its liquidation preference), and the
denominator of which is the value of all outstanding Class A Common Stock.
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, 1998 and
1997.
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996.
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996.
Notes to Consolidated Financial Statements.
(2) Schedule of Valuation Allowance Accounts
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.
81
<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
February 18, 1999. Our audits were made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed on Page 84, Item 14(a)2
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated statements taken as a whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 18, 1999
82
<PAGE>
SCHEDULE II
DOBSON COMMUNICATIONS CORPORATION
SCHEDULE OF VALUATION ALLOWANCE ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<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:
1998....................................................... $ 632,661 $ 2,394,204 $ 983,665 $ 2,043,200
1997....................................................... 325,619 1,553,512 1,246,470 632,661
1996....................................................... 27,077 670,585 372,043 325,619
</TABLE>
Allowance for doubtful accounts are deducted from accounts receivable in the
balance sheet.
83
<PAGE>
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- ----------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
2.1 Asset Purchase Agreement dated as of November 19, 1996 as amended by Amendment No. 1 (1) [10.5.1]
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.
2.2 Asset Purchase Agreement dated September 25, 1996 among Maryland Wireless (1) [10.5.2]
Communications L.P., Wendy C. Coleman, Dobson Cellular of Maryland, Inc. and Dobson
Operating Company.
2.3.1 Purchase Agreement dated February 28, 1997 among Aztel, Inc. Gila River (1) [10.5.3]
Telecommunications, Inc., US West New Vector Group, Inc., Tohono O'odham Utility
Authority and Dobson Cellular of Arizona, Inc.
2.3.2 First Amendment to Purchase Agreement dated August 29, 1997. (2) [2.1.1]
2.4 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating Company, (2) [2.2]
Associated TTI Limited Partnership and Hinton CATV relating to the Company's
purchase of the ATTI stock.
2.5 Asset Purchase Agreement dated October 9, 1997 between Texas 16 Cellular Telephone (3) [2.1]
Company and Dobson Cellular of Texas, Inc.
2.6.1 Stock Purchase Agreement dated November 17, 1997 as amended by Amendment No. 1 thereto (4) [2.6.1]
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 (5) [2.6.2]
Services, Inc. and Dobson Cellular of California, Inc.
2.7 Stock Purchase Agreement dated March 25, 1998 between Santa Cruz Cellular Telephone, (5) [2.7]
Inc. and its shareholders and optionholders listed therein and Dobson Cellular of
California, Inc.
2.8 Agreement and Plan of Merger dated July 28, 1998 between Sygnet Wireless, Inc. and (6) [2.0]
Dobson/Sygnet Operating Company (formerly known as Front Nine Operating Company)
(without schedules).
2.9 Asset Purchase Agreement dated August 20, 1998, between Ohio Wireless Communications, (9) [2.9]
L.L.C. and Dobson Cellular of Sandusky.
2.10 Asset Purchase Agreement dated as of September 2, 1998 between A-1 Cellular of Texas, (9) [2.10]
L.P. and Dobson Cellular of Navarro, Inc.
2.11 Asset Purchase Agreement dated November 24, 1998 between First Cellular of Maryland, (9) [2.11]
Inc. and Dobson Cellular of Maryland, Inc.
2.12 Agreement to furnish unfiled schedules. (9) [2.12]
3.1 Registrant's Amended and Restated Certificate of Incorporation. (8)
3.2 Registrant's Amended and Restated Bylaws. (6) [3.2]
3.3 Certificate of Amendment to the Certificate of Designation of the Registrant's Class A (6) [3.3]
Preferred Stock.
3.4 Certificate of Designation for the Registrant's Class B Preferred Stock. (5) [3.1]
3.5 Certificate of Designation for the Registrant's Class C Preferred Stock. (5) [3.1]
3.6 Certificate of Amendment to the Certificate of Designation of the Registrant's Class D (6) [3.4]
Preferred Stock.
3.7 Certificate of Amendment to the Certificate of Designation of the Registrant's Class E (8)
Preferred Stock.
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- ----------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
3.8 Certificate of Designation for the Registrant's Class F Preferred Stock. (6) [3.6]
3.9 Certificate of Designation for the Registrant's Class G Preferred Stock. (6) [3.7]
3.10 Certificate of Amendment to the Certificate of Designation of the Registrant's Class H (6) [3.8]
Preferred Stock.
3.11 Certificate of Designation for the Registrant's 12 1/4% Senior Exchangeable Preferred (6) [3.9]
Stock Mandatorily Redeemable 2008.
4.1 Third Amended and Restated Credit Agreement among the Agents and Lenders named therein (4) [4.1]
and Dobson Operating Company dated March 25, 1998.
4.2 $120 million Revolving Credit Agreement among Dobson Cellular Operations Company and (4) [4.2]
the Agents and Lenders named therein dated as of March 25, 1998.
4.3 $80 million 364-Day Revolving Credit and Term Loan Agreement among Dobson Cellular (4) [4.3]
Operations Company and the Agents and Lenders named therein dated as of March 25,
1998.
4.4 Credit Agreement among the Agents and Lenders named therein and Dobson/Sygnet (9) [4.4]
Operating Company, dated as of December 23, 1998.
4.5 $17.5 million Term Loan Agreement between Dobson Tower Company and NationsBank, N.A. (9) [4.5]
dated as of December 23, 1998.
4.6 Telephone Loan Contract dated as of November 7, 1958 between Dobson Telephone Company, (1) [4.2]
Inc. and United States of America.
4.7 Telephone Loan Contract dated as of March 19, 1956 between McLoud Telephone Company (1) [4.3]
and United States of America.
4.8 Telephone Loan Contract dated as of January 15, 1993 between Dobson Telephone Company, (1) [4.4]
Inc., Rural Telephone Bank and United States of America.
4.9 Restated Mortgage, Security Agreement and Financing Statement dated as of May 15, 1993 (1) [4.5]
between Dobson Telephone Company and United States of America.
4.10 Indenture dated as of February 28, 1997 between the Registrant, as Issuer, and United (1) [4.6]
States Trust Company of New York, as Trustee.
4.11 Escrow and Security Agreement dated February 28, 1997 among the Registrant as Pledgor, (1) [4.9]
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.
4.12 Registration Rights Agreement dated January 16, 1998 between the Registrant and Morgan (4) [4.11]
Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
NationsBanc Montgomery Securities LLC.
4.13 Agreement to furnish unfiled debt instruments. (4) [4.12]
4.14 Indenture dated as of June 12, 1998 between Logix Communications Enterprises, Inc. (7) [4.5]
(f/k/a Dobson Wireline Company), as Issuer, and United States Trust Company of New
York, as Trustee.
4.15 Escrow and Security Agreement dated June 12, 1998 among Logix Communications (7) [4.6]
Enterprises, Inc. (f/k/a Dobson Wireline Company), as Pledgor, and Morgan Stanley &
Co. Incorporated, NationsBanc Montgomery Securities LLC as Placement Agents, and
United States Trust Company of New York, as Trustee.
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- ----------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
4.16 Registration Rights Agreement dated June 12, 1998 between Logix Communications (7) [4.7]
Enterprises, Inc. (f/k/a Dobson Wireline Company) and Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities LLC.
4.17 Indenture dated December 23, 1998 between Dobson/Sygnet Communications Company, as (6) [4.1]
Issuer, and United States Trust Company of New York, as Trustee.
4.18 Pledge Agreement dated December 23, 1998 between Dobson/Sygnet Communications Company, (9) [4.18]
as Pledgor, and NationsBanc Montgomery Securities LLC, Lehman Brothers Inc., First
Union Capital Markets, a division of Wheat First Securities, Inc. and TD Securities
(USA) Inc., as Initial Purchasers, and United States Trust Company of New York, as
Trustee.
4.19 Registration Rights Agreement dated December 23, 1998 between Dobson/ Sygnet (9) [4.19]
Communications Company and NationsBanc Montgomery Securities LLC, Lehman Brothers
Inc., First Union Capital Markets, a division of Wheat First Securities, Inc. and TD
Securities (USA) Inc.
4.20 Registration Rights Agreement dated December 23, 1998 between the Registrant and (9) [4.20]
NationsBanc Montgomery Securities LLC.
4.21 Certificate of Designation relating to Senior Preferred Stock is contained in Exhibit (6) [3.9]
3.9 and incorporated herein by reference.
4.22 Preferred Stock Certificate. (9) [4.22]
10.1.1* Registrant's 1996 Stock Option Plan, as amended. (9) [10.1.1]
10.1.2* 1998 Stock Option Plan of Logix Communications Enterprises, Inc. (f/k/a Dobson (9) [10.1.2]
Wireline Company).
10.2.1 Promissory Note dated February 10, 1997 of G. Edward Evans in the amount of $300,000 (1) [10.2.1]
in favor of Western Financial Services Corp.
10.2.2 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating Company, (5) [10.2.3]
Associated TTI Limited Partnership and Hinton CATV Company, Inc.
10.2.3 Stock Purchase Agreement, dated as of March 26, 1998, between the shareholders of (10) [2.1]
American Telco Inc. and American Telco Network Services, Inc. and Logix
Communications Enterprises, Inc. (f/k/a Dobson Wireline Company).
10.2.4 First Amendment to Stock Purchase Agreement among American Telco Inc. and American (10) [2.2]
Telco Network Services, Inc. and Logix Communications Enterprises, Inc. (f/k/a
Dobson Wireline Company).
10.2.5 Stock Purchase Agreement, dated December 23, 1998 among the Registrant, the Fleet (9) [10.2.5]
Investors and the other entities listed therein.
10.2.6 Asset Purchase Agreement dated December 23, 1998 by and between Sygnet Communications, (9) [10.2.6]
Inc. and Dobson Tower Company.
10.2.7 Master Site License Agreement dated December 23, 1998 by and between Sygnet (9) [10.2.7]
Communications, Inc. and Dobson Tower Company.
10.3.1* Letter dated June 3, 1996 from Registrant to Bruce R. Knooihuizen describing (1) [10.3.2]
employment arrangement.
10.3.2* Letter dated October 15, 1996 from Fleet Equity Partners to Justin L. Jaschke (1) [10.3.3]
regarding director compensation.
10.3.3* Letter dated December 26, 1996 from Registrant to G. Edward Evans describing (1) [10.3.1]
employment arrangement.
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- ----------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
10.3.4* Letter dated September 16, 1997 from Registrant to William J. Hoffman, Jr. describing (5) [10.3.4]
employment arrangement.
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas Morgan describing (5) [10.3.5]
employment arrangement.
10.3.6* Letter dated August 25, 1998 from Registrant to Richard D. Sewell, Jr. describing (9) [10.3.6]
employment arrangement.
10.3.7* Consulting Agreement dated December 21, 1998 between Registrant and Albert H. Pharis, (9) [10.3.7]
Jr.
10.3.8* Consulting Agreement dated August 15, 1998 between Registrant and Russell L. Dobson. (8)
10.4.1 North American Cellular Network Services Agreement dated August 26, 1992 between North (1) [10.4.2]
American Cellular Network, Inc. and Dobson Cellular Systems, Inc.
10.4.2 Agreement for DS-3 service dated December 16, 1993 between Logix Communications (1) [10.4.1]
Corporation (f/k/a Dobson Fiber Company) and NTS Communications, Inc. and Addendum
thereto dated June 1, 1994.
10.4.3 Services Agreement dated September 25, 1996 among Dobson Cellular of Maryland, Inc., (1) [10.5.2]
Maryland Wireless Communications Limited Partnership, Wendy Coleman and
Washington/Baltimore Cellular One Limited Partnership.
10.4.4 General Purchase Agreement dated January 13, 1998 between Lucent Technologies, Inc. (5) [10.4.7]
and Dobson Cellular Systems, Inc.
10.4.5 Operating Agreement dated January 16, 1998 between AT&T Wireless Services, Inc. and (9) [10.4.5]
Dobson Cellular Systems, Inc. as amended January 16, 1999.
10.4.6 Fourth Amended General Purchase Agreement dated January 5, 1999 between Northern (4) [10.4.8]
Telecom Inc. and Registrant.
10.5.1 Assignment Agreement dated January 23, 1997 between Texas 16 Cellular Telephone (9) [10.5.1]
Company, Inc. and Dobson Cellular of Texas, Inc. re Cellular One License Agreement.
10.5.2 Form of Cellular One License Agreements dated February 25, 1997 between Cellular One (1) [10.4.5]
Group and Dobson Cellular of Enid, Inc., Dobson Cellular of Woodward, Inc. and
Dobson Cellular of Kansas/Missouri, Inc.
10.5.3 Trademark Sublicense Agreement dated February 28, 1997 between AirTouch (1) [10.4.3]
Communications, Inc. (f/k/a WMC Partners L.P.) and Dobson Cellular of Arizona, Inc.
10.5.4 Affiliation Agreement dated February 28, 1997 among Registrant, Dobson Cellular of (1) [10.4.4]
Arizona, Inc. and AirTouch Communications, Inc. (f/k/a WMC Partners, L.P.).
10.5.5 Letter Agreement dated September 30, 1997 between U.S. West, New Vector Group, Inc. (9) [10.5.5]
and Gila River Cellular General Partnership, by Dobson Cellular of Arizona, Inc.
regarding License Agreement for post closing use of U.S. West Cellular brand and
AirTouch brand.
10.5.6 Trademark Sub-License Agreement dated October 1, 1997 between AirTouch Communications, (9) [10.5.6]
Inc. (f/k/a WMC Partners, L.P.) and Gila River Cellular General Partnership.
10.5.7 Agreement dated April 1, 1998 between Cellular 2000 Telephone Co. and Dobson Cellular (9) [10.5.7]
of California re Cellular One License Agreement.
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBERS DESCRIPTION FILING
- ----------- -------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
10.5.8 Agreement dated June 16, 1998 between Santa Cruz Cellular Telephone, Dobson Cellular (9) [10.5.8]
of California and the other parties listed therein re Cellular One License
Agreement.
10.5.9 Affiliation Agreement, Trademark License Agreement, Intercarrier Roamer Service (9) [10.5.9]
Agreement, Amendment to Intercarrier Roamer Service Agreement made as of July 31,
1998 by and among Dobson Cellular Communications Corporation, Dobson Cellular of
Imperial, Inc. and AirTouch Cellular.
10.5.10 Affiliation Agreement dated as of August 28, 1998 by and among Dobson Communications (9) [10.5.10]
Corporation, Dobson Cellular of Sandusky, Inc., New Par, on behalf of itself and its
subsidiaries and affiliates, d/b/a AirTouch Cellular.
10.6 Non-Recourse Term Loan Agreement dated September 30, 1997 between the Company and Gila (2) [10.7]
River Telecommunications Subsidiary, Inc., as borrower, with respect to $6.1 million
loan.
10.7 Second Amended and Restated Partnership Agreement of Gila River Cellular General (2) [10.8]
Partnership dated September 30, 1997.
10.8.1 Investment and Transaction Agreement, dated December 23, 1998, among the Registrant, (9) [10.8.1]
Dobson CC Limited Partnership and J. W. Childs Equity Partners II, L.P. (without
exhibits).
10.8.2 Stockholder and Investor Rights Agreement, dated December 23, 1998 among the (9) [10.8.2]
Registrant and the shareholders listed therein (without exhibits).
10.8.3 Investors Agreement, dated December 23, 1998, among the Registrant and certain (9) [10.8.3]
shareholders of Sygnet Wireless, Inc. and their affiliates listed therein.
10.9 License Agreement, dated February 15, 1999, between the Registrant and H.O. Systems, (8)
Inc.
11 Statement regarding computation of earnings per share. (8)
21 Subsidiaries. (8)
27 Financial Data Schedule. (8)
</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 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.
(3) 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.
(4) Filed as an exhibit to the Company's Annual Report as Form 10-K for the
year ended December 31, 1997 as the exhibit number indicated in brackets
and incorporated by reference herein.
(5) Filed as an Exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-50107), as the exhibit number indicated in brackets
and incorporated by reference herein.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K filed on
January 7, 1999, as the exhibit number indicated in brackets and
incorporated by reference herein.
88
<PAGE>
(7) Filed as an exhibit to Logix Communications Enterprises, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-58693), as the
exhibit number indicated in brackets and incorporated by reference herein.
(8) Filed herewith.
(9) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-71633) as the exhibit number indicated in brackets
and incorporated by reference herein.
(10) Filed as an exhibit to the Company's Current Report on Form 8-K on June 30,
1998, as the exhibit number indicated in brackets and incorporated by
reference herein.
- ------------------------
(b) The Company did not file any Current Reports on Form 8-K during the quarter
ended December 31, 1998.
89
<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 this 25th day of March,
1999.
<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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ EVERETT R. DOBSON President and Chief
- ------------------------------ Executive Officer March 25, 1999
Everett R. Dobson (principal executive
officer)
Vice President and Chief
/s/ BRUCE R. KNOOIHUIZEN Financial Officer
- ------------------------------ (principal financial March 25, 1999
Bruce R. Knooihuizen officer)
/s/ TRENTON W. LEFORCE Corporate Controller
- ------------------------------ (principal accounting March 25, 1999
Trenton W. LeForce officer)
/s/ STEPHEN T. DOBSON
- ------------------------------ Secretary/Treasurer, March 25, 1999
Stephen T. Dobson Director
/s/ RUSSELL L. DOBSON
- ------------------------------ Director March 25, 1999
Russell L. Dobson
/s/ JUSTIN L. JASCHKE
- ------------------------------ Director March 25, 1999
Justin L. Jaschke
/s/ ALBERT H. PHARIS, JR.
- ------------------------------ Director March 25, 1999
Albert H. Pharis, Jr.
/s/ DANA L. SCHMALTZ
- ------------------------------ Director March 25, 1999
Dana L. Schmaltz
</TABLE>
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.
90
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOBSON COMMUNICATIONS CORPORATION
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 the Corporation was originally incorporated was
Dobson Holdings, Inc. and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Oklahoma on February 3,
1997.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 1077 and 1080 of the
General Corporation Act of Oklahoma (the "Act") by the written consent of the
holders of not less than a majority of the outstanding stock of the
Corporation entitled to vote thereon, and written notice of the corporate
action has been given to the shareholders of the Corporation who have not so
consented in writing, all in accordance with the provisions of Section 1080
of the Act.
4. The text of the Certificate of Incorporation of the Corporation is
amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is:
DOBSON COMMUNICATIONS CORPORATION
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Oklahoma is 13439 North Broadway Extension, Oklahoma City, Oklahoma County,
Oklahoma 73114. The registered agent is Everett R. Dobson.
<PAGE>
ARTICLE III
PURPOSES
The nature of the business and the purpose of the Corporation shall be
to engage in any lawful act or activity and to pursue any lawful purpose for
which a corporation may be formed under the Act. 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.
ARTICLE IV
CAPITAL STOCK
4.1. AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital stock which the
Corporation shall be authorized to issue is Four Million (4,000,000) shares,
consisting of:
4.1.1. 1,500,000 shares of common stock, par value $.001 per share
("Common Stock"), consisting of:
(i) 1,438,000 shares of Class A Common Stock ("Class A
Common Stock");
(ii) 31,000 shares of Class B Common Stock ("Class B
Common Stock");
(iii) 31,000 shares of Class C Common Stock ("Class C
Common Stock"); and
4.1.2. 2,500,000 shares of preferred stock, par value $1.00 per
share.
4.2. DESCRIPTION OF COMMON STOCK
A description of the Class A Common Stock, Class B Common Stock and the
Class C Common Stock and a statement of their respective preferences, voting
powers, qualifications and special or relative rights or privileges are as
follows:
4.2.1. DIVIDENDS AND DISTRIBUTIONS. Subject to the express terms
of any outstanding series of Preferred Stock, dividends may be declared and
paid upon the Common Stock upon the terms provided for below with respect to
each such class, in such amounts and at such times as the Board of Directors
may determine.
-2-
<PAGE>
A. DIVIDENDS ON CLASS A COMMON STOCK AND CLASS B COMMON STOCK.
Dividends on Class A Common Stock and Class B Common Stock may be declared
and paid out of funds of the Corporation legally available therefor.
B. DIVIDENDS ON CLASS C COMMON STOCK. Dividends on Class C
Common Stock may be declared and paid only out of the lesser of (a) funds of
the Corporation legally available therefor and (b) the Available Class C
Dividend Amount.
C. DISCRIMINATION BETWEEN CLASS A COMMON STOCK AND CLASS C
COMMON STOCK. Subject to the provisions of paragraphs 4.2.1.A. and 4.2.1.B.,
the Board of Directors may, in its sole discretion, declare and pay dividends
exclusively on either Class A Common Stock, Class B Common Stock or Class C
Common Stock, or on any one or more of Class A Common Stock, Class B Common
Stock and Class C Common Stock, in equal or unequal amounts, notwithstanding
the amounts available for the payment of dividends on each such class, the
respective voting and liquidation rights of each class, the amounts of prior
dividends declared on each class or any other factor.
4.2.2. EXCHANGE OF CLASS C COMMON STOCK. Shares of Class C Common
Stock are subject to exchange upon the terms and conditions set forth below:
A. MANDATORY EXCHANGE OF CLASS C COMMON STOCK. In the event of
(i) the Wireline Disposition to any person, entity or group (other than to
(a) any entity in which the Corporation, directly or indirectly, owns all of
the equity interest or (b) any entity formed at the direction of the
Corporation in connection with obtaining financing for the programs or
products of the Wireline Group under an arrangement which provides the
Corporation with an option to reacquire such properties and assets or retain
or obtain substantial rights with respect to any business to be conducted by
the Wireline Group, in each case for the benefit of the Wireline Group), or
(ii) an initial public offering by the Corporation of any class or series of
its Common Stock other than Class C Common Stock (an "IPO"), or (iii) the
Corporation Disposition, the Corporation shall (x) as of the first Business
Day after the 90th day next following (i) the consummation of the Wireline
Disposition or (ii) the date of consummation of the IPO or the consummation
of the Corporation Disposition, as the case may be, or (y) as of the close of
business on the day next preceding the consummation of the Corporation
Disposition (in any such event, the "Mandatory Exchange Date"), exchange each
outstanding share of Class C Common Stock for one fully paid and
nonassessable share of Class A Common Stock, subject to adjustment as
provided below. The stock certificate formerly representing shares of Class
C Common Stock shall, on and after the Mandatory Exchange Date, be deemed to
represent the shares of Class A Common Stock determined in accordance with
this paragraph 4.2.2.A.
-3-
<PAGE>
B. ADJUSTMENTS TO EXCHANGE RATIO.
(i) The number of shares of Class A Common Stock to
be issued shall be adjusted from time to time as follows:
(a) In case the Corporation shall (i) pay a
dividend or make a distribution on its Class A Common Stock in shares of
its Class A Common Stock, (ii) subdivide its outstanding Class A Common
Stock into a greater number of shares, or (iii) combine its outstanding
Class A Common Stock into a smaller number of shares, the number of
shares of Class A Common Stock to be issued in exchange for Class C
Common Stock shall be adjusted so that the holder of any share of Class C
Common Stock thereafter surrendered for exchange shall be entitled to
receive the number of shares of Class A Common Stock of the Corporation
which he would have owned or have been entitled to receive after the
happening of any of the events described above had such share been
exchanged immediately prior to the happening of such event. An
adjustment made pursuant to this subparagraph (a) shall become effective
immediately after the effective date in the case of subdivision or
combination.
(b) In case the Corporation shall distribute to
all holders of its Class A Common Stock any shares of capital stock of
the Corporation (other than Class A Common Stock) or evidences of its
indebtedness or assets (excluding cash dividends or distributions paid
from retained earnings of the Corporation) or rights or warrants to
subscribe for or purchase any of its securities (any of the foregoing
being hereinafter in this subparagraph (b) called the "Securities"), then
in each such case, unless the Corporation elects to reserve shares or
other units of such Securities for distribution to the holders of the
Class C Common Stock upon the exchange of the shares of Class C Common
Stock so that any such holder exchanging shares of Class C Common Stock
will receive upon such exchange, in addition to the shares of the Class A
Common Stock to which such holder is entitled, the amount and kind of
such Securities which such holder would have received if such holder had,
immediately prior to the record date for the distribution of the
Securities, exchanged his shares of Class C Common Stock into Class A
Common Stock. Such adjustment shall become effective immediately, except
as provided in subparagraph (c) below, after the record date for the
determination of shareholders entitled to receive such distribution.
(c) In any case in which this subparagraph (i)
provides that an adjustment shall become effective immediately after a
record date for an event, the
-4-
<PAGE>
Corporation may defer until the occurrence of such event (i) issuing to
the holder of any share of Class C Common Stock exchanged after such
record date and before the occurrence of such event the additional shares
of Class A Common Stock issuable upon such exchange by reason of the
adjustment required by such event over and above the Class A Common Stock
issuable upon such exchange before giving effect to such adjustment and
(ii) issuing to such holder an additional share of Class A Common Stock in
lieu of any fraction pursuant to subparagraph 4.2.2.C.
(ii) If:
(a) the Corporation shall declare a dividend (or
any other distribution) on the Class A Common Stock (other than in cash
out of retained earnings); or
(b) the Corporation shall authorize the granting
to the holders of the Class A Common Stock of rights or warrants to
subscribe for or purchase any shares of any class of stock or any other
rights or warrants; or
(c) there shall be any reclassification of the
Class A Common Stock (other than a subdivision or combination of the
outstanding Class A Common Stock and other than a change in the par
value, or from par value to no par value, or from no par value to par
value), or any consolidation, merger, or statutory share exchange to
which the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or any sale or transfer of
all or substantially all the assets of the Corporation as an entirety or
any corporate event; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall cause to be mailed to the holders of shares of the
Class C Common Stock at their addresses as shown on the stock books of the
Corporation, at least 15 days prior to the applicable date hereinafter
specified, a notice stating (i) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Class A Common
Stock of record to be entitled to such dividend, distribution or rights or
warrants are to be determined or (ii) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, corporate event, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Class A Common Stock of record shall be entitled to exchange their shares of
Class A Common Stock for securities or other property deliverable upon such
reclassifi-
-5-
<PAGE>
cation, consolidation, merger, statutory share exchange, sale, transfer,
corporate event, dissolution, liquidation or winding up. Failure to give
such notice or any defect therein shall not affect the legality or validity
of the proceedings described in subparagraph (i) of this paragraph 4.2.2.B or
in subparagraph ii(a), ii(b), ii(c) or ii(d) of this paragraph 4.2.2.B.
(iii) The Corporation covenants that it will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued shares of Class A Common Stock or
its issued shares of Class A Common Stock held in its treasury, or both, for
the purpose of effecting exchanges of the Class C Common Stock, the full
number of shares of Class A Common Stock deliverable upon the exchange of all
outstanding shares of Class C Common Stock not theretofore exchanged. For
purposes of this subparagraph (iii), the number of shares of Class A Common
Stock which shall be deliverable upon the exchange of all outstanding shares
of Class C Common Stock shall be computed as if at the time of computation
all such outstanding shares were held by a single holder.
(iv) Prior to the delivery of any securities which
the Corporation shall be obligated to deliver upon exchange of the Class C
Common Stock, the Corporation will endeavor to comply with all federal and
state laws and regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery thereof by,
any governmental authority.
(v) The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Class A Common Stock on exchanges of the
Class C Common Stock pursuant hereto; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of shares of Class A Common Stock
in a name other than that of the holder of the Class C Common Stock to be
exchanged and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the
amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
C. GENERAL EXCHANGE PROVISIONS. In the event of any exchange
of Class C Common Stock for shares of Class A Common Stock pursuant to
paragraph 4.2.2.A., the following provisions shall apply:
(i) The Corporation shall cause to be given to each
record holder of shares of the Class C Common Stock a notice stating (a) that
shares of Class C Common Stock shall be exchanged for shares of Class A
Common Stock or for cash or a combination thereof, (b) the date on which the
exchange shall
-6-
<PAGE>
become effective (the "Exchange Date"), (c) the number of shares of Class A
Common Stock or cash or combination thereof to be received by such holder
with respect to each share of the Class C Common Stock held by such holder,
including details as to the calculation thereof and (d) the place or places
where certificates for shares of Class C Common Stock, properly endorsed or
assigned for transfer are to be surrendered for delivery of certificates for
shares of Class A Common Stock (unless the Corporation shall waive such
requirement). Such notice shall be sent by first-class mail, postage prepaid,
not less than 30 nor more than 60 days prior to the Exchange Date to each
holder of shares of Class C Common Stock at such holder's address as the same
appears on the stock transfer books of the Corporation. Neither the failure
to mail such notice to any particular holder of shares of Class C Common
Stock nor any defect therein shall affect the sufficiency thereof with
respect to any other holder of shares of Class C Common Stock.
(ii) The Corporation shall not be required to issue
or deliver fractional shares of Class A Common Stock to any holder of shares
of Class C Common Stock upon any such exchange. If more than one share of
Class C Common Stock shall be held by the same holder of record, the
Corporation shall aggregate the number of shares of Class A Common Stock that
shall be issuable to such holder upon any such exchange. If the total number
of shares of Class A Common Stock to be so issued to any holder of record of
shares of Class C Common Stock includes a fraction, the Corporation shall
round the fractional share up or down to the nearest whole share of Class A
Common Stock.
(iii) The holders of shares of Class C Common Stock
at the close of business on a dividend payment record date shall be entitled
to receive the dividend payable on such shares on the corresponding dividend
payment date notwithstanding the exchange thereof or the Corporation's
default in payment of the dividend due on such dividend payment date.
However, shares of Class C Common Stock surrendered for exchange during the
period between the close of business on any dividend payment record date and
the opening of business on the corresponding dividend payment date must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such dividend payment date. A holder of shares of Class C Common
Stock on a dividend payment record date who (or whose transferee) tenders any
of such shares for exchange into shares of Class A Common Stock on a dividend
payment date will receive the dividend payable by the Corporation on such
shares of Class C Common Stock on such date, and the exchanging holder need
not include payment in the amount of such dividend upon surrender of shares
of Class C Common Stock for exchange. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends whether
or not in arrears, on exchanged shares or for dividends on the shares of
Class A Common Stock issued upon such exchange.
-7-
<PAGE>
(iv) Before any holder of shares of Class C Common
Stock shall be entitled to receive certificates representing shares of Class
A Common Stock or cash or a combination thereof to be received by such holder
with respect to the exchange of such shares of Class C Common Stock, such
holder shall surrender at such place as the Corporation shall specify
certificates for such shares of Class C Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement).
The Corporation shall, as soon as practicable after such surrender of
certificates representing such shares of Class C Common Stock, deliver to the
person for whose account such shares of Class C Common Stock were so
surrendered, or to the transferee or transferees of such person, certificates
representing the number of whole shares of Class A Common Stock to which such
person shall be entitled as aforesaid.
(v) From and after the Exchange Date, all rights of
a holder of shares of Class C Common Stock shall cease except for the right,
upon surrender of the certificates representing such shares of Class C Common
Stock, to receive certificates representing whole shares of Class A Common
Stock, and rights to dividends as provided in paragraph 4.2.2.C.(iii). No
holder of a certificate that immediately prior to the Exchange Date
represented shares of Class C Common Stock shall be entitled to receive any
dividend or other distribution with respect to the Class A Common Stock to be
issued in exchange until surrender of such holder's certificate or
certificates representing shares of Class C Common Stock (unless the
Corporation shall waive such requirement). Upon such surrender, there shall
be paid to the holder the amount of any dividends or other distributions
(without interest) which theretofore became payable with respect to Class A
Common Stock based on a record date after the Exchange Date, but that were
not paid by reason of the foregoing, with respect to the number of whole
shares of Class A Common Stock represented by the certificate or certificates
issued upon such surrender. From and after the Exchange Date, the Corporation
shall, however, be entitled to treat any certificate for Class C Common Stock
that has not yet been surrendered for exchange as evidencing the ownership of
the number of shares of Class A Common Stock for which the shares of Class C
Common Stock represented by such certificate shall have been exchanged,
notwithstanding the failure to surrender such certificate.
(vi) The Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes that may be payable in
respect of the issue or delivery of any shares of Common Stock in exchange
for shares of Class C Common Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax that may be payable in respect of
any transfer involved in the issue and delivery of any shares of Common Stock
issued in exchange in a name other than that in which the shares of Class C
Common Stock so exchanged were registered and no such issue or delivery
-8-
<PAGE>
shall be made unless and until the person requesting such issue has paid to
the Corporation the amount of any such tax, or has established to the
satisfaction of the Corporation that such tax has been paid.
(vii) After the Exchange Date, any share of Class C
Common Stock issued upon conversion or exercise of any Convertible Security
shall, immediately upon issuance pursuant to such conversion or exercise and
without any notice or any other action on the part of the Corporation or the
holder of such share of Class C Common Stock, be exchanged for the number of
whole shares of Class A Common Stock that a holder of such Convertible
Security would have been entitled to receive pursuant to the terms of such
Convertible Security had such terms provided that the conversion privilege in
effect immediately prior to any exchange by the Corporation of any shares of
Class C Common Stock for shares of any other capital stock of the Corporation
would be adjusted so that the holder of any such Convertible Security
thereafter surrendered for conversion would be entitled to receive the number
of shares of Class A Common Stock he or she would have owned immediately
following such action had such Convertible Security been converted
immediately prior to the Exchange Date.
4.2.3. VOTING RIGHTS
A. CLASS A COMMON STOCK. The holders of Class A Common Stock
shall have the exclusive right to vote for the election of directors and on
all other matters requiring action by the stockholders or submitted to the
stockholders for action, except as may otherwise be required (i) by the terms
of any outstanding class or series of Preferred Stock, (ii) by this Amended
and Restated Certificate of Incorporation as the same may from time to time
be amended, or (iii) by law. Each share of the Class A Common Stock shall
entitle the holder thereof to one vote.
B. CLASS B COMMON STOCK. Except as otherwise required by the
Oklahoma General Corporation Act, the holders of Class B Common Stock will
have no voting powers whatsoever, and no holder of Class B Common Stock shall
vote on or otherwise participate in any proceedings in which action shall be
taken by the Corporation or the shareholders thereof. The holders of Class B
Common Stock shall not be entitled to notification as to any meeting of the
Board of Directors or of the shareholders.
C. CLASS C COMMON STOCK. Except as otherwise provided below
and required by the Oklahoma General Corporation Act, the holders of Class C
Common Stock will have no voting powers whatsoever, and no holder of Class C
Common Stock shall vote on or otherwise participate in any proceedings in
which action shall be taken by the Corporation or the shareholders thereof.
The holders of Class C Common Stock shall not be entitled to notification as
to any meeting of the Board of Directors or of the shareholders.
-9-
<PAGE>
D. SPECIAL VOTING RIGHTS. The Corporation shall not, without
approval by the holders of the Class C Common Stock at a meeting at which a
quorum of Class C Common Stock is present and the votes of Class C Common
Stock cast in favor of the proposal represent more than fifty percent (50%)
of the outstanding shares of Class C Common Stock entitled to notice of and
to vote at such meeting exceed those cast against:
(i) allow any proceeds from the Disposition of the
properties or assets allocated to the Wireless Group to be used other than in
the business of the Wireless Group without fair compensation being allocated
to the Wireless Group as determined by the Board of Directors;
(ii) allow any properties or assets allocated to the
Wireless Group to be used other than in the business of the Wireless Group
without fair compensation being allocated to the Wireless Group as determined
by the Board of Directors;
(iii) issue, sell or otherwise distribute shares of
Class C Common Stock without allocating the proceeds or other benefits of
such issuance, sale or distribution to the Class C Common Group;
(iv) change the powers, preferences or special
rights of Class C Common Stock so as to affect the Class C Common Stock
adversely;
(v) increase the authorized number of shares of
Class C Common Stock; and
(vi) effect any merger or business combination
involving the Corporation as a result of which (a) the holders of all classes
of common stock of the Corporation shall no longer own, directly or
indirectly, at least fifty percent (50%) of the voting power of the surviving
corporation and (b) the holders of Class A Common Stock and Class C Common
Stock do not receive the same form of consideration, distributed among such
holders in proportion to the Fair Value of such class as of the date of the
close of business on the day net preceding the first public announcement of
such merger or business combination.
4.2.4. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
rights of the holders of Class A Common Stock, the Class B Common Stock and
Class C Common Stock shall be as follows:
A. After payment or provision for the payment of the debts and
other liabilities of the Corporation and the full preferential amounts
(including any accumulated and unpaid
-10-
<PAGE>
dividends) to which the holders of Preferred Stock are entitled regardless
unless otherwise provided in respect of a series of Preferred Stock by the
resolution of the Board of Directors fixing the liquidation rights and
preferences of such series of Preferred Stock, the holders of the outstanding
shares of Class A Common Stock, the Class B Common Stock and Class C Common
Stock shall be entitled to receive the remaining assets of the Corporation,
regardless of the Group to which such assets are attributed, divided among
the holders of the Class A Common Stock, the Class B Common Stock and Class C
Common Stock in accordance with the per share "Liquidation Units"
attributable to each such class. Each share of Class A Common Stock, Class B
Common Stock and Class C Common Stock is hereby attributed one "Liquidation
Unit", in the case of the Class C Common Stock subject to adjustment as
determined by the Board of Directors to be appropriate, to reflect equitably
any subdivision (by stock split or otherwise) or combination (by reverse
stock split or otherwise) of Class C Common Stock or any dividend or other
distribution of shares of Class C Common Stock to the holders of shares of
Class C Common Stock.
B. For the purposes of paragraph 4.2.4.A., neither the merger
nor consolidation of the Corporation into or with any other company, nor the
merger or consolidation of any other company into or with the Corporation,
nor a sale, transfer or lease of all or any part of the assets of the
Corporation, shall, alone, be deemed a liquidation or winding up of the
Corporation, or the cause for dissolution of the Corporation, for the
purposes of this subsection 4.2.4.
4.2.5. ADJUSTMENTS RELATIVE TO VOTING RIGHTS AND LIQUIDATION. If,
after the Effective Date, the Corporation shall in any manner subdivide (by
stock split, reclassification or otherwise) or combine (by reverse stock
split, reclassification or otherwise) the outstanding shares of Class A
Common Stock, Class B Common Stock or Class C Common Stock, or pay a dividend
or make a distribution in shares of any class of common stock to holders of
such class, the per share voting rights, if applicable, and the Liquidation
Units of the Class A Common Stock, Class B Common Stock and the Class C
Common Stock shall be appropriately adjusted so as to avoid dilution in the
aggregate voting and liquidation rights of Class A Common Stock, Class B
Common Stock and Class C Common Stock. The issuance by the Corporation of
shares of any class of common stock (whether by a dividend or otherwise) to
the holders of any other class of common stock shall not require adjustment
pursuant to this paragraph.
4.2.6. RANK. The Class A Common Stock, Class B Common Stock and
Class C Common Stock shall rank junior with respect to the payment of
dividends and the distribution of assets to all series of the Corporation's
Preferred Stock that specifically provide that they shall rank prior to the
Class A Common Stock, Class B Common Stock and Class C Common Stock. Nothing
herein shall
-11-
<PAGE>
preclude the Board of Directors from creating any series of Preferred Stock
ranking on a parity with or prior to the Class A Common Stock, Class B Common
Stock and Class C Common Stock as to the payment of dividends or the
distribution of assets upon liquidation.
4.2.7. DEFINITIONS. As used in this Section 4.2 of Article Fourth,
the following terms shall have the following meanings (with terms defined in
the singular having comparable meaning when used in the plural and vice
versa), unless another definition is provided or the context otherwise
requires:
A. "Available Class C Dividend Amount," on any date, shall mean
the greater of:
(i) the excess of
(a) the greater of the Fair Value on such date of
the net assets of the Wireless Group, over
(b) the sum of (1) the aggregate par value of all
outstanding shares of Class C Common Stock and any other class of capital
stock attributed to the Wireless Group and (2) the aggregate amount that
would be needed to satisfy any preferential rights to which holders of
all outstanding shares of Preferred Stock are entitled upon dissolution
of the Corporation in excess of the aggregate par value of such Preferred
Stock; provided, that such excess shall be reduced by any amount
necessary to enable the Wireless Group to pay its debts as they become
due, and
(ii) the amount legally available for the payment of
dividends determined in accordance with Oklahoma law applied as if the
Wireless Group were a separate corporation.
B. "Business Day" shall mean any day not a Saturday, Sunday or
a day on which banks are required or authorized by law to be closed in
Oklahoma City, Oklahoma.
C. "Convertible Securities" shall mean any securities
(including employee stock options) of the Corporation that are convertible
into or evidence the right to purchase any shares of any class of common
stock.
D. "Corporation Disposition" shall mean the Disposition by the
Corporation of all of substantially all of the properties and assets of the
Corporation, but shall not include any merger or other business combination
involving the Corporation if, immediately following the consummation of such
merger or other business combinations, the holders of the Common Stock, as a
group, would own more than fifty percent (50%) of the shares of capital
-12-
<PAGE>
stock of the surviving entity which are entitled to vote in the election of
directors of the surviving entity.
E. "Disposition" shall mean the sale, transfer, assignment or
other disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise), in one transaction or in a series of related
transactions, of any capital stock, properties or assets, other than by
pledge, hypothecation or grant of any security interest in such capital
stock, properties or assets. The term "Disposition" shall include, without
limitation, the Wireline Disposition.
F. "EBITDA Attributable" to the Wireless Group, for any period,
shall mean the net income or loss of the Wireless Group for such period (or
for the fiscal periods of the Corporation commencing prior to the Effective
Date, the pro forma net income or loss of the Wireless Group as if the
Effective Date had been the first day of such period) determined in
accordance with generally accepted accounting principles but determined
before interest expense, income taxes, depreciation, amortization,
extraordinary items and changes in accounting principles, with all income and
expenses of the Corporation being allocated between the Corporation or the
Wireless Group, as the case may be, in a reasonable and consistent manner in
accordance with policies adopted by the Board of Directors; PROVIDED,
HOWEVER, that as of the end of any fiscal quarter of the Corporation, any
projected annual tax benefit attributable to the Wireless Group that cannot
be utilized by the Wireless Group to offset or reduce its allocated tax
liability may be allocated to the Corporation, as the case may be, without
any compensating payment or allocation.
G. "Effective Date" shall mean the date on which this Amended
Certificate shall become effective.
H. "Exchange Date" shall mean the date, if any, fixed for the
exchange of shares of Class C Common Stock, as set forth in a notice to
holders of Class C Common Stock pursuant to paragraph (4.2.2.C.(i).
I. "Fair Value" as to shares of any class of stock shall as of
any date mean the average of the daily closing prices for the 20 consecutive
trading days commencing on the 30th trading day prior to such date. The
closing price for each day shall be (a) if the shares of such class of stock
are listed or admitted to trading on a national securities exchange, the
closing price on the New York Stock Exchange Composite Tape (or any successor
composite tape reporting transactions on national securities exchanges) or,
if such composite tape shall not be in use or shall not report transactions
in such shares, the last reported sales price regular way on the principal
national securities exchange on which such shares are listed or admitted to
trading (which shall be the national securities exchange on which the
greatest number of shares
-13-
<PAGE>
of such class of stock has been traded during such consecutive trading days),
or, if there is no such sale on any such day, the mean of the bid and asked
prices on such day, or (b) if such shares are not listed or admitted to
trading on any such exchange, the closing price, if reported, or, if the
closing price is not reported, the mean of the closing bid and asked prices
as reported by the National Association of Securities Dealers Automated
Quotations National Market System or a similar source selected from time to
time by the Corporation for the purpose. In the event such closing prices are
unavailable, Fair Value shall be determined in good faith by the Board of
Directors.
J. "Initial Public Offering" shall mean the issuance and sale
by the Corporation of one or more classes of its Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, pursuant to which the Corporation will receive gross proceeds for
its own account of not less than $50 million.
K. "substantially all of the properties and assets of the
Corporation" shall mean that portion of Corporation's assets and properties
(a) that represents at least 80% of the then current Fair Value of or (b) to
which is attributable at least 80% of the aggregate revenues for the twelve
(12) fiscal quarter periods immediately preceding the Announcement Date.
L. "substantially all of the properties and assets allocated to
the Wireline Group" shall mean a portion of the properties and assets
allocated to the Wireline Group (a) that represents at least 80% of the then
current Fair Value of or (b) to which is attributable at least 80% of the
aggregate revenues immediately preceding the Announcement Date of the
Corporation derived from the properties and assets allocated to the Wireline
Group for the twelve (12) fiscal quarterly periods immediately preceding the
Announcement Date.
M. "Wireline Disposition" shall mean the Disposition by the
Corporation of all of substantially all of the properties and assets
allocated to the Wireline Group or of the capital stock of the Corporation's
subsidiary or subsidiaries which own all or substantially all of the
properties and assets allocated to the Wireline Group which conduct the
business of the Wireline Group, or any combination thereof including, without
limitation, a distribution by the Corporation to the holders of one or more
classes of the Common Stock of all or substantially all of such properties
and assets or such capital stock, or any combination thereof.
N. "Wireless Group" shall mean, at any time, the Corporation's
interest in (i) any subsidiary of the Company which is not a member of the
Wireline Group; (ii) any business which provides wireless and cellular
telephone sales and services; (iii)
-14-
<PAGE>
all assets and liabilities of the Corporation to the extent allocated to any
such businesses in accordance with generally accepted accounting principles
consistently applied for all of the Corporation's business segments; and (iv)
such businesses developed in, or acquired by the Corporation for, the
Wireless Group after the Effective Date as determined by the Board of
Directors; PROVIDED, HOWEVER, that, from and after any Disposition or
transfer of any business, product, development program, project, assets or
properties out of the Wireless Group, the Wireless Group shall no longer
include the business, product, development program, project, assets or
properties so disposed of or transferred. The Wireless Group shall be
represented by the Class C Common Stock.
O. "Wireline Group" shall mean, at any time, the Corporation's
interest in (i) Logix Communications Enterprises, Inc., an Oklahoma
corporation, and its subsidiaries, (ii) any business which provides
integrated local, long distance, data and other telecommunication services as
an incumbent local exchange carrier, as an integrated communications
provider, owning long-haul fiberoptic facilities and providing long-haul
fiberoptic services and switch based competitive local exchange carrier
services; (iii) all assets and liabilities of the Corporation to the extent
allocated to any such business in accordance with general accepted accounting
principles consistently applied for all of the Corporation's business
segments; and (iv) such businesses developed and/or acquired by the
Corporation for, the Wireline Group after the Effective Date as determined by
the Board of Directors; PROVIDED, HOWEVER, that, from and after any
Disposition of any business, product, development program, project, assets or
properties out of the Wireline Group, the Wireline Group shall no longer
include the business, product, development program, project, assets or
properties so disposed of or transferred.
4.2.8. DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations with respect to the Corporation generally and
the Wireless Group or the rights of holders of any class or series of Common
Stock made by the Board of Directors of the Corporation in good faith
pursuant to or in furtherance of any provision of this Section 4.2 shall be
final and binding on all stockholders of the Corporation.
4.3. DESCRIPTION OF PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series. All shares of Preferred Stock shall be
of equal rank and shall be identical, except in respect of the matters that
may be fixed and determined by the Board of Directors as hereinafter
provided, and each share of each series shall be identical with all other
shares of such series, except as to the date from which dividends are
cumulative. The Board of Directors hereby is authorized to cause such shares
to be issued in one or more series and with respect to each such series prior
to the issuance thereof to fix and determine the
-15-
<PAGE>
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the board with respect to each series shall include but
not be limited to, determination of the following:
A. The number of shares constituting a series, the distinctive
designation of a series and the stated value of the series, if different from
the par value;
B. Whether the shares of a series are entitled to any fixed or
determinable dividends, the dividend rate (if any) on the shares, whether the
dividends are cumulative and the relative rights of priority of dividends on
shares of that series;
C. Whether a series has voting rights in addition to the voting
rights provided by law and the terms and conditions of such voting rights;
D. Whether a series will have or receive conversion or exchange
privileges and the terms and conditions of such conversion or exchange
privileges;
E. Whether or not the shares of a series are redeemable and the
terms and conditions of such redemption, including, without limitation, the
manner of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates on or after which the shares in the series will
be redeemable and the amount payable in case of redemption;
F. Whether a series will have a sinking fund for the redemption
or purchase of the shares in the series and the terms and the amount of such
sinking fund;
G. The right of a series to the benefit of conditions and
restrictions on the creation of indebtedness of the Corporation or any
subsidiary, on the issuance of any additional capital stock (including
additional shares of such series or any other series), on the payment of
dividends or the making of other distributions on any outstanding stock of
the Corporation and the purchase, redemption or other acquisition by the
Corporation, or any subsidiary, of any outstanding stock of the Corporation;
H. The rights of a series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation and the
relative rights of priority of payment of a series; and
I. Any other relative, participating, optional or other special
rights, qualifications, limitations or restrictions of such series.
-16-
<PAGE>
Dividends on outstanding shares of Preferred Stock shall be paid or set
apart for payment before any dividends shall be paid or declared or set apart
for payment on shares of the Common Stock with respect to the same dividend
period.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series in
accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
ARTICLE V
LIMITATION OF DIRECTOR LIABILITY
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.
ARTICLE VI
BOARD OF DIRECTORS
6.1. MANAGEMENT BY BOARD OF DIRECTORS. The business and affairs of the
Corporation shall be under the direction of the Board of Directors.
6.2. NUMBERS OF DIRECTORS. The number of directors which shall constitute
the whole board shall be not less than three nor more than fifteen, and shall
be determined by resolution adopted by a vote of a majority of the entire
board, or at an annual or special meeting of shareholders by the affirmative
vote of the holders of a majority of each class of the outstanding stock
entitled to vote for the election of directors. No reduction in number shall
have the effect of removing any director prior to the expiration of his term.
The number of directors of the Corporation may, from time to time, be
increased or decreased in such manner as may be provided in the Bylaws of the
Corporation.
6.3. ELECTION OF DIRECTORS. Election of directors need not be by written
ballot unless otherwise provided in the Bylaws.
-17-
<PAGE>
6.4. EXPRESS AUTHORIZATION. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized:
6.4.1. 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;
6.4.2. To authorize and cause to be executed or granted mortgages,
security interests and liens upon the real and personal property of the
Corporation;
6.4.3. To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created;
6.4.4. 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
6.4.5. 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.
-18-
<PAGE>
ARTICLE VII
INDEMNITY
7.1. THIRD PARTY CLAIMS. 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 or not opposed to 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 of 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
Corporation and with respect to any criminal action or proceeding had
reasonable cause to believe that his conduct was unlawful.
7.2. DERIVATIVE CLAIMS. 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.
7.3. EXPENSES. Expenses, including fees and expenses of counsel, incurred in
defending a civil, criminal, administrative or
-19-
<PAGE>
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.
7.4. INSURANCE. 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 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.
7.5. REIMBURSEMENT. 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
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
7.6. ENFORCEMENT. 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.
ARTICLE VIII
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between the
Corporation and its shareholders or any class of them, any court of equitable
jurisdiction within the State of Oklahoma may, 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
-20-
<PAGE>
for this Corporation under the provisions of Section 1106 of the Act 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 the
Act, 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 said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the shareholders or class 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, if
sanctioned by the court to which the application has been made, shall 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 on this Corporation.
ARTICLE IX
AMENDMENTS; BYLAWS
9.1. AMENDMENTS TO CERTIFICATE OF INCORPORATION. The Corporation reserves,
subject to the provisions of the Act or other applicable statute, 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 statute.
9.2. BYLAWS. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal,
alter, amend 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.
IN WITNESS WHEREOF, Dobson Communications Corporation has caused its
corporate seal to be hereunto affixed and this Amended and Restated
Certificate of Incorporation to be signed by Everett R. Dobson, its President
and attested by Stephen T. Dobson, its Secretary, this 21st day of December,
1998.
DOBSON COMMUNICATIONS CORPORATION
/s/ Everett R. Dobson
----------------------------------------
Everett R. Dobson, President
Attest:
/s/ Stephen T. Dobson
- --------------------------------
Stephen T. Dobson, Secretary
-21-
<PAGE>
FILED FEBRUARY 17, 1999
OKLAHOMA SECRETARY OF STATE
CERTIFICATE OF CORRECTION
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOBSON COMMUNICATIONS CORPORATION
Dobson Communications Corporation, an Oklahoma corporation
(the "Company"), pursuant to Section 1007(F) of the Oklahoma General
Corporation Act, for the purpose of correcting the Amended and Restated
Certificate of Incorporation of the Company filed on December 21, 1998,
hereby certifies the following:
1. That the Company was originally incorporated on February
3, 1997, under the name "Dobson Holdings Corporation."
2. On January 21, 1998, the Company filed Amended and Restated
Certificates of Designation for its Class A Preferred Stock, Class B
Preferred Stock, and Class C Preferred Stock and also filed the Certificate
of Designation for its 12 1/4% Senior Exchangeable Preferred Stock
(collectively, the "Prior Certificates of Designation").
3. On December 21, 1998 the Company filed an Amended and
Restated Certificate of Incorporation (the "Certificate") which inadvertently
omitted the Prior Certificates of Designation.
4. The Certificate is corrected to include the Prior
Certificates of Designation, true and correct copies of which are attached
hereto as Exhibits A, B, C and D and incorporated herein and in the
Certificate as though they were set forth in full in this Certificate of
Correction and the Certificate.
Dated this 11th day of February, 1999.
DOBSON COMMUNICATIONS CORPORATION
/s/ EVERETT R. DOBSON
--------------------------------------
By: Everett R. Dobson
Title: President
ATTEST:
/s/ STEPHEN T. DOBSON
- ------------------------------
By: Stephen T. Dobson
Title: Secretary
<PAGE>
EXHIBIT A
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
<PAGE>
time legally available for the payment of dividends in the State of Oklahoma,
a non-cumulative dividend at the rate of 5% of the Liquidation 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
<PAGE>
the Class A Preferred Stock in proportion to each holders ownership.
(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
<PAGE>
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.
"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,
<PAGE>
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.
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
<PAGE>
EXHIBIT B
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
<PAGE>
given to such terms in Section 9 hereof.
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
<PAGE>
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 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
<PAGE>
holders of Class B Preferred Stock which have been exercised to have
purchased, redeemed or otherwise retired any capital stock.
(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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
shareholders of the Corporation shall own less than 50.1% of the voting
securities of the surviving corporation or its parent, 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
<PAGE>
thereby.
(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
<PAGE>
made by the Corporation).
(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
<PAGE>
stock or securities being herein called "CONVERTIBLE SECURITIES")and
the price per share for which Common Stock is issuable upon the
exercise 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
<PAGE>
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 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.
<PAGE>
(i) Immediately upon any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to all 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.
<PAGE>
"Certificate of Incorporation" means the Certificate of
Incorporation of the Corporation, as amended.
"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
<PAGE>
term in the Purchase Agreement.
"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
<PAGE>
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.
"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
<PAGE>
EXHIBIT C
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
<PAGE>
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 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
<PAGE>
the aggregate accrued but unpaid dividends on the Class C Preferred Stock
held by each holder.
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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
"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
<PAGE>
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
<PAGE>
EXHIBIT D
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
<PAGE>
shares of 12 1/4% Senior Exchangeable Preferred Stock which may be issued in
the Preferred Stock Exchange 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
<PAGE>
Date after January 15, 2003 is not declared or paid in full in cash (or on or
prior to 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
<PAGE>
dividends on such Parity Securities. If full dividends are not paid, as
aforesaid, upon the shares 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
<PAGE>
such Dividend Payment Date shall be paid on the next succeeding Business Day.
(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>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 .......................................... 106.125%
2004 .......................................... 104.084%
<PAGE>
2005 .......................................... 102.042%
2006 and thereafter ............................ 100.000%
</TABLE>
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
<PAGE>
Company shall redeem from any source of funds legally available therefor, in
the manner provided in paragraph (e)(iii) hereof, all 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
<PAGE>
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 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
<PAGE>
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.
(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
<PAGE>
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 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).
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
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-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
<PAGE>
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 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
<PAGE>
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.
(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
<PAGE>
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
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
<PAGE>
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) 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
<PAGE>
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' 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
<PAGE>
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 advances, 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
<PAGE>
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
aggregate 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)
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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; 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
<PAGE>
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 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
<PAGE>
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).
"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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
"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 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.
<PAGE>
"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
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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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).
"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
<PAGE>
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 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
<PAGE>
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; 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
<PAGE>
(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.
"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
<PAGE>
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 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.
<PAGE>
"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) 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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>
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
<PAGE>
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 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
<PAGE>
control.
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
<PAGE>
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 hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
Authorized Signature
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RELATIVE AND OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF CLASS E PREFERRED STOCK
DOBSON COMMUNICATIONS CORPORATION, an Oklahoma corporation (the
"Corporation") does hereby certify that:
FIRST: That the Corporation's Board of Directors, by the unanimous
written consent of its members, filed with the minutes of the Board, duly
adopted resolutions setting forth proposed amendments to the Certificate of
Designation, Preferences and Relative and Other Special Rights, and
Qualifications, Limitations and Restrictions of Class E Preferred Stock (the
"Class E Certificate of Designation") of the Corporation, declaring such
amendments to be advisable and calling a meeting of the shareholders of the
Corporation for consideration thereof.
The Class E Certificate of Designation is proposed to be amended to
provide, in its entirety, as follows:
"1. DESIGNATION. The designation of such class is 'Class E Preferred
Stock' (hereinafter in this Certificate of Designation called the 'Class E
Preferred Stock'), and the number of shares constituting such class shall be
405,000, 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 E 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.
2. DIVIDENDS. (a) The holders of shares of Class E 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 in
an amount equal to (as determined on a per annum basis) (i) the sum of (A)
product of the Applicable Rate multiplied by the Liquidation Value and (B) the
product of the Applicable Rate multiplied by all accrued and unpaid dividends
thereon from the date of issuance to the end of the immediately preceding
calendar year plus (ii) all accrued and unpaid dividends compounded through
December 31 of the prior calendar year, and shall accrue on a daily basis and be
payable as provided in subparagraph (c) of this Section 2. All accrued but
unpaid dividends will compound 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 E Preferred
Stock to and including the 31st day of December, 1998). Such dividends shall
commence to accrue on each share of Class E Preferred Stock from the date of
issuance thereof whether or not declared by the Board of Directors and
<PAGE>
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of such dividends, and shall continue to
accrue thereon until the date the Liquidation Preference of such share is
paid. For purposes of determining the amount of dividends accrued on the
Class E Preferred Stock pursuant to this Section 2 at any time 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 360.
(b) In the event of any dividend or distribution payable by the
Corporation in connection with the Logix Communications Spin-Off, in addition
to any dividends payable pursuant to paragraph (a) of this Section 2, each
holder of shares of Class E Preferred Stock shall be entitled to receive an
amount equal to such holder's PRO RATA share, calculated on a Fully-Diluted
Basis (which, for purposes hereof, assumes the exercise of all options issued
and committed as of the date of execution of the Investment and Transaction
Agreement pursuant to the Corporation Stock Option Plan and up to 5% of
capital stock of the Logix Communications Enterprises, Inc. 1998 Stock Option
Plan).
(c) Subject to the terms of the Stockholder and Investor Rights
Agreement and any applicable prohibition on the payment of dividends in any
Financing Agreement, accrued dividends shall be paid in cash only upon any
liquidation, dissolution or winding up of the Corporation, or upon any
redemption of Class E Preferred Stock pursuant to Section 5 hereof or the
exercise of any put or call rights pursuant to the Stockholder and Investor
Rights Agreement.
(d) 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 E Preferred Stock, such payment shall be distributed
ratably among the holders thereof based upon the aggregate accrued but unpaid
dividends on the Class E Preferred Stock held by each holder.
(e) Except as otherwise may be specifically provided in this
Certificate of Designation, the Investment and Transaction Agreement or the
Stockholder and Investor Rights Agreement, so long as any shares of Class E
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 (other than any payments to holders of Class B Common
Stock or Class C Common Stock pursuant to the Corporation Stock Option Plan
and the redemption by the Dobson Partnership, in one or more transactions, of
up to $25.0 million in the aggregate of securities of the Corporation,
together with any accrued and unpaid dividends thereon, in accordance with
the Stockholder and Investor Rights Agreement) and will not permit any
Subsidiary or other Affiliate to redeem, purchase or otherwise acquire for
value, or
-2-
<PAGE>
set apart for any sinking or other analogous fund for the redemption or
purchase of, any Junior Securities or securities of such Subsidiary or
Affiliate.
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 E Preferred Stock shall be
entitled to be paid in cash, after provision for the payment of the
Corporation's debts and other liabilities, before any distribution is made on
any Junior Securities and concurrently with any distribution to the holders
of Parity Securities but after any distribution to the holders of Senior
Securities, the Liquidation Preference. 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 E Preferred Stock shall be insufficient to permit the
payment in full to such holders of the preferential amounts to which they are
entitled under this Certificate of Designation, then the entire net assets of
the Corporation remaining after the provision for the payment of the
Corporation's debts and other liabilities and required distributions to the
holders of Senior Securities shall be distributed among the holders of the
Class E Preferred Stock and of the Parity Securities ratably in proportion to
the full amounts to which they would otherwise be respectively entitled.
(b) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, either voluntarily or involuntarily, after
the payment of all preferential amounts required to be paid to the holders of
Senior Securities, the Parity Securities and Class E Preferred Stock, the
remaining assets and funds of the Corporation available for distribution to
its stockholders shall be distributed on a pro rata basis among the holders
of Junior Securities and any other class or series of stock entitled to
participate in liquidation distributions with the holders of the Junior
Securities.
(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 E Preferred Stock
which have been exercised.
(d) The merger or consolidation of the Corporation into or with
another corporation in which Everett Dobson and his Affiliates, directly or
indirectly, cease to control 50.1% 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 E Preferred Stock to be a liquidation, dissolution or
winding up of the Corporation as those terms are used in this
-3-
<PAGE>
Section 3. In the event of such merger, consolidation, sale, transfer or
lease of substantially all of the Corporation's assets, each holder of shares
of Class E 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.
(e) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall
immediately after the date the Board of Directors approves such action, or,
in the case of an involuntary liquidation, twenty (20) days prior to any
shareholders' meeting called to approve such action, or immediately after the
commencement of an involuntary proceeding, whichever is earliest, give each
holder of shares of Class E 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 E
Preferred Stock upon consummation of the proposed action and the date of
delivery thereof. If there shall occur any material change in the facts set
forth in the initial notice following its delivery, the Corporation shall
promptly give written notice to each holder of shares of Class E 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 E 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 the
distribution of assets other than cash, the Corporation shall promptly engage
independent appraisers to determine the value of the assets to be distributed
to the holders of shares of Class E 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 E Preferred Stock each voting separately as a single class). The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Common Stock and Class E Preferred
Stock of the appraiser's valuation.
4. VOTING. (a) Except as provided in Section 4(b)(i) and (ii), the
shares of the Class E Preferred Stock shall not be entitled or permitted to
vote, except as otherwise required by law.
-4-
<PAGE>
Whenever a holder of Class E Preferred Stock is entitled or permitted to
vote, each holder of shares of Class E Preferred Stock shall be entitled to
one vote in respect of each share of Class E Preferred Stock held by him on
the record date fixed for such vote.
(b) In addition, the holders of shares of Class E 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 E 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 (A) amend,
repeal or change, directly or indirectly, any of the provisions of the
Certificate of Incorporation or Bylaws of the Corporation, in any manner
which would alter or change the powers, preferences or special rights of
the shares of Class E Preferred Stock so as to affect them adversely, or
(B) redeem, repurchase or pay any dividends on any Junior Securities or
Parity Securities, except with respect to the Logix Communications Spin-Off
and repurchases of management, employee or consultant stock pursuant to
contractual rights PROVIDED, that no such repurchases shall exceed $500,000
in any fiscal year or in any event $1,500,000 in the aggregate, or (C)
authorize or effect the sale of all or substantially all of the assets of
the Corporation, or (D) authorize or effect the merger or consolidation of
the Corporation with any other Person, the result of which Everett Dobson
and his Affiliates, directly or indirectly, cease to control 50.1% of the
voting securities of the surviving corporation or its parent, or (E)
authorize or effect the liquidation (whether complete or partial),
dissolution or winding up of the Corporation, or (F) amend the Certificate
of Incorporation or Bylaws of the Corporation to change the authorized
number of directors, or (G) amend or waive any part of this Certificate of
Designation or (H) issue or authorize any shares of Senior Securities or
Parity Securities, including, without limitation, any additional shares of
Class E Preferred Stock, other than shares of Class E Preferred Stock
issued as the PIK Dividend or shares of Class H Preferred Stock issued as a
dividend payment; PROVIDED, HOWEVER, that the Corporation may issue and
authorize shares of capital stock in connection with (x) public or private
(which provides for registration within one year of issuance) 144A
preferred stock financing related to acquisitions after the date hereof and
capital projects, and (y) the Logix Communications Spin-Off. Except for
the provisions set forth in clauses (A), (B), (G) or (H), the foregoing
voting rights and provisions will terminate and no longer be applicable
once the total amount of outstanding shares of Class E Preferred Stock
represents less than 35% of the shares of Class E Preferred Stock issued
under the Investment and Transaction Agreement.
-5-
<PAGE>
(ii) The rights of holders of shares of Class E Preferred Stock
to vote or take any other actions as provided in this Section 4 may be
exercised at any annual meeting of stockholders, at a special meeting of
stockholders held for such purpose or through any written action in lieu of
a meeting. At each meeting of stockholders at which the holders of shares
of Class E Preferred Stock shall have the right, voting separately as a
single class, 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 E 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 E 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 E 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. REDEMPTIONS.
(a) REDEMPTION PRICE. For each share which is to be redeemed
pursuant to this Section 5, the Corporation will, subject to the limitations
and restrictions contained in the Financing Agreements, be obligated on the
Redemption Date, (as defined in Section 5(e)),to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal office of the
certificate representing such share) an amount in cash (the 'Redemption
Price') equal to the Liquidation Preference thereof as at the Redemption
Date. If the funds of the Corporation legally available for redemption of
shares of Class E Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Class E Preferred Stock to be redeemed
on such date, those funds which are legally available will be used to redeem
the maximum possible number of shares of Class E Preferred Stock ratably
among the holders of the shares of Class E Preferred Stock to be redeemed
based upon the aggregate Liquidation Preference of such shares of Class E
Preferred Stock held by each such holder. At any time thereafter when
additional funds of the Corporation are legally available for the redemption
of shares, such funds will immediately be used to redeem the balance of the
shares of Class E Preferred Stock which the Corporation has become obligated
to redeem on any Redemption Date but which it has not redeemed.
(b) NOTICE OF REDEMPTION. The Corporation will send by registered
mail written notice of each redemption of Class E Preferred Stock to each record
holder of such class not more than 30 nor less than 10 business days prior to
the Redemption Date.
-6-
<PAGE>
(c) DIVIDENDS AFTER REDEMPTION DATE. No shares of Class E
Preferred Stock will be entitled to any dividends accruing after the date on
which the Redemption Price of such shares of Class E Preferred Stock has been
paid. On such date all rights of the holders of such shares of Class E
Preferred Stock will cease, and such shares of Class E Preferred Stock will
not be deemed to be outstanding.
(d) ACCRUED DIVIDENDS MUST BE PAID PRIOR TO ANY REDEMPTION. The
Corporation may not redeem any shares of Class E Preferred Stock, unless all
dividends accrued and unpaid on the outstanding Class E Preferred Stock
through the Redemption Date have been paid in full.
(e) OPTIONAL REDEMPTION. The Corporation will redeem all of the
then issued and outstanding shares of Class E Preferred Stock within 90 days
of the affirmative vote of the holders of a majority of the issued and
outstanding shares of Class E Preferred Stock at any time after December 23,
2010 (the 'Redemption Date'); PROVIDED, HOWEVER, that the exercise of such
redemption rights shall be subject to the restrictions and shall not give
rise to either a default or event of default in the Financing Agreements.
Upon the exercise of such redemption option by the holders of the Class E
Preferred Stock, the holders of the Class E Preferred Stock shall be entitled
to receive payment of the Redemption Price.
(f) OTHER REDEMPTIONS OR ACQUISITIONS. Neither the Corporation
nor any Subsidiary will redeem or otherwise acquire any Class E Preferred
Stock, except as expressly authorized herein or pursuant to a purchase offer
made pro rata to all holders of Class E Preferred Stock on the basis of the
number of shares of Class E Preferred Stock owned by each such holder.
6. STATUS OF REACQUIRED SHARES. Shares of Class E Preferred Stock which
have been issued and reacquired in any manner shall have the status of
authorized and unissued shares of Class E Preferred Stock.
7. RANK. The Class E Preferred Stock shall rank (i) senior as to
dividends and upon liquidation, dissolution or winding up to all Junior
Securities, whenever issued, (ii) junior as to dividends and upon liquidation,
dissolution or winding up, to all Senior Securities, whenever issued, and (iii)
PARI PASSU as to dividends and upon liquidation, dissolution or winding up, to
all Parity Securities, whenever issued.
8. CERTIFICATES. So long as any shares of the Class E 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
-7-
<PAGE>
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 Rule 501(b) under the
Securities Act of 1933.
'Applicable Rate' means 15% per annum.
'Certificate of Designation' means this Certificate of Designation of the
Powers, Preferences and Relative, Participating, Optional and Other Special
Rights of the Class E Preferred Stock and Qualifications, Limitations and
Restrictions Thereof.
'Certificate of Incorporation' means the Certificate of Incorporation of
the Corporation, as restated.
'Class A Common Stock' means the Corporation's Class A Common Stock, $0.001
par value per share.
'Class A Preferred Stock' means the Corporation's Class A Preferred Stock,
$1.00 par value per share.
'Class B Common Stock' means the Corporation's Class B Common Stock, $0.001
par value per share.
'Class C Common Stock' means the Corporation's Class C Common Stock,
$0.001 par value per share.
'Class D Preferred Stock' means the Corporation's Class D Convertible
Preferred Stock, $1.00 par value per share.
'Class E Preferred Stock' means the Corporation's Class E Preferred Stock,
$1.00 par value per share.
'Class F Preferred Stock' means the Corporation's Class F Preferred Stock,
par value $1.00 per share.
'Class F Preferred Stock Documents' means the Class F Preferred Stock
Investors Agreement, the Class F Preferred Stock Warrants and the Class F.
Preferred Stock (and the Certificate of Designation relating thereto).
'Class F Preferred Stock Investors Agreement' means the Investors
Agreement, to be entered into between the Corporation and the Cash Equity, in
respect of the Class F Preferred Stock Warrants.
'Class F Preferred Stock Warrants' means any warrant certificate evidencing
warrants to purchase Class A Common Stock
-8-
<PAGE>
issued by the Corporation in conjunction with the Class F Preferred Stock.
'Class G Preferred Stock' means the Corporation's Class G Convertible PIK
Preferred Stock, $1.00 par value per share.
'Class H Preferred Stock' means the Corporation's Class H Preferred Stock,
$1.00 par value per share.
'Common Stock' means, collectively, the Corporation's Class A Common Stock,
Class B Common Stock and Class C Common Stock and any other classes of common
stock issued from time to time by the Corporation.
'Conversion Price' shall have the meaning set forth in Section 5(b) hereof.
'Corporation Stock Option Plan' means the Dobson Communications Corporation
1996 Stock Option Plan, adopted on February 6, 1997 and as amended by Amendment
No.1 thereto, as the same may be amended, supplemented or otherwise modified
from time to time.
'Credit Agreements' means (i) the Credit Agreement, dated as of March 25,
1998, among First Union National Bank (as successor by merger to CoreStates
Bank, N.A.) as Administrative Agent, Dobson Operating Company, as Borrower, the
Corporation, as Guarantor, and the Company Subsidiaries party thereto, (ii) the
Revolving Credit Agreement, dated as of March 25, 1998, between Dobson Cellular
Operations Company, as Borrower, and NationsBank, N.A. (as successor by merger
to NationsBank of Texas, N.A.), as Administrative Agent, (iii) the 364-Day
Revolving Credit and Term Loan Agreement, dated as of March 25, 1998, between
Dobson Cellular Operations Company, as Borrower, and NationsBank, N.A. (as
successor by merger to NationsBank of Texas, N.A.), as Administrative Agent,
(iv) the Credit Agreement, dated the date hereof, between Dobson/Sygnet
Operating Company, as Borrower, and NationsBank N.A., as Administrative Agent
and (v) the Term Loan Agreement, dated as of the date hereof, between Dobson
Tower Company and NationsBank, N.A.
'Credit Documents' means, collectively, the Credit Agreements and all
documents and instruments evidencing or securing or guaranteeing indebtedness
thereunder.
'Dobson Partnership' means Dobson CC Limited Partnership, an Oklahoma
limited partnership.
'Dobson/ Sygnet' means Dobson/ Sygnet Communications Company, an Oklahoma
corporation.
-9-
<PAGE>
'Dobson/Sygnet Note Documents' means, collectively, the Dobson/Sygnet Note
Indenture, the Dobson/Sygnet Note Purchase Agreement, the Dobson/Sygnet Notes,
and the Dobson/Sygnet Notes Registration Rights Agreement.
'Dobson/Sygnet Note Indenture' means the Indenture, dated the date hereof,
among Dobson/Sygnet and United States Trust Company of New York, as trustee
thereunder in respect of the Dobson/Sygnet Notes.
'Dobson/Sygnet Note Purchase Agreement' means the Purchase Agreement, dated
as of December 16, 1998, among Dobson/Sygnet, the Corporation, and NationsBanc
Montgomery Securities LLC.
'Dobson/Sygnet Registration Rights Agreement' means the Registration Rights
Agreement, dated the date hereof, between Dobson/Sygnet and NationsBanc
Montgomery Securities LLC.
'Financing Agreements' means, collectively, the Senior Note Documents, the
Dobson/Sygnet Notes Documents, the Credit Documents, the Senior PIK Preferred
Stock Certificate of Designation, the Sygnet PIK Preferred Stock Documents and
the Class F Preferred Stock Documents and, as appropriate, all documents,
instruments and agreements evidencing, securing the foregoing, as amended or
refinanced in accordance with the Investment and Transaction Agreement and the
Stockholder and Investor Rights Agreement.
'Fully Diluted Basis' means with respect to any equity securities issued
[or issuable] by any Person, without duplication, (a) all shares or units of, or
interests in, such equity securities outstanding at the time of determination,
and (b) all convertible securities, warrants or options with respect to such
Equity Securities, whether or not exercisable or convertible at the time of such
determination.
'Investment and Transaction Agreement' means that certain Investment and
Transaction Agreement, dated as of December 23, 1998, among the purchasers named
therein and the Corporation, as it may be amended, modified or otherwise
supplemented from time to time.
'Junior Securities' means any of (i) the Corporation's Common Stock, (ii)
all other equity securities of the Corporation other than Parity Securities and
Senior Securities and (iii) only as to Section 3, Section 6 and redemption and
put rights of the Class D Preferred Stock and Class E Preferred Stock in
accordance with the Stockholder and Investor Rights Agreement, the Class G
Preferred Stock and the Class H Preferred Stock.
'Liquidation Preference' means the aggregate Liquidation Value of all
shares of Class E Preferred Stock held by a holder of Class E Preferred Stock
plus an amount equal to the sum of all accrued
-10-
<PAGE>
and unpaid dividends thereon, whether or not declared to the date of payment.
'Liquidation Value' of any share of Class E Preferred Stock shall be One
Thousand, One Hundred and Thirty-One Dollars and Ninety-Two Cents ($1,131.92).
'Logix Communications Enterprises, Inc. 1998 Stock Option Plan' means that
certain Logix Communications 1998 Stock Option Plan, dated effective as of
August 1, 1998, as the same may be amended, supplemented or otherwise modified
from time to time.
'Logix Communications Spin-Off' means the disposition by the Corporation of
the business of Logix Communications.
'Parity Securities' means the Corporation's Class A Preferred Stock and
Class D Preferred Stock and except with respect to Section 3, Section 6 and the
redemption and put rights of the Class D Preferred Stock and the Class E
Preferred Stock in accordance with the Stockholder and Investor Rights
Agreement, the Class G Preferred Stock and the Class H Preferred Stock.
'Person' means an individual, partnership, corporation, association, trust,
joint venture, unincorporated organization or other entity and any government,
governmental department or agency or political subdivision thereof.
'Qualified Public Offering' means any offering by the Corporation of its
Class A Common Stock to the public pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or any comparable
registration 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) and the aggregate gross proceeds in connection with such registration
statement equals or exceeds $50.0 million.
'Senior Note Documents' means, collectively, the Senior Note Indenture, the
Senior Notes, and the Senior Notes Escrow and Security Agreement.
'Senior Note Escrow and Security Agreement' means the Escrow and Security
Agreement, dated February 28, 1997, among the Corporation, the placement agents,
party thereto, and United States Trust Company of New York, as Trustee
thereunder.
'Senior Note Indenture' means the Indenture, dated as of February 28,
1997, among the Corporation and United States Trust Company of New York, as
trustee thereunder in respect of the Senior Notes.
-11-
<PAGE>
'Senior PIK Preferred Stock' means the Corporation's 121/4% Senior
Exchangeable Preferred Stock, issued on January 22, 1998 and mandatorily
redeemable 2008.
'Senior PIK Preferred Stock Certificate of Designation' means the
Certificate of Designation in respect of the Senior PIK Preferred Stock.
'Senior Securities' means the Senior PIK Preferred Stock, the Sygnet PIK
Preferred Stock, the Class F 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 E Preferred
Stock as to dividend distributions and distributions upon liquidation,
dissolution or winding up of the Corporation.
'Stockholder and Investor Rights Agreement' means that certain Stockholder
and Investor Rights Agreement dated the date hereof among this Corporation and
the stockholders 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 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.
'Sygnet Acquisition' means the acquisition by Dobson / Sygnet
Communications Company of all of the outstanding capital stock of Sygnet
Wireless pursuant to the Agreement and Plan of Merger, dated as of July 28,
1998, as amended, between Dobson/Sygnet Operating Company and Sygnet Wireless.
'Sygnet PIK Preferred Stock' means the Corporation's 12 1/4% Senior
Exchangeable Preferred Stock of the Corporation, issued on December 23, 1998;
mandatorily redeemable 2008.
-12-
<PAGE>
'Sygnet PIK Preferred Stock Certificate of Designation' means the
Certificate of Designation for the Sygnet PIK Preferred Stock.
'Sygnet PIK Preferred Stock Documents' means, collectively, the Sygnet PIK
Preferred Stock Purchase Agreement, the Sygnet PIK Preferred Stock Certificate
of Designation and the Sygnet PIK Preferred Stock Registration Rights Agreement.
'Sygnet PIK Preferred Stock Purchase Agreement' means the Purchase
Agreement, dated December 16, 1998, between the Corporation and NationsBanc
Montgomery Securities LLC, in respect of the Sygnet PIK Preferred Stock.
'Sygnet PIK Preferred Stock Registration Rights Agreement' means the
Registration Rights Agreement, dated the date hereof, between the Corporation
and NationsBanc Montgomery Securities LLC.
'Sygnet Wireless' means Sygnet Wireless, Inc., an Ohio Corporation.
10. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Class E 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."
SECOND: That, thereafter, the shareholders, including all holders of
the issued and outstanding shares of the Corporation's Class E Preferred Stock,
unanimously voted in favor of the Amendment pursuant to written consent given in
accordance with the provisions of Section 73 of the Oklahoma General Corporation
Act.
THIRD: That such amendment was duly adopted in accordance with the
provisions of Section 77 of the Oklahoma General Corporation Act.
-13-
<PAGE>
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 23rd day of December, 1998.
EVERETT R. DOBSON
By: /s/ Everett R. Dobson
---------------------
Title: President
ATTEST:
STEPHEN T. DOBSON
/s/ Stephen T. Dobson
- ---------------------
Title: Secretary
<PAGE>
FILED FEBRUARY 23, 1999
OKLAHOMA SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RELATIVE AND OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF CLASS E PREFERRED STOCK
DOBSON COMMUNICATIONS CORPORATION, an Oklahoma corporation
(the "Corporation") does hereby certify that:
FIRST: That the Corporation's Board of Directors, by the
unanimous written consent of its members, filed with the minutes of the
Board, duly adopted resolutions setting forth a proposed amendment to the
Certificate of Designation, Preferences and Relative and Other Special
Rights, and Qualifications, Limitations and Restrictions of Class E Preferred
Stock of the Corporation, declaring such amendment to be advisable and
calling a meeting of the shareholders of the Corporation for consideration
thereof.
Section 1 of the Certificate of Designation is proposed to
be amended as follows:
"1. DESIGNATION. The designation of such class is 'Class E
Preferred Stock' (hereinafter in this Certificate of Designation called
the 'Class E Preferred Stock'), and the number of shares constituting
such class shall be 517,000, which number may not be decreased or
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 E 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."
SECOND: That, thereafter, the shareholders unanimously
voted in favor of the Amendment pursuant to written consent given in
accordance with the provisions of Section 73 of the Oklahoma General
Corporation Act.
THIRD: That such amendment was duly adopted in accordance
with the provisions of Section 77 of the Oklahoma General Corporation Act.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by its Vice President and attested by its Assistant
Secretary this 11th day of February, 1999.
DOBSON COMMUNICATIONS CORPORATION
By /s/ Ronald L. Ripley
-------------------------
Ronald L. Ripley,
Vice President
ATTEST:
TRENT LEFORCE
/s/ Trent LeForce
- ----------------------------------
Trent LeForce, Assistant Secretary
[Seal]
<PAGE>
CONSULTING AGREEMENT AND AGREEMENT NOT TO COMPETE
This Consulting Agreement and Agreement Not to Compete ("Agreement") is
made this 15th day of August, 1998, by and between Dobson Communications
Corporation, an Oklahoma corporation ("Company") and Russell Dobson
("Consultant").
EXPLANATORY STATEMENT
A. As of the date hereof, Company is the holding company for certain
other affiliated companies, which companies, together with other companies and
partnerships presently owned, managed or controlled directly or indirectly by
the Company, or which may be owned, managed or controlled or acquired by the
Company, directly or indirectly, at any time in the future, during the term of
the Agreement, shall be referred to collectively herein as the "Affiliates".
References herein to "Company" shall likewise be construed as referring to the
Affiliates as well, unless expressly set forth to the contrary.
B. As of the date hereof, the Consultant is an employee of the Company
and a Director on its board of Directors and in his capacity as such, has
developed substantial expertise and knowledge about the telecommunications
industry and more particularly the business of the Company, and its existing
Affiliates, which is focused primarily on telephone services, fiber-optic
communications, and cellular telephone services, referred to collectively herein
as the "Business". By this Agreement, Company seeks to secure the benefit of
consultant's knowledge and expertise for the remainder of his active working
career, to the exclusion of any competing companies engaged in this same or
similar Business.
C. The Company, recognizing the value of the Consultant's knowledge and
expertise with respect to the Business, desires to retain the Consultant in
order for the Consultant to continue to use his knowledge and expertise in the
Business for the benefit of the Company, present and future, and to render any
other and further services provided for by this Agreement, and the Consultant
further services provided for by this Agreement, and the Consultant desires to
accept this appointment with the Company, and in accordance with the terms of
this Agreement. Further, the Company seeks to prevent Consultant from rendering
services to other parties or entities who may compete for some or all of the
Business of Company.
D. In conjunction with the execution of this Agreement, the Board of
Directors of the Company has executed a corporate resolution authorizing and
directing the Company to enter into this Agreement with Consultant, for the
mutual benefit of all concerned, a copy of same being attached hereto.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
<PAGE>
1. RETENTION. The Company hereby employs the Consultant to serve as a
consultant to the Company. Consultant shall provide leadership, guidance, and
expertise to the Company and shall use his best efforts to promote the interests
of the Company. The Consultant hereby accepts such appointment with the Company
and agrees to render the services for and on behalf of the Company on the terms
and conditions set forth in this Agreement.
2. TERM. The term ("Term") of this Agreement shall commence on September
1, 1998, and subject to the further provisions of this Agreement, the Agreement
shall terminate on August 31, 2008, unless sooner terminated in accordance with
Section 11 of this Agreement.
3. PERFORMANCE OF SERVICES. The Consultant shall render the Services to
the best of his ability for and on behalf of the Company. The Consultant shall
comply with all Laws relating to the Services. During the Term of this
Agreement, the Consultant shall not, at any time or place, directly or
indirectly, engage in any business activity in competition with the Business of
the Company for the benefit of or on account of the Consultant, or for the
benefit of or on account of any other person or entity other than to the extent
required or permitted by the terms and conditions of this Agreement. The power
to direct the Services to be performed shall be exercised by the Board of
Directors (herein "Board"); provided, that the Board shall not impose duties or
constraints of any kind which require the Consultant to violate any law,
statute, ordinance, rule or regulation ("Laws") now or hereinafter in effect, or
to otherwise engage in any act or omission deemed to be against public policy.
4. EXTENT OF SERVICES. The Consultant shall devote such time as
requested by the Board to the performance of his duties under this Agreement,
and as shall be agreed to by the Consultant at such times during such days as
shall be reasonable for the benefit of the Company. The Consultant may be
employed or engaged in other businesses or vocations, provided such employment
or engagement shall not be in breach or violation of or in default under any or
all of the provisions of this Agreement. Notwithstanding any other provisions of
this Agreement, nothing in this Agreement shall prevent or prohibit Consultant
from owning up to 5% of the outstanding stock or other securities in other
entities, even if such entities shall be in competition with Company or any of
its Affiliates.
4.1 DESCRIPTION OF DUTIES. Consultant shall preform those duties
consistent with the responsibility of a former Chief Executive Officer of the
Company directed by the Board. It is contemplated that Consultant's duties shall
be consistent with the experience and maturity of the Consultant. Generally, it
is recognized that the Consultant's duties are of a special and unusual
character, such as the development of goodwill for the Company.
2
<PAGE>
4.2 POSITION IN COMPANY. As a Consultant to the Company, it is
recognized that Consultant is not an employee of the Company, and, subject to
the terms of this Agreement, is to be supervised only by the Board.
5. COMPENSATION AND INSURANCE COVERAGE.
5.1 COMPENSATION. The Company shall pay to the Consultant a monthly
payment of Fifteen Thousand Dollars ($15,000.00) payable on the first day of
each month during the term of this Agreement for One Hundred and Twenty (120)
consecutive monthly payments.
5.2 INSURANCE. Commencing as of the effective date of this Agreement
(unless specifically otherwise indicated), Company shall provide Consultant, in
addition to compensation, health, medical, hospital and dental insurance under
any and all Company policies provided to an employee of the Company.
6.0 WORK RELATED BENEFITS DURING ACTIVE EMPLOYMENT. During the Term of
this Agreement, Consultant shall enjoy any and all other work related benefits
of other employees, as well as such other and additional benefits as may, from
time to time, be authorized, approved or allowed by the Board, as well as the
following benefits:
(a) Consultant shall have a fully furnished office at the corporate
headquarters of Company, fully furnished and designed in a manner befitting the
position of the Company's former Chief Executive Officer;
(b) Consultant shall have his own administrative assistant on an as
needed basis, who Consultant may, at his option select;
(c) Consultant shall be permitted to attend any and all seminars of
Consultant's choosing whenever they may occur and wherever located, at the
Company's expense recognizing that Company shall benefit from same; and
(d) Consultant shall be paid or reimbursed for any and all travel and
other expenses incurred by him incident to the rendering of services by him,
recognizing that in rendering services for the Company, such expenses are likely
to include sums expended in the entertainment of individuals and representatives
of firms with whom or which the Company has or is attempting to develop business
relations.
7. COMPANY'S RIGHT TO REDEEM. Company retains the right during the term
of this Agreement to at any time pre-pay any sums payable pursuant to Section
5.1 of this Agreement to Consultant, whereupon all other provisions of this
Agreement are
3
<PAGE>
thereupon terminated, except the provisions of paragraphs 8 and 9 shall
remain in effect for the remaining period of the initial ten (10) year period.
8. CONFIDENTIAL INFORMATION. The Consultant acknowledges that by virtue
of his past involvement with and experiences with Company, the Consultant has
had access to, has acquired, and has assisted in developing the confidential and
proprietary information of the Company, which is of a special and unique nature
and value relating to the Business of the Company, including, without limitation
information about the Business operations, internal structure, financial
affairs, programs, software, systems, procedures, manual, confidential reports,
list of customers, clients and prospective customers, all sales and marketing
methods, as well as the amounts, nature and types of services, inventory,
equipment and methods preferred by the customers of the Company, and the fees
paid by such Customers, all of which shall be deemed to be confidential
information. As a Consultant of the Company, the Consultant will continue to
have access to, acquire and assist in developing confidential and proprietary
information relating to the Business and operations of the Company. The
Consultant acknowledges that such confidential and proprietary information has
been and will continue to be of central importance to the Business of the
Company, and that disclosure of it to or its use by others could cause
substantial loss to the Company. Such confidential and proprietary information,
having been developed by the Consultant for the exclusive benefit of the
Company, was and is the confidential and proprietary asset of the Company.
Accordingly, the Consultant agrees as follows:
8.1 NON-DISCLOSURE. During the Term of this Agreement, and after
leaving the Company as a Consultant, the Consultant shall not, for any reason or
purpose whatsoever, directly or indirectly deliberately divulge or disclose to
any person or entity any confidential or proprietary information of the Company
which was obtained by the Consultant as a result of the Consultant's involvement
with the Company, but shall hold all of the same confidential and inviolate.
For purposes of this Agreement, "confidential or proprietary information" means
information, whether written or otherwise, which has a Business purpose, and is
not known or generally available from sources outside the Company or typical of
industry practice, including, without limitation, the nature of the conduct of
the Business of the Company or any of its Affiliates, or their respective
business operations; the financial affairs, programs, software, systems,
procedures, manuals, confidential reports, sales and marketing methods of the
Company or any of its Affiliates; the amount, nature and type of services,
inventory, equipment and methods used and preferred by the Company or any of its
Affiliates, and confidential techniques of the Company, or any of its
Affiliates; confidential pricing data respecting products sold by the Company or
any of its Affiliates
4
<PAGE>
for their respective own accounts, or as agents or representatives of others;
the identity of the present and prospective customers and customers list of
the Company, or any of its Affiliates; the confidential data of the Company
or any of its Affiliates, relating to customer purchases, practices and
procedures; the business arrangements, costs, sources of supply of the
Company or any of its Affiliates; and information regarding earnings,
forecasts, reports, technical data and marketing of the Company and/or any of
its Affiliates.
8.2 RETURN OF RECORDS. All contracts, agreements, financial books,
records, instruments and documents, customer lists, memoranda, data, reports,
programs, software, tapes, letters, research, card decks, listing, programming
and other instruments, records or documents relating to or pertaining to
customers serviced by the Consultant or any of its Affiliates, the Services
rendered by the Consultant and/or the Business of the Company or any of its
Affiliates (collectively the "Records") shall at all times be and remain the
property of the Company. Upon termination of this Agreement, for any reason
whatsoever, the Consultant shall return to the Company all Records (whether
furnished by the Company or prepared by the Consultant) and the Consultant shall
neither make nor retain any copies of any such Records after such termination.
9. RESTRICTIVE COVENANTS.
9.1 ACTIVITIES RESTRICTED. The Company and the Consultant
acknowledge that (a) the Consultant's services are of a special and unusual
character which have a unique value to the Company, the loss of which cannot be
adequately compensated by damages in an action at law, and if used in
competition with the Company could do serious harm to the Company; (b) an
important part of Consultant's duties will be to develop goodwill for the
Company through his personal contacts with customers, agents and other having
business relationships with the Company; and (c) there is a danger that his
goodwill, a proprietary asset of the Company, may follow the Consultant if and
when his relationship with the Company is terminated. Accordingly, for the term
of this Agreement, the Consultant shall not, without the prior written consent
of the Company, directly or indirectly, either individually, or as owner,
partner, agent, employee, officer, director, independent contractor, consultant
or otherwise:
(a) Offer to render any services or solicit the rendition of any
services which were rendered by or to the Company during the two-year period
immediately preceding the cessation of Consultant's active employment with the
Company to any clients, customers, or accounts of the Company with whom the
Consultant had direct contact and/or to whom the Consultant rendered any
services at any time during such two-year period to or for the benefit or
account of the Consultant or to or for the benefit or account of
5
<PAGE>
any other person or entity, except to the extent authorized or permitted
under this Agreement;
(b) Render or attempt to render any services which were rendered
by the Company, or sell or attempt to sell any services which were sold by the
Company during the two-year period immediately preceding such cessation of
Consultant's active employment with the Company to any clients, customers or
accounts of the Company with whom the Consultant had direct contact and/or to
whom the Consultant rendered any services or sold any services at any time
during such two-year period to or for the benefit or account of the Consultant
or to or for the benefit or account of any other person or entity, except to the
extent authorized or permitted under this Agreement; and
(c) Engage, either individually, or as owner, partner, agent,
employee, officer, director, independent contractor, consultant or otherwise, in
any business which sells any of the telephone, telecommunications or cellular
telephone services, equipment, rights, permits, or other assets of the Company,
or otherwise competes with the Company in any state in which the Company or any
of its Affiliates offered such services or assets for sale or use by their
customers during the two-year period immediately preceding such cessation of the
Consultant's active employment with the Company, except as specifically
authorized or permitted by this Agreement.
9.2 COMPENSATION FOR NON-COMPETE PROVISION. It is specifically
recognized by Consultant and Company that an integral part of this Agreement is
for Consultant not to compete with the Company and it is specifically recognized
by both parties to this Agreement that the compensation and benefits provided
herein are in recognition of Consultant not competing with Company.
9.3 PREPAYMENT OF NON-COMPETE PAYMENT. At any time after the second
year of this Agreement, either the Company or Consultant may elect to accept
prepayment of all sums due under this Agreement and terminate his further
association with the Company, subject to the terms of this Agreement. In the
event of the election of either party to this Agreement to accept prepayment of
all sums due under the Agreement, such notice shall be given in writing by the
notifying party to the other party, specifying the date of the election to
exercise this provision of this Agreement. Such notice shall not be less than
ninety (90) days from the date of the Notice. Upon the election, Company shall
pay the remaining sums due for the remaining term of this Agreement as provided
in Section 5.1 off this Agreement; at the time of that payment, all other
benefits under this Agreement due by the Company to the Consultant shall
terminate.
9.4 MODIFICATION. To the extent that any provision or portion of
Section 9 of this Agreement shall be held, found or
6
<PAGE>
deemed to be unreasonable, unlawful, unenforceable by a Court of competent
jurisdiction, or an unreasonable restraint of trade, then any such provision
or portion thereof shall be deemed to be modified to the extent necessary in
order that such provision or portions thereof shall be legally enforceable to
the fullest extent permitted by applicable law; any Court of competent
jurisdiction shall, and the parties hereto do hereby expressly authorize,
request and empower any Court of competent jurisdiction to enforce any such
provision or portion thereof, or to modify any such provision or portion
thereof in order that any such provision or portion thereof shall be enforced
by such Court to the fullest extent permitted by applicable law.
10. DEATH OR DISABILITY OF CONSULTANT. Upon either the death or
disability (as defined herein) of the Consultant, the sums remaining to be paid
under Section 5.1 of this Agreement shall become immediately due and payable to
the Consultant or the estate of the Consultant, as the case may be.
11. TERMINATION OF CONSULTANT.
11.1 TERMINATION OF CONSULTANT FOR CAUSE. The Company shall have the
right to terminate the Consultant at any time for Good Cause, and subject to the
following limitations and restrictions;
(a) Consultant may be terminated only for Good Cause, as
determined by a vote of 66 2/3% percent of the Board of Directors of the
Company, and only after the Board has, in writing, notified Consultant of the
breach or failure on the part of the Consultant, and provided Consultant with a
reasonable time, but no less that thirty (30) days, to cure the specified breach
or failure and Consultant has failed to so cure.
(b) For the purposes of this Agreement, "Good Cause" shall mean
that the Consultant either (i) committed a material breach of any covenant,
promise, or other obligation under this Agreement, which has not been cured or
(ii) engaged in deliberate acts of intentional, wanton or malicious conduct by
the consultant, or fraud or misappropriation by the Consultant.
In the event Consultant is terminated for Good Cause as provided
herein, the Company shall at that time pay Consultant the remaining sums
scheduled as future payments as set out in Section 5.1 of this Agreement.
12. NOTICES. All notices, requests, demands, consents, and other
communications which are required or may be given under this Agreement
(collectively the "Notices") shall be in writing and shall be given by one of
the following means: By personal delivery against a receipted copy, by telefax,
overnight courier, or by
7
<PAGE>
United States certified mail, return receipt requested, postage prepaid and
addressed to the other party at the following address:
if the Company:
Everett Dobson, President
Dobson Communications Corporation
13439 North Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
If the Consultant:
Russell Dobson
13439 North Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
and
Russell Dobson
6210 East Cortez Drive
Scottsdale, Arizona 85254
Any party may, from time to time, change the address to which Notices
to it are to be sent by giving such notice of such change to the other parties
in the manner set forth herein. Notices shall be deemed given and received on
the next business day following the day such Notice is mailed or sent by
overnight courier in the manner described above, or, if personally delivered or
if sent by telefax or telegram, on the date so delivered or sent. Any time
period shall commence on the day such Notice is deemed given and received. For
purposes of this Agreement, the Term "Business Day" shall include all days other
than Saturdays, Sundays and Federal Banking holidays.
13. GENERAL.
13.1 BINDING EFFECT. This Agreement shall be binding upon and enure
to the benefit of the Company, and any of its Affiliates, or the successors and
assigns of the Company or any of its Affiliates. This Agreement shall be
binding upon the Consultant and his heirs, personal and legal representatives,
and guardians, and shall enure to the benefit of the Consultant, and where
appropriate, to the benefit of the spouse of Consultant. Neither this Agreement
nor any part hereof or interest shall be assigned by the Company or the
Consultant.
8
<PAGE>
13.2 AMENDMENTS. The Terms and provisions of this Agreement may
not be amended except by written instrument duly executed by each party
hereto.
13.3 REORGANIZATION. Neither the Company, nor any of its Affiliates,
shall merge or consolidate with any other corporation or entity, or reorganize,
unless and until such succeeding or continuing corporation or entity agrees to
assume and discharge the obligations of the Company under this Agreement. Upon
the occurrence of such an event, the term "Company" as used in this Agreement
shall be deemed to refer to such successor or survivor entity.
13.4 STATUTORY CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Oklahoma.
The use of any gender herein shall be deemed to be or include the other genders
and the neuter and the use of the singular herein shall be deemed to be and
include the plural (and vise versa) wherever appropriate. The Section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
13.5 COMPLETE AGREEMENT. This Agreement sets forth the entire,
integrated understanding and the agreement of the parties hereto with respect to
the subject matter hereof.
13.6 REMEDIES. in the event of a breach of this Agreement, the
non-breaching party hereto may maintain an action for specific performance
against the party hereto who has alleged to have breached any of the terms,
conditions, representations, warranties or agreements herein contained.
Notwithstanding anything contained herein to the contrary, this Section shall
not be construed to limit in any manner other rights or remedies any grieved
party may have by virtue of any breach of this Agreement. Further, in the
event any Affiliate has assumed any obligations which enure to the benefit of
Consultant under this Agreement, or assume any other obligations of Company
under this Agreement, Consultant may, at his ,option, pursue any and all
legal remedies he may have against the Company, the Affiliate who has assumed
or agreed to be obligated on such obligation, or both, jointly and severely,
for such obligations.
13.7 WAIVER. Each of the parties hereto shall have the right to waive
compliance with or the fulfillment, satisfaction or enforcement of any warranty,
representation, covenant, promise, agreement or condition herein set forth, but
the waiver by any party of such right shall not be deemed a waiver of compliance
with or fulfillment, satisfaction or enforcement of any other warranty,
representation, covenant, promise, agreement or condition herein set forth or to
seek any redress for any breach thereof on any
9
<PAGE>
subsequent occasion, nor shall any such waiver be deemed effective unless in
writing and signed by the parties so waiving.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first set forth above.
"COMPANY"
DOBSON COMMUNICATIONS CORPORATION
By: /s/ Everett R. Dobson
-------------------------------------
President
"CONSULTANT"
/s/ Russell L. Dobson
----------------------------------------
RUSSELL DOBSON
10
<PAGE>
ADDENDUM TO OPERATING AGREEMENT
This Addendum to the Operating Agreement, (the "OA"), between AT&T Wireless
Services, Inc. ("AWS") and Dobson, is entered into as of January 16, 1999 (the
"Effective Date") by and between AWS and Dobson (collectively the "Parties" and
each individually a "Party"). This Addendum also is intended to be binding upon,
and is entered into by the Parties on behalf of, the McCaw Parties and the
Company Parties (as the case may be) that receive and provide service pursuant
to the OA. Unless otherwise defined herein, all capitalized terms used in this
Addendum shall have the meaning given such terms in the OA.
The OA is hereby amended and modified as follows:
Exhibit C - Service Charges is modified as follows:
<TABLE>
<CAPTION>
<S> <C>
AIRTIME RATES:
- --------------
January 16, 1999 through September 30, 1999 AWS shall pay Dobson xx per minute and
Dobson shall pay AWS xx per minute.
October 1, 1999 through June 30, 2000 AWS 1900 MHz properties shall pay Dobson xx
per minute and Dobson shall pay AWS xx per
minute.
AWS 850 MHz properties shall pay Dobson xx
per minute and Dobson shall pay AWS xx per
minute.
July 1, 2000 through June 30, 2001 AWS shall pay Dobson xx per minute and Dobson
shall pay AWS xx per minute.
July 1, 2001 through June 30, 2002 AWS shall pay Dobson xx per minute, or if the
total minutes used by AWS into all Dobson markets
increases by 15% or more from the prior twelve
month period, then AWS shall pay the lesser of xx
per minute or the Average AWS Rome Rate, but not
less than xx per minute and Dobson shall pay
AWS xx per minute.
July 1, 2002 through June 30, 2003 AWS shall pay Dobson xx per minute, or if the
total minutes used by AWS into all Dobson markets
increases by 15% or more from the prior twelve
month period, then AWS shall pay the lesser of xx
per minute or the Average AWS Home Rate, but not
less than xx per minute and Dobson shall pay
AWS xx per minute.
July 1, 2003 through June 30, 2004 AWS shall pay Dobson xx per minute, or if the
total minutes used by AWS into all Dobson markets
increases by 15% or more from the prior twelve
month period, then AWS shall pay the lesser of xx
per minute or the Average AWS Home Rate, but not
less than xx per minute and Dobson shall pay
AWS xx per minute.
</TABLE>
xx - Material has been omitted that is the subject of a confidential
treatment request.
<PAGE>
Neither Party will charge for incomplete calls, busy calls, 611 calls, feature
activation's or interconnect fees. All minutes billed in full minute increments,
partial minutes rounded up to next full minute.
"Average AWS Home Rate" is the average actual rate per minute billed to
customers by AWS for access and airtime, but excluding revenues for features,
taxes, toll or other non-rate items.
Nothing in the OA, or this Addendum, shall be construed to prevent either Party
from providing Service to it's Customers utilizing a System operated by a Party.
Except as specifically set forth herein, the IRSA is not amended or modified in
any respect and shall continue in full force and effect.
AT&T Wireless Services, Inc.
BY: /s/ Don Adams
----------------------------------------------
Don Adams-Vice President Carrier Relations
DATE: 2/22/99
--------------------------------------------
Dobson Cellular Systems, Inc.
BY: /s/ G. Edward Evans
----------------------------------------------
TITLE: President
-------------------------------------------
DATE: 2/23/99
--------------------------------------------
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered into this day of
February 15, 1999 between H.O. SYSTEMS, INC., a corporation having its offices
at 222 West Oglethorpe Avenue, Savannah GA. 31401, hereafter referred to as
"H.O." and Dobson Communications Corporation, having its principal office at
13439 N. Broadway Extension, Suite 200 Oklahoma City, OK 73114, hereafter
referred to as "Customer".
WHEREAS, Customer desires to obtain a limited nonexclusive license right to
use the H.O. Cellular Information Management System known as H.O. CIMS billing
and information management licensed software (the "Licensed Software") as
described below, operated by Customer, and
WHEREAS, H.O. desires to license the Licensed Software to Customer upon the
terms and conditions set forth in the Agreement, for use in each and every
Cellular Market operated by Customer.
THEREFORE, in consideration of the above declarations and the covenants and
conditions set forth in this Agreement, the parties agree as follows:
1. GRANT: LICENSE FEE. In consideration of the payment of a one time license
fee of $1.00 H.O. hereby grants to Customer, a nontransferable,
nonexclusive license to use the Licensed Software. The initial term of this
Agreement will commence upon the first invoice for month end date
reflecting 100,000 phones or more, ("the Effective Date") and will end on
the 4th anniversary of the Effective Date, unless terminated earlier in
accordance with the provisions of this Agreement. Thereafter, the term of
this Agreement will automatically extend for successive 1 year periods
after such anniversary date unless either of the parties notifies the other
party in writing at least 90 days prior to such anniversary date, or 90
days prior to the end of any such one year extension period as the case may
be, that this Agreement will not be so extended.
2. LIMITATIONS ON USE. Customer shall use the Licensed Software only on
Central Processing Units provided and designated by H.O. (the "Designated
CPU"). Customer may make (1) backup copy of the Licensed Software, for
backup purposes, which must display the copyright notice and information
relating to the proprietary rights as they appear in the Licensed Software.
Customer shall not decompile, disassemble, or reverse engineer any portion
of the Licensed Software. Customer shall not allow the Licensed Software to
be used for time-sharing or service bureau, or any similar purpose. In the
event the Designated CPU fails, Customer may use the Licensed Software on
another processing unit at the same location upon notification to H.O.
3. CONFIDENTIALITY.
A. Both parties acknowledge that they will possess Confidential
Information of the other party, including the other's proprietary or
business information, the other's trade secrets as well as, the
Licensed Software, and other vital data on the Customer's
1
<PAGE>
business. Each party will use commercially reasonable efforts, but
not less stringent than the means that it uses to protect its own
confidential information, to prevent the disclosure and to protect
the confidentiality of written information received from the other
party which is marked or identified as confidential, or which
relates to the number of subscribers (collectively, "Confidential
Information"). Each party will use Confidential Information
received from the other party only in connection with the purposes
of this Agreement. The provisions of this Paragraph (3) will not
prevent either party from disclosing its own Confidential
Information or from disclosing Confidential Information which is
(a) already known by the recipient party without an obligation of
confidentiality; (b) publicly known or becomes publicly known
through no unauthorized act of the recipient party; (c) rightfully
received from a third party; or (d) required to be disclosed
pursuant to a requirement of a governmental agency or law so long
as the disclosing party provides the other party with notice of
such requirement prior to any such disclosure. This provision shall
survive the termination or expiration of this Agreement. Specific
pricing terms of this Agreement shall be considered Confidential
Information by both parties.
B. The term "Confidential Information" as used above shall also
include any and all terms and provisions of this Agreement, including,
without limitation, the pricing terms set forth in or related to this
Agreement (the "Pricing Terms"). In addition to Customer's
obligations set forth in Paragraph A above, Customer shall at all
times use its best efforts to prevent the disclosure and protect the
confidentiality of the Pricing Terms. Customer shall not disclose any
Pricing Term or aspect thereof whatsoever to any person whatsoever
unless (a) expressly authorized in writing by H.O., or (b) Customer is
legally compelled to make such disclosure and Customer has furnished
H.O. prompt notice of such fact (so that H.O. may seek an appropriate
protective order or other remedy) and a written opinion of its counsel
reasonably acceptable to H.O. opining that Customer is required to
make such a disclosure or else stand liable for contempt or suffer
other material censure or material penalty. In the event disclosure is
permitted under clause (b), Customer shall use its best efforts to
obtain reliable assurance that confidential treatment will be accorded
the Confidential Information so disclosed.
C. H.O. and Customer acknowledge and agree that it may be difficult,
if not impossible, to accurately determine the amount of damages that
H.O. will incur if Customer breaches or otherwise fails to comply with
Paragraph B above. Accordingly, the parties agree that as liquidated
damages for such breach or noncompliance Customer shall pay
immediately an amount equal to 2 times the billings charged by H.O.
under the Agreement for the month immediately preceding the month
during which the breach or noncompliance occurred. In addition to such
liquidated damages or any other remedy available to H.O. and in
addition to and notwithstanding Section 10 below, upon such breach or
noncompliance with Paragraph B, H.O. shall have the right to
immediately (without opportunity to cure) terminate this Agreement
including, without limitation, all licenses granted thereunder, at its
sole discretion upon notice to Customer as of the date specified in
such notice of termination; provided, however, that if H.O. fails to
exercise such
2
<PAGE>
termination right, Customer shall remain obligated to pay the
liquidated damages in addition to any other amounts due H.O. under
the Agreement, and neither the failure nor the delay in exercising
any right, power or privilege under this Paragraph C will operate
as a waiver of such right, power or privilege and no single or
partial exercise of any such right, power or privilege by H.O. will
preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege.
D. Customer agrees to indemnify and hold H.O. harmless from any
damages, loss, cost, or liability (including legal fees and the
cost of enforcing this indemnity) arising out of or resulting from
any unauthorized use or disclosure by Customer or Customer's
employees or agents of the Confidential Information or other
violation of this Section 3. In addition, because an award of money
damages (whether pursuant to the foregoing sentence or otherwise)
would be inadequate for any breach of this Agreement by Customer of
Customer's employees or agents and any such breach would cause H.O.
irreparable harm, Customer also agrees that, in the event of any
breach or threatened breach of this Agreement, H.O. will also be
entitled, without the requirement of posting a bond or other
security, to equitable relief, including injunctive relief and
specific performance. No right or remedy conferred upon H.O. by any
provision of this Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or thereafter
existing at law or in equity or otherwise.
4. WARRANTY. H.O. warrants that it has the power and authority to grant this
License to Customer and that the Licensed Software will be free from
material errors. H.O. also warrants that the Licensed Software will perform
substantially in compliance with the specifications of the cellular
telephone industry standards applicable to the services to be performed,
including roaming clearinghouse standards for the processing of roaming
records as promulgated from time to time contained in the software. THE
FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE AND WARRANTIES OF MERCHANTABILITY.
5. INSTALLATION AND TRAINING.
A. H.O. shall provide initial training, free of charge, for each new
market at each new cluster or call center acquired by Customer, or
where deemed appropriate by Customer and H.O., in the operation and
use of the Licensed Software and associated systems either at the
Customer's site or in Savannah, Georgia, as requested by Customer.
Reasonable out of pocket expenses, such as travel, meals and lodging,
shall be paid by Customer. Training shall consist of the following:
Installation and optimization of all computer network components.
3
<PAGE>
Understanding accounting, monthly, and daily reports.
Administration of A/R collection procedures.
Work order, payment, and adjustment processing.
Switch Manager (if applicable)
Table updates and changes.
Roamer distribution (incollects and outcollects).
Documentation.
B. Any additional training, after initial training, requested by Customer
shall be at the hourly rate of $100.00. The Customer shall reimburse
H.O. for all reasonable out of pocket expenses, such as travel, meals
and lodging, incurred by H.O. in connection with any additional
training requested by Customer.
C. H.O. shall invoice Customer on a monthly basis following the final
bill run for the month, a maintenance fee equal to the greater of:
i) the sum of:
<TABLE>
<S> <C> <C> <C> <C>
(1) $1.60 for each active phone from 0 to 100,000
(2) $1.50 for each active phone from 100,001 to 200,000
(3) $1.40 for each active phone from 200,001 to 300,000
(4) $1.30 for each active phone from 300,001 to 400,000
(5) $1.20 for each active phone from 400,001 to 500,000
(6) $1.10 for each active phone from 500,001 to 600,000
(7) $1.00 for each active phone from 600,001 to 1,000,000
(8) $0.90 for each active phone above 1,000,001
(volumes are tiered discounts)
(6) $.50 for each non-cellular service, i.e. paging & internet
</TABLE>
or
ii) $3,000.00 per file server site.
6. MAINTENANCE. The maintenance pricing fee covers (a) all updates and
modifications as requested by Customer which H.O. furnishes without charge
to all Customers of the Licensed Software (software releases) and (b)
telephone support from 8:00 AM Eastern Standard Time - 8:00 PM Pacific
Standard Time, Monday through Friday, except holidays. After hours
emergency support shall be through the use of a 24 hour pager. Maintenance
shall be performed from remote location through the use of one, or more if
necessary, frame relay or equivalent connection to H.O. offices. The
expense of such lines shall be passed through to, and paid for by the
Customer. All updates and modifications will be furnished in operable
condition. The maintenance fee does not cover "customizations".
Customizations are substantial modifications to the Licensed Software made
on behalf of Customer and not furnished to all other H.O. clients.
Customizations, if feasible, shall be made at Customers written request, at
the rate of $100.00 per man-hour. Customer shall not make any modifications
or additions to the Licensed Software or derivative works of the Licensed
Software without the prior written consent of H.O. H.O. shall not be
responsible for maintenance or support of any portion of the Licensed
Software affected by modifications, additions, or derivative works made
4
<PAGE>
by the Customer. H.O. shall have sole and exclusive rights in and ownership
of all additions to, modifications, derivative works, and customizations of
the Licensed Software. Customer will afford to the representatives of H.O.
access, during normal business hours, to Customer's premises sufficient to
enable H.O. to inspect, repair, replace or remove any equipment or other
assets of H.O. installed or otherwise present on Customer's premises.
A. H.O. Software shall provide roaming distribution for Customer at no
additional charge. Roaming distribution is considered the processing
of Customer outcollects, timely delivery of those records to the
appropriate clearinghouse, and timely delivery of incollects as they
are received from the appropriate clearinghouse for inclusion in
Customers monthly billing process. Timely is defined as the submission
of outcollect messages to the appropriate clearinghouse within 30 days
of the call occurrence, or the industry standard as defined by
Cibernet Corp. of Washington DC, whichever is shorter.
B. H.O. Software will contract with a third party vendor for print and
mail services for Customers' monthly bill processing (including
postage, printing, stuffing, mailing, micro fiche/CD Rom). Customer
may also transmit dunning messages to the printing vendor supplying
print and mail services. Upon receipt of the printers bill image tape
or electronic transmission from Customer, H.O. guarantees a turnaround
time of three (3) days if the tape or electronic transmission is in
readable format. In the event H.O. is unable to provide printing
services, Customer shall, in addition to any other rights it may
possess, have the right to contract directly with any third party,
including H.O.'s vendor, for printing services. All costs, as
referenced in Addendum B, associated with this Paragraph B shall be
the responsibility of the Customer.
C. H.O. will provide the necessary computer equipment for Customer use
during the term or terms of the Agreement. This equipment does not
include any adjunct processors needed for communication to or from the
switch for call collection and/or service provisioning or any
point-of-sale equipment. The right to title of ownership of the
equipment shall be retained by H.O. Software. Provision of the
computer hardware shall include the Designated CPU; printer;
necessary tape drive devices; I/0 terminal device server for remote
offices and a high-speed modem for maintenance communications. H.O.
will not provide cables or cabling services, back up tapes,
terminals or paper stock for reports and/or dunning notices. H.O.
shall be responsible for the maintenance, repair, up grades, and
replacement of the computer hardware in the event of failure or
factory defects (excluding misuse, abuse, neglect, or natural
disaster) during the term of this Agreement. In the event of a
failure, replacement components shall be shipped via overnight
carrier to Customer. Client will use best efforts to assist H.O. in
its maintenance, repair up grades, and replacement of computer
parts. If Customer is unable to provide the necessary assistance
H.O. will dispatch support personnel or dispatch contracted support
personnel.
D. H.O. will maintain enough memory (RAM) and disk drive space to provide
on line retrieval of six (6) months call detail and 12 months account
level detail inclusive of
5
<PAGE>
memos and work orders. Postage and shipping charges shall be paid
by the shipping party in all cases for the shipment of repaired or
replacement parts. All costs arising from the maintenance, repair
or replacement of the hardware resulting from lightning, electrical
surges or Acts of God shall be the responsibility of the Customer.
7. LIMITATION OF LIABILITY. H.O.'s LIABILITY FOR ALL DAMAGES OCCURRING UNDER
THIS AGREEMENT FROM ANY CAUSE OF ACTION WHATSOEVER EXCEPT INTENTIONAL,
WILLFUL MALFEASANCE SHALL NOT EXCEED THE AVERAGE OF THE THREE PREVIOUS
MONTHS MAINTENANCE FEES PAID BY CUSTOMER. NOTWITHSTANDING ANY OTHER
PROVISION CONTAINED HEREIN, H.O. SOFTWARE SHALL IN NO WAY BE LIABLE FOR
LOST PROFITS, LOST COMPUTER TIME, OR ANY OTHER INCIDENTAL OR CONSEQUENTIAL
DAMAGES. THE OCCURRENCE OF ANY LOSS REIMBURSED TO CUSTOMER UNDER THIS
PROVISION SHALL BE IN THE FORM OF CREDITS AGAINST OUTSTANDING INVOICE
BALANCES DUE TO H.O.
8. INFRINGEMENT INDEMNITY. Notwithstanding anything to the contrary in this
Agreement, H.O. will, at its own expense, defend any action brought against
Customer to the extent such action is based on a claim that the Licensed
Software, used within the scope of the license granted herein, infringes a
copyright perfected under United States statute, infringes a patent granted
under United States law, or constitutes an unlawful disclosure, use, or
misappropriation of another party's trade secrets or similar property
right. H.O. Software will bear the expense of such defense and pay any
damages and attorneys' fees finally awarded by a court of competent
jurisdiction which are attributable to such claim, provided that Customer
notifies H.O. Software promptly in writing of the claim, and that Customer
allows H.O. Software to fully direct the defense or settlement of such
claim. H.O. will not be responsible for any settlement or compromise made
without its consent. Should the Licensed Software, or any component
thereof, become, or in H.O.'s reasonable opinion, be likely to become, the
subject of a claim subject to the provisions of this Section 8, then H.O.
may, at its option, use commercially reasonable means to procure for the
Customer the right to continue using the Licensed Software so that it
becomes non-infringing provided that the level of services rendered to
Customer will be materially equivalent to the services rendered prior to
such replacement or modification.
9. NO TRANSFER OR EXPORT. Except to a wholly owned subsidiary, Customer shall
not assign, sub license, or otherwise transfer, in whole or in part, this
Agreement or any license or right granted hereunder, and Customer shall not
permit any such assignment, sub license, or other transfer without H.O.'s
written consent. Customer shall not export the Licensed Software outside of
the United States without the prior written consent of H.O. H.O. may at
its sole discretion assign or otherwise transfer its rights and obligations
under this Agreement to any third party, whether of not affiliated with
H.O., upon notice to Customer of such assignment or transfer, with such
assignment or transfer being effective as of the date specified in such
notice.
6
<PAGE>
10. DEFAULT AND TERMINATION.
A. Termination for cause. Except as provided in Section 3, in the event
that either party hereto materially defaults in the performance of any
of its duties or obligations hereunder, which default shall not be
substantially cured within 30 days after written notice is given to
the defaulting party specifying the default, or, with respect to any
default which cannot be reasonably cured within 30 days, if the
defaulting party fails to proceed within 30 days to commence curing
said default and thereafter to proceed expeditiously to substantially
cure the same, then the party not in default may, by giving written
notice thereof to the defaulting party, terminate this Agreement as of
a date specified in such notice of termination.
B. If Customer fails to comply with Paragraphs 2, 3.A, or 9, then the
provisions of Section 10.A apply, except to the extent a different
remedy is otherwise specified. Upon termination of the Agreement
pursuant to Section 3 or Section 10.A, the License granted hereunder
shall cease and Customer shall immediately destroy the Licensed
Software and any related materials, equipment or other assets, unless
H.O. requests, in writing, the return of any such materials. In this
event, such materials shall be immediately returned. Customer shall
furnish H.O. with a written certificate stating that the original
Licensed Software and any backup copies of the Licensed Software in
the Customer's possession have been destroyed. Notwithstanding any
provisions contained herein, if notification to terminate this
Agreement is received from the Customer during the first year, the
Customer agrees to reimburse H.O. for hardware purchases, start up
expenses, and installation expenses incurred by H.O.
11. GENERAL. This Agreement shall constitute the entire agreement between the
parties and supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof. This Agreement shall be
binding on the parties and their respective successors and assigns. The
parties acknowledge that this Agreement shall remain in full force and
effect in accordance with its terms notwithstanding any merger of Customer
with or into any other person. Customer shall not sell, assign, transfer or
otherwise dispose of all or substantially all of its assets to any person,
in any transaction or series of related transactions, unless the transferee
or assignee of Customer's assets shall assume all obligations of Customer
hereunder. This Agreement shall not be modified except by written document
signed by both parties. ThIs Agreement shall be governed by the laws of the
State of Georgia. Any waiver of any breach of any provision of this
Agreement shall not operate as a waiver of any subsequent breach. If any
provisions of this Agreement are held invalid or unenforceable, the
validity and enforceability of the remaining provisions shall in no way be
affected or impaired thereby.
12. So long as all electronic interfaces with the HO CIMS application
(including but not limited to the MTSO) are Y2K compatible, HO Software
warrants that its HO CIMS application will be capable of: 1) accurately
processing date information
7
<PAGE>
before, during, and after midnight, December 31, 1999, including but not
limited to accepting date input, providing date output, and performing
calculations and comparisons on dates or portions of dates. Date
interpretation and manipulation must be correct for all valid date
values within the application domain; 2) function accurately and without
interruption before, during, and after January 1, 2000, without any
change in operations associated with the advent of the new century; 3)
respond to two-digit year-date input in a new way that resolves the
ambiguity of the century in a disclosed, defined and predetermined
manner. Interfacing software must make the same century assumptions when
processing two-digit years; 4) process 2000 as a leap year; 5) and
correctly process any date with a year specified as "99" and "00".
13. H.O. and Customer agree that each others employees shall not be hired,
induced or otherwise persuaded to become an employee or agent of the other
without the written consent of the other party.
14. Escrow of Software
Within 90 days of the execution of this license agreement, HO Software shall
contract with a third party Escrow Provider for the on-going storage and
protection of the source code and related documentation for all products made
available to Customer under this License Agreement. The Escrow provider shall be
mutually agreed to by HO Software and the Customer. Immediately following the
execution of the contract HO shall deposit, with the Escrow provider, a copy of
the source code and related documentation for the release or releases of
software being made available to the Customer. Further, as additional versions
of the software are created and issued by HO, HO will provide copies of source
code and related documentation to the Escrow Provider within 30 days of the new
version being utilized by the Customer. The term of the Escrow agreement shall
coincide with the term of this license agreement.
The Escrow contract will be established such that deposited materials may only
be released to the Customer under the following conditions:
HO Software or any subsequent acquirer of HO Software ceases operation
as a provider of the HO Cellular Information Management System (HO
CIMS);
HO Software ceases to provide Maintenance as defined in paragraph 6
for a period of 12 consecutive months;
It is understood that the release of deposited materials shall be solely to
allow the Customer to continue using the software for the originally intended
purposes as defined else where in this license agreement. Under no circumstances
will the release of deposited materials to Customer be for any purpose other
than for Customer to use for internal processing of the Customer's transactions.
Customer represents that it has read this Agreement and understands and agrees
to all terms and conditions stated herein.
8
<PAGE>
ACCEPTED: ACCEPTED:
H.O. SYSTEMS, INC. Dobson Communications Corporation
- ------------------------------ -----------------------------------
SIGNATURE: /s/ Steven Price SIGNATURE /s/ G. Edward Evans
- ------------------------------ -----------------------------------
Name: Steven Price Name: G. Edward Evans
- ------------------------------ -----------------------------------
Title: President Title: President
- ------------------------------ -----------------------------------
9
<PAGE>
Addendum A
1. H.O. Software covenants that a Graphical User Interface (GUI) to Customer
in release 19.0 subject to design specifications to be determined by H.O.
Software. The GUI interface is a "front end" to the core HOCIMS system and
will be used to access customer data, support customer service and execute
workorders and adjustments to accounts. H.O. Software agrees to commit
necessary resources in order to complete the release of a GUI.
2. H.O. agrees to supply a Fax on demand product for reprints of customer bill
images.
3. H.O. agrees to interface with an AVR system that will be selected by
Customer to support automated voice response system for customer service
inquiry regarding payments, usage, due dates, etc.
4. H.O. agrees to provide an on-site representative to be trained in Savannah
for assignment in Oklahoma City for a period of one year. Expenses and
salary to be paid for by Customer. Salary to be capped at 50,000 annually.
Benefits and moving expenses are to be paid by H.O.
10
<PAGE>
Exhibit 11
Dobson Communications Corporation
Earnings per Common Share
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in thousands, except per share amounts)
------------------------------------------------
1998 1997 1996
--------------- --------------- ------------
<S> <C> <C> <C>
Income (loss) before extraordinary items $ (50,395) $(15,384) $ (893)
Extraordinary item (2,166) (1,350) (527)
Dividends on preferred stock (23,955) (2,603) (849)
--------------- --------------- ------------
--------------- --------------- ------------
Net income (loss) applicable to common stockholders $ (76,516) $(19,337) $ (2,269)
--------------- --------------- ------------
--------------- --------------- ------------
Basic net income (loss) applicable to common
shareholders per common share:
Weighted average common shares outstanding 473,564 473,152 473,152
--------------- --------------- ------------
--------------- --------------- ------------
Income (loss) before extraordinary items $ (106.42) $ (32.52) $ (1.89)
Extraordinary item (4.57) (2.85) (1.12)
Dividends on preferred stock (50.58) (5.50) (1.79)
--------------- --------------- ------------
--------------- --------------- ------------
Net income (loss) applicable to common stockholders
per common share $ (161.57) $ (40.87) $ (4.80)
--------------- --------------- ------------
--------------- --------------- ------------
</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 21
SUBSIDIARIES AND PARTNERSHIPS
STATE OF INCORPORATION OR
NAME OF SUBSIDIARY ORGANIZATION
- ------------------ ------------
Corporations:
Dobson Communications Corporation Oklahoma
Dobson Operating Company Oklahoma
DOC Cellular Subsidiary Company Oklahoma
Dobson Cellular Systems, Inc. Oklahoma
Dobson Cellular of Sandusky, Inc. Oklahoma
Associated Telecommunications and
Technologies, Inc. Oklahoma
Dobson Cellular of Arizona, Inc. Oklahoma
Dobson Cellular of Kansas/Missouri, Inc. Oklahoma
Dobson Cellular Maryland, Inc. OKlahoma
Dobson Cellular Operations Company Oklahoma
Dobson Cellular of California, Inc. Oklahoma
Dobson Cellular of Imperial, Inc. Oklahoma
Dobson Cellular of Texas, Inc. Oklahoma
Dobson Cellular of Navarro, Inc. Oklahoma
Santa Cruz Cellular Telephone, Inc. California
Dobson/Sygnet Communications Co. Oklahoma
Sygnet Wireless, Inc. Ohio
Sygnet Communications, Inc. Ohio
Western Financial Services Corp. Oklahoma
DCC PCS, Inc. Oklahoma
Dobson Tower Company Oklahoma
Logix Communications Enterprises, Inc. Oklahoma
(f/k/a Dobson Wireline Company)
Logix Communications Corporation Oklahoma
Dobson Telephone Company (a/k/a McLoud
Telephone Company) Oklahoma
Dobson Fiber/FORTE of Colorado, Inc. Oklahoma
PARTNERSHIPS:
Gila River Cellular General Partnership Arizona
Forte of Colorado, General Partnership Oklahoma
Oklahoma Independent RSA 5 Partnership Oklahoma
Oklahoma Independent RSA 7 Partnership Oklahoma
Oklahoma RSA 3 Limited Partnership Oklahoma
Oklahoma RSA 5 Limited Partnership Oklahoma
Oklahoma RSA 7 Limited Partnership Oklahoma
Texas RSA No. 2 Partnership Oklahoma
109
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,323,734
<SECURITIES> 0
<RECEIVABLES> 45,342,768
<ALLOWANCES> 2,043,200
<INVENTORY> 5,158,512
<CURRENT-ASSETS> 104,287,298
<PP&E> 204,603,746
<DEPRECIATION> 31,549,417
<TOTAL-ASSETS> 1,703,426,633
<CURRENT-LIABILITIES> 90,800,086
<BONDS> 1,103,857,333
381,320,000
100,000
<COMMON> 573
<OTHER-SE> (156,883,166)
<TOTAL-LIABILITY-AND-EQUITY> 1,703,426,633
<SALES> 140,035,389
<TOTAL-REVENUES> 140,035,389
<CGS> 41,626,832
<TOTAL-COSTS> 137,181,260
<OTHER-EXPENSES> (3,858,290)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,978,898
<INCOME-PRETAX> (34,753,920)
<INCOME-TAX> (11,469,000)
<INCOME-CONTINUING> (23,284,920)
<DISCONTINUED> (27,110,387)
<EXTRAORDINARY> (2,165,439)
<CHANGES> 0
<NET-INCOME> (52,560,746)
<EPS-PRIMARY> (161.57)
<EPS-DILUTED> 0
</TABLE>
