<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NO. 333-71633
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DOBSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
OKLAHOMA 4812 73-1110531
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
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--------------------------
13439 NORTH BROADWAY EXTENSION BRUCE R. KNOOIHUIZEN
SUITE 200 13439 NORTH BROADWAY EXTENSION
SUITE 200
OKLAHOMA CITY, OKLAHOMA 73114 OKLAHOMA CITY, OKLAHOMA 73114
(405) 391-8500 (405) 391-8500
(Address, including Zip Code, and (Name, address, including Zip
telephone Code, and telephone number,
number, including area code, of including area code, of
registrant's principal agent for service)
executive offices)
--------------------------
COPIES TO:
THEODORE M. ELAM, ESQ.
MCAFEE & TAFT A PROFESSIONAL CORPORATION
TENTH FLOOR, TWO LEADERSHIP SQUARE
211 NORTH ROBINSON
OKLAHOMA CITY, OKLAHOMA 73102
(405) 235-9621
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement under the earlier effective registration statement for
the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
12 1/4% Senior Exchangeable Preferred
Stock, par value $1.00.............. 67,146 shares $1,000 $67,146,000 $18,667(1)
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2).
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8, MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED APRIL , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS
OFFER TO EXCHANGE
OUTSTANDING SHARES OF 12 1/4%
SENIOR EXCHANGEABLE PREFERRED STOCK
FOR
NEW SHARES OF 12 1/4% SENIOR EXCHANGEABLE PREFERRED STOCK
OF
DOBSON COMMUNICATIONS CORPORATION
TERMS OF EXCHANGE OFFER
We are offering to exchange shares of our outstanding 12 1/4% Senior
Exchangeable Preferred Stock for new shares of our 12 1/4% Senior Exchangeable
Preferred Stock which has been registered under the Securities Act. Our exchange
offer will expire at 5:00 p.m. New York City time on , 1999 unless we
extend the time of expiration.
There is currently no established trading market for the preferred stock,
and we do not expect that a trading market for the preferred stock will exist
following completion of this exchange offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY INVESTORS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE DISTRIBUTED IN THE
EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1999
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TABLE OF CONTENTS
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PAGE
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Summary.................................................................................................... 1
Where You Can Find More Information........................................................................ 15
Risk Factors............................................................................................... 16
Use of Proceeds............................................................................................ 27
The Exchange Offer......................................................................................... 28
Selected Consolidated Financial and Other Data............................................................. 38
Pro Forma Condensed Consolidated Financial Data............................................................ 41
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 45
Business................................................................................................... 56
Management................................................................................................. 80
Principal Shareholders..................................................................................... 89
Description of the Preferred Stock......................................................................... 90
Description of the Exchange Debentures..................................................................... 121
Description of Certain Indebtedness........................................................................ 153
Description of Capital Stock............................................................................... 164
Federal Income Tax Considerations.......................................................................... 174
Plan of Distribution....................................................................................... 186
Legal Matters.............................................................................................. 187
Experts.................................................................................................... 187
Certain Terms.............................................................................................. 189
Index to Financial Statements.............................................................................. F-1
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No person is authorized in connection with the offering made hereby to give
any information or to make any representation not contained in this prospectus
or the accompanying letter of transmittal and, if given or made, such
information or representation not contained herein must not be relied upon as
having been authorized by us.
------------------------
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of our outstanding shares of 12 1/4% Senior Exchangeable
Preferred Stock in any jurisdiction in which this exchange offer or the
acceptance thereof would not be in compliance with the securities or Blue Sky
laws of such jurisdiction. Neither the delivery of this prospectus nor the
accompanying letter of transmittal, nor any exchange made hereunder shall under
any circumstances imply that the information herein is correct as of any date
subsequent to the date hereof.
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SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND THE RELATED NOTES THAT WE INCLUDE
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES IN THIS PROSPECTUS TO "DOBSON", "OUR COMPANY" AND "WE" REFER TO
DOBSON COMMUNICATIONS CORPORATION AND ITS PREDECESSORS AND SUBSIDIARIES AS A
COMBINED ENTITY, EXCEPT WHERE IT IS MORE CLEAR THAT SUCH TERMS MEAN ONLY THE
PARENT COMPANY. ALL REFERENCES TO "SYGNET" ARE TO SYGNET WIRELESS, INC. AND ITS
WHOLLY OWNED SUBSIDIARY, SYGNET COMMUNICATIONS, INC. REFERENCE TO A FISCAL YEAR
END RELATE TO A YEAR ENDING ON DECEMBER 31. WE ENCOURAGE YOU TO READ THE ENTIRE
PROSPECTUS, INCLUDING THE SECTION ENTITLED "RISK FACTORS" AND THE FINANCIAL
STATEMENTS. CERTAIN CAPITALIZED TERMS ARE DEFINED IN "CERTAIN TERMS."
THE EXCHANGE OFFER
We completed on December 23, 1998 the private offering of $50.0 million of
12 1/4% Senior Exchangeable Preferred Stock. We entered into a registration
rights agreement with the initial purchaser in the private offering in which we
agreed, among other things, to deliver to you this prospectus and to complete
the exchange offer within 180 days of the issuance of the 12 1/4% Senior
Exchangeable Preferred Stock. You are entitled to exchange in the exchange offer
your outstanding shares of 12 1/4% Senior Exchangeable Preferred Stock for
registered shares of 12 1/4% Senior Preferred Stock with substantially identical
terms. If the Exchange Offer is not completed by June 21, 1999, then the
dividend rate on the 12 1/4% Senior Exchangeable Preferred Stock will be
increased to 12 3/4% per year. You should read the discussion under the heading
"Summary Description of the Preferred Stock" and "Description of the Preferred
Stock" for further information regarding the registered 12 1/4% Senior
Exchangeable Preferred Stock.
We believe that the shares of 12 1/4% Senior Exchangeable Preferred Stock
issued in the exchange offer may be resold by you without compliance with the
registration and prospectus delivery provisions of the Securities Act, subject
to certain conditions. You should read the discussion under the headings
"Summary of the Terms of Exchange Offer" and "The Exchange Offer" for further
information regarding the exchange offer and resale of the shares of 12 1/4%
Senior Exchangeable Preferred Stock.
WHO WE ARE
We are a leading provider of rural and suburban cellular telephone services.
Since we began providing our cellular service in 1990 in Oklahoma and the Texas
Panhandle, we have rapidly expanded our 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. At
December 31, 1998, our cellular systems covered a population of 5.7 million in
Arizona, California, Kansas, Maryland, Missouri, Ohio, Oklahoma, New York,
Pennsylvania and Texas. The Federal Communications Commission has divided the
United States into rural service areas ("RSAs") and metropolitan service areas
("MSAs"), and has issued separate licenses to conduct cellular telephone
operations in each RSA and MSA.
We believe that our 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. We focus 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 in which
customers of a cellular provider in a distant area use the cellular system of
the provider in the current area while the customer is located in or roaming in
the current area.
The following table sets forth certain data as of December 31, 1998 with
respect to our existing cellular markets. We determine market penetration by
dividing our total subscribers by the total population covered by the applicable
cellular license or authorizations that either we or our subsidiaries hold. In
September 1998, we closed into escrow our acquisition of the FCC license for,
and certain assets related to, Ohio 2 RSA for $39.3 million. In December 1998,
we closed into escrow our acquisition of the FCC license
1
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for, and certain assets related to Texas 10 RSA. On March 16, 1999 we purchased
13,611 subscribers in Ohio 2 RSA from the previous operator, which we have not
included in the following table. The previous operator of Texas 10 RSA estimates
the number of subscribers in that market at 1,400, which we have not included in
the following table. We are negotiating for the purchase of subscribers in Texas
10 RSA. We recently entered into an agreement for the purchase of the FCC
licenses for, and certain assets related to, Maryland 1 RSA for $9.1 million,
subject to adjustment. Maryland 1 covers a population of 29,800 and the present
operator has 400 subscribers. For a description of the markets, see
"Business--Markets and Systems."
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TOTAL TOTAL MARKET YEAR
MARKETS POPS OWNERSHIP NET POPS SUBSCRIBERS PENETRATION ACQUIRED
- ----------------------------------------- ---------- ------------- ---------- ----------- ------------- -------------------
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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 -- -- 1998
---------- ---------- -----------
Total.............................. 1,240,500 1,153,119 55,306
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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
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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
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NORTHERN REGION
Ohio 2................................. 262,100 100.0 262,100 -- -- 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
---------- ---------- -----------
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BUSINESS STRATEGY
Our business strategy is to focus on the development and acquisition of
rural and suburban cellular systems. The principal elements of our strategy
include:
- integrating the operations of systems we acquire with our existing
cellular operations to achieve economies of scale.
- continuing to maintain and expand strategic relationships with operators
of cellular systems in major MSAs near our systems, including roaming
agreements which allow our subscribers to use the system in the
neighboring MSAs and RSAs at favorable rates.
- distinguishing ourself as the local market's leading cellular services
provider, stressing our service quality, local sales offices and
commitment to the community.
2
<PAGE>
- attracting subscribers who are likely to generate high monthly revenue and
low churn rates.
- maintaining high levels of customer satisfaction through a variety of
techniques, including maintaining 24-hour customer service.
- increasing capacity and upgrading our systems to attract additional
subscribers, enhancing the use of our systems by existing subscribers,
increasing roaming activity and further enhancing the overall efficiency
of the network.
- continually evaluating opportunities to acquire additional rural and
suburban cellular systems.
OPERATIONS EXPECTED TO BE DISCONTINUED
Through our wholly owned subsidiary, Logix Communications Enterprises, Inc.
("Logix,"), we provide integrated local, long distance, data and other
telecommunications services, and long-haul fiber optic facilities to business
customers throughout the Southwest United States.
We have designated Logix an unrestricted subsidiary with the result that
Logix is not subject to certain covenant and similar restrictions which apply to
the rest of our operations. We intend to distribute the stock of Logix to
certain of our shareholders, subject to receipt of a favorable tax ruling from
the Internal Revenue Service or a favorable tax opinion acceptable to us and our
shareholders and to the receipt of consents from a majority of the principal
amount of our outstanding 11 3/4% Senior Notes due 2007. Holders of our
Preferred Stock will not participate in our distribution of Logix stock. Logix
is accounted for as a discontinued operation in our consolidated financial
statements.
RECENT EVENTS
On December 23, 1998, our subsidiary, Dobson/Sygnet Communications Company,
acquired Sygnet for $337.5 million in cash.
Effective January 16, 1999, we amended our operating agreement with AT&T
Wireless to modify the roaming airtime rates we will charge each other through
June 30, 2004. We believe the new rates will increase the total airtime used by
our customers which will increase our gross revenues.
Effective April 13, 1999, AT&T Wireless entered into an agreement to
purchase certain shares of our Class D Preferred Stock and common stock from one
of our existing shareholders for $20 million. AT&T Wireless' purchase is subject
to compliance with the Hart-Scott-Rodino Act and other customary closing
conditions. Following the consummation of its stock purchase, AT&T Wireless will
have the right to appoint one member of our Board of Directors and to jointly
appoint an additional Board member.
Our first quarter total operating revenues were approximately $68 million.
Our first quarter results do not include any operating revenue from the Ohio 2
RSA and Texas 10 RSA. Our subscriber count at March 31, 1999 was approximately
381,000, including 13,611 subscribers in Ohio 2 RSA that we purchased late in
the first quarter. This is an increase from 352,000 subscribers at December 31,
1998. Net subscriber additions for the quarter, not including subscribers
purchased in Ohio 2 RSA, were approximately 16,000.
On May 5, 1999, we expect to conclude a private offering of $170 million of
another class of our preferred stock. We will use the net proceeds of that
offering to redeem all outstanding shares of our Class F Preferred Stock and
Class G Preferred Stock, to reduce our bank debt and for general corporate
purposes.
3
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
In the exchange we are offering to exchange up to 67,146 outstanding shares
of our 12 1/4% Senior Exchangeable Preferred Stock including 64,646 shares
initially issued on December 23, 1998 together with additional shares issued in
the payment of dividends thereon (the "old shares"), for an equal number of
shares of our 12 1/4% Senior Exchangeable Preferred Stock ("new shares," and,
together with old shares the "Preferred Stock"). The form and terms of the new
shares are identical in all material respects to the form and terms of the
outstanding old shares except that the new shares have been registered under the
Securities Act of 1933 and, therefore, are not entitled to the benefits of the
registration rights granted under the registration rights agreement, executed as
part of the offering of the outstanding old shares.
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Registration rights agreement..... You are entitled to exchange your old shares for
registered new shares with substantially identical
terms. The exchange offer is intended to satisfy these
rights. After the exchange offer is complete, you will
no longer be entitled to any exchange or registration
rights with respect to your Preferred Stock.
The exchange offer................ We are offering to exchange one new share for each old
share. We will accept for exchange all outstanding old
shares that are validly tendered and not validly
withdrawn. In order to be accepted, an outstanding old
share must be properly tendered and accepted. After
consummation of the exchange offer, holders of old
shares which are not exchanged will continue to be
subject to the existing restrictions upon the transfer
of old shares and we will have no further obligation to
such holders to provide for the registration of the old
shares under the Securities Act.
Shelf registration................ We may be required to file a shelf registration
statement with respect to our outstanding old shares if:
- the Securities and Exchange Commission issues an
interpretation that we are not permitted to effect
the exchange offer,
- we do not conclude the exchange offer by June 23,
1999,
- an initial purchaser of the old shares requests
that we file a shelf registration statement with
respect to notes held by the initial purchaser,
- a holder of old notes
(a) is not eligible to participate in the
exchange offer, or
(b) has participated in the exchange offer but
does not receive freely tradeable new shares,
- the initial purchaser has received new shares in
the exchange offer or has otherwise been issued new
shares in exchange for old shares constituting a
portion of an unsold allotment, which new shares
are not freely tradeable.
Resale of new shares.............. Based on interpretations by the staff of the Securities
and Exchange Commission set forth in no-action letters
issued to third parties, including "Exxon Holdings
Corporation" (available May 13, 1998) and "Morgan
Stanley & Co. Incorporated" (available June 5, 1991), we
believe that you may offer the new shares for resale,
resell the new shares and otherwise transfer the new
shares without compliance with the registration and
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4
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prospectus delivery provisions of the Securities Act,
provided that:
- you acquire the new shares in the exchange offer
in the ordinary course of business;
- you have no arrangement or understanding with any
person to participate in the distribution of the
new shares that you obtain in the exchange offer;
- you are not a broker-dealer who purchased such
outstanding Preferred Stock directly from us for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act; and
- you are not an "affiliate".
We intend to rely on the existing no-action letters and
we do not intend to seek a no-action letter from the
Securities and Exchange Commission with respect to the
resale of the new shares.
The expiration date............... The exchange offer will expire at 5:00 p.m., New York
City time, , 1999, unless we decide to extend
the expiration date.
Accrued dividends on the new
shares and the outstanding old
shares.......................... Dividends on the new shares will accrue from January 15,
1999. If we accept your old shares you will not receive
any payment in respect of dividends on such outstanding
old shares accrued from January 15, 1999 to the date of
the issuance of the new shares. Consequently, holders
who exchange their outstanding old shares for new shares
will receive the same dividend payment on April 15,
1999, which is the first dividend payment date with
respect to the outstanding old shares and the new shares
to be issued in the exchange offer that they would have
received had they not accepted the exchange offer.
Termination of the exchange
offer........................... We may terminate the exchange offer at any time prior to
the expiration date if we determine that our ability to
proceed with the exchange offer could be materially
impaired due to any legal or governmental action, new
law, statute, rule or regulation or any interpretation
of the staff of the Securities and Exchange Commission
of any existing law, statute, rule or regulation. We do
not expect any of the foregoing conditions to occur,
although there can be no assurance that such conditions
will not occur. Holders of outstanding old shares will
have certain rights against under the registration
rights agreement executed as part of the offering of the
outstanding old shares should we fail to consummate the
exchange offer.
Conditions to the exchange
offer........................... The exchange offer is subject to certain conditions,
which may be waived by us. See "The Exchange
Offer--Conditions of the exchange offer." The exchange
offer is not conditioned upon any minimum number of old
shares being tendered.
Special procedures for beneficial
owners.......................... If you are the beneficial owner of old shares and your
name does not appear on a security position listing of
the Depository Trust
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5
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Company as the holder of such old shares or if you are a
beneficial owner of old shares that are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender such old
shares or registered old shares in the exchange offer,
you should contact the person in whose name your old
shares are registered promptly and instruct that person
to tender on your behalf. If such beneficial holder
wished to tender on his own behalf such beneficial
holder must, prior to completing and executing the
letter of transmittal and delivering its outstanding old
shares either make appropriate arrangements to register
ownership of the outstanding old shares in such holder's
name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may
take considerable time.
Guaranteed delivery procedures.... If you wish to tender your old shares and time will not
permit your required documents to reach the Exchange
Agent by the expiration date, or the procedure for
book-entry transfer cannot be completed on time or
certificates for registered old shares cannot be
delivered on time, you may tender your old shares
pursuant to the procedures described in this prospectus
under the heading "The Exchange Offer--Terms of the
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal rights................. You may withdraw the tender of your old shares at any
time prior to 5:00 p.m., New York City time, on
, 1999, unless your old shares were previously
accepted for exchange.
Acceptance of outstanding old
shares and delivery of new
shares.......................... Subject to certain conditions as described more fully
under "The Exchange Offer--Conditions of the exchange
offer", we will accept for exchange any and all
outstanding old shares which are properly tendered in
the exchange offer prior to 5:00 p.m., New York City
time, on the expiration date. The new shares issued
pursuant to the exchange offer will be delivered
promptly to you following the expiration date.
Federal income tax
considerations.................. The exchange of the old shares will generally not be a
taxable exchange for United States federal income tax
purposes. We believe you will not recognize any taxable
gain or loss or any income as a result of such exchange.
Use of proceeds................... We will not receive any proceeds from the issuance of
new shares pursuant to the exchange offer. We will pay
all expenses incident to the exchange offer.
Exchange agent.................... United States Trust Company of New York is serving as
the exchange agent in connection with the exchange
offer. The exchange agent can be reached at Corporate
Trust Administration, 114 West 47th Street, New York, NY
10036-1532. For more information with respect to the
exchange offer, the telephone number for the exchange
agent is (212) 852-1000 and the facsimile number for the
exchange agent is (212) 852-1625.
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SUMMARY DESCRIPTION OF THE NEW SHARES
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Securities offered................ Shares of our 12 1/4% Senior Exchangeable Preferred
Stock.
Dividends......................... Dividends on the Preferred Stock are payable in cash or,
on or before January 15, 2003, at our option, in
additional shares of Preferred Stock, on each January
15, April 15, July 15 and October 15, beginning April
15, 1999. For federal income tax purposes, we do not
expect these distributions with respect to the Preferred
Stock to qualify as dividends. Instead, we expect these
distributions to be treated as a return of capital until
we have earnings and profits as determined under
applicable federal income tax principles. See "Federal
Income Tax Considerations to U.S. Holders--Purchase,
Ownership and Disposition of the Preferred
Stock--Distributions on the Preferred Stock."
Liquidation preference............ $1,000 per share, plus accrued dividends.
Voting............................ Holders of the Preferred Stock will have no voting
rights except as provided by law and as provided in the
certificate of designation for the Preferred Stock. If
we fail to pay dividends for any four quarters, whether
or not consecutive, or upon certain other events
including our failure to comply with covenants and to
pay the mandatory redemption price when due, then the
number of directors that make up our Board of Directors
will be increased to permit the holders of the majority
of the then outstanding shares of Preferred Stock,
voting separately as a class, to elect two directors.
Mandatory redemption.............. We must redeem the Preferred Stock on January 15, 2008
(subject to the legal availability of funds) at a
redemption price equal to the liquidation preference,
plus accrued dividends to the redemption date.
Optional redemption............... We may redeem any of the Preferred Stock beginning
January 15, 2003 at the redemption prices set forth in
this Prospectus.
Public equity offering optional
redemption...................... Before January 15, 2001, we may redeem up to 35% of the
aggregate liquidation preference amount of the Preferred
Stock at a redemption price equal to 112.250% of its
liquidation preference amount, plus unpaid dividends,
with net proceeds from a public offering of our common
stock if at least 65% of the aggregate liquidation
preference amount of Preferred Stock originally issued
remains outstanding.
Ranking........................... The Preferred Stock ranks:
- equally with our Senior Preferred Stock;
- senior to all other classes of our outstanding
preferred stock and to all of our other capital
stock;
- equally with any capital stock we may issue in the
future the terms of which expressly provide that it
will rank equally with the Preferred Stock; and
- junior to all of our capital stock we may issue in
the future
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the terms of which expressly provide that such
stock will rank senior to the Preferred Stock. As
of the date of this prospectus, all of our
outstanding of our capital stock, other than
Senior Preferred Stock, would rank junior to the
Preferred Stock. At December 31, 1998, we had
$241.3 million liquidation preference of Senior
Preferred Stock outstanding.
Optional exchange feature......... We may exchange the Preferred Stock in whole but not in
part into exchange debentures if the conditions
described in the certificate of designation for the
Preferred Stock are satisfied.
Certain covenants................. The certificate of designation for the Preferred Stock
contains certain covenants that restrict our ability and
the ability of certain of our subsidiaries to:
- incur additional indebtedness and issue certain
capital stock,
- create liens,
- pay dividends on or make distributions in respect
of capital stock,
- redeem or repurchase our capital stock,
- make investments or certain other restricted
payments,
- sell assets,
- create restrictions on the ability of our
restricted subsidiaries to make certain payments,
- issue or sell stock of restricted subsidiaries,
- enter into transactions with our stockholders or
affiliates,
- incur senior subordinated indebtedness, or
- effect a consolidation or merger.
However, these covenants are subject to a number of
important qualifications and exceptions, which are
described elsewhere in this prospectus under the heading
"Description of the Preferred Stock--Covenants."
We have designated our subsidiaries, Logix,
Dobson/Sygnet and Sygnet and each of their subsidiaries
as unrestricted subsidiaries. As a result, Logix,
Dobson/Sygnet and Sygnet and each of their subsidiaries
are not subject to the covenants contained in the
certificate of designation governing the Preferred
Stock.
Change of control................. Upon change of control events, we must make an offer to
purchase the Preferred Stock at a purchase price equal
to 101% of the liquidation preference of the Preferred
Stock, plus unpaid dividends. See "Description of the
Preferred Stock."
SUMMARY DESCRIPTION OF THE EXCHANGE DEBENTURES
Securities description............ 12 1/4% Senior Subordinated Debentures due 2008 in an
aggregate principal amount equal to the aggregate
liquidation preference of, and accrued dividends on, the
Preferred Stock
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
outstanding on the exchange date as that term is defined
under "Description of the Exchange Debentures".
Maturity.......................... January 15, 2008.
Interest payment dates............ January 15 and July 15 of each year, beginning with the
first of such dates to occur after the exchange date.
Before January 15, 2003, we may pay interest on the
Exchange Debentures by issuing additional Exchange
Debentures.
Optional redemption............... We may redeem any of the Exchange Debentures beginning
January 15, 2003 at the redemption prices set forth in
this Prospectus.
Before January 15, 2001, we may redeem Exchange
Debentures having an aggregate principal amount of up to
35% of the principal amount of all Exchange Debentures
we may have issued, at a redemption price equal to
112.250% of the principal amount of the Exchange
Debentures being redeemed, plus accrued and unpaid
interest, with the proceeds of one or more sales of our
common stock. We may make such redemption only if such
redemption occurs within 180 days after completion of
such sale and after any such redemption at least 65% of
the aggregate principal amount of Exchange Debentures
originally issued remains outstanding.
Any optional redemption of Exchange Debentures must be
pro rata with the optional redemption of our outstanding
Senior Exchange Debentures that we may issue with
respect to our Senior Preferred Stock.
Ranking........................... Our Exchange Debentures will be senior subordinated
indebtedness, ranking junior to all of our existing and
future Senior Indebtedness as that term is defined under
"Description of the Exchange Debentures", and senior to
all of our subordinated indebtedness. Our Exchange
Debentures will rank equally with any Senior Exchange
Debentures that may be issued. At December 31, 1998, we
had $1,121.6 million of consolidated indebtedness
outstanding, and our subsidiaries had $961.6 million of
indebtedness outstanding, all of which would have been
effectively senior to the Exchange Debentures.
Certain covenants................. The indenture under which our Exchange Debentures would
be issued will contain certain covenants that restrict
our ability and the ability of certain of our
subsidiaries to:
- incur additional indebtedness,
- create liens,
- pay dividends on or make distributions in respect
of capital stock,
- redeem or repurchase our capital stock,
- make investments or certain other restricted
payments,
- sell assets,
- create restrictions on the ability of our
restricted subsidiaries to make certain payments,
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
- issue or sell stock of restricted subsidiaries,
- enter into transactions with stockholders or
affiliates,
- incur senior subordinated indebtedness, or
- effect a consolidation or merger.
However, these covenants are subject to a number of
important qualifications and exceptions, which are
described elsewhere in this prospectus under the heading
"Description of the Exchange Debentures--Covenants."
We have designated our subsidiaries, Logix, Dobson Tower
Company, Dobson/Sygnet and each of their subsidiaries as
unrestricted subsidiaries. As a result, Logix, Dobson
Tower Company, Dobson/Sygnet and each of their
subsidiaries will not be subject to the covenants
contained in the Exchange Debenture indenture.
Registration requirements......... Our Exchange Debentures may not be issued unless such
issuance is registered under the Securities Act or is
exempt from registration.
Change of control................. Upon certain change of control events, we must make an
offer to purchase our Exchange Debentures at a purchase
price equal to 101% of the principal amount of our
Exchange Debentures, plus accrued interest. Our ability
to make this offer is subject to certain limitations
under the terms of our current and any possible future
indebtedness. See "Description of the Exchange
Debentures."
</TABLE>
RISK FACTORS
You should consider carefully the information set forth under the caption
"Risk Factors" beginning on page 16 and all the other information set forth in
this prospectus before you decide whether to participate in the exchange offer.
USE OF PROCEEDS
We will not receive any proceeds from the issuance of our new shares in the
exchange offer pursuant to this prospectus.
10
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary unaudited pro forma consolidated financial data were
derived from the pro forma condensed consolidated financial data included
elsewhere in this prospectus. The pro forma statement of operations data for the
year ended December 31, 1998 give effect to the consummation of our acquisitions
of California 4 and Sygnet and the related financing, as if they occurred on
January 1, 1998. The summary unaudited pro forma consolidated financial data are
based on currently available information and certain assumptions that we believe
are reasonable. The pro forma financial information does not purport to
represent what our results of operations would have been if these transactions
had been completed on the dates indicated, nor does it purport to indicate our
future financial position or results of our future operations. You should read
the pro forma consolidated financial data in conjunction with "Selected
Consolidated Financial and Other Data," "Pro Forma Condensed Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes that
we include elsewhere in this prospectus.
On a pro forma basis, our earnings would have been insufficient to cover
combined fixed charges and preferred stock dividends by $179.6 million for the
year ended December 31, 1998. We define "earnings" as earnings before
extraordinary items and accounting changes, interest expense, amortization of
deferred financing costs, taxes and a portion of rent expense under operating
leases representative of interest. Fixed charges consist of interest expense,
amortization of deferred financing costs and a portion of rent expense under
operating leases representative of interest.
The average monthly revenue per cellular subscriber excludes roaming revenue
and equipment revenue.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
PRO FORMA
($ IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Service revenue............................................................................ $ 136,587
Roaming revenue............................................................................ 96,850
Equipment sales............................................................................ 10,197
Other revenue.............................................................................. 1,752
-----------------
Total operating revenue.................................................................... 245,386
-----------------
Operating costs and expenses:
Cost of services........................................................................... 44,983
Cost of equipment.......................................................................... 19,237
Marketing and selling...................................................................... 37,558
General and administrative................................................................. 43,390
Depreciation and amortization.............................................................. 121,042
-----------------
Total operating expenses................................................................... 266,210
-----------------
Operating loss............................................................................... (20,824)
Interest expense............................................................................. (104,075)
Other income (expense), net.................................................................. 3,637
-----------------
Loss before minority interests and taxes..................................................... (121,262)
Minority interests in income of subsidiaries................................................. (2,487)
Income tax benefit........................................................................... 47,025
-----------------
Loss from continuing operations before extraordinary items................................... (76,724)
Dividends on preferred stock................................................................. (55,824)
-----------------
Net loss from continuing operations applicable to common stockholders........................ $(132,548)
-----------------
-----------------
OTHER FINANCIAL DATA:
Ratio of earnings to combined fixed charges and preferred stock dividends.................... --
Capital expenditures, excluding cost of acquisitions......................................... $ 69,250
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
PRO FORMA
($ IN THOUSANDS)
<S> <C>
OTHER DATA:
Cellular subscribers (at period end)......................................................... 352,005
Cellular penetration (at period end)......................................................... 6.88%
Cellular churn............................................................................... 1.7%
Average monthly revenue per cellular subscriber.............................................. $ 37
</TABLE>
12
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table set forth certain of our historical financial data. Our
summary historical financial data as of and for each of the three years ended
December 31, 1998 were derived from our audited consolidated financial
statements. You should read the historical consolidated financial data in
conjunction with "Selected Consolidated Financial and Other Data," "Pro Forma
Condensed Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements, and
the related notes that we include elsewhere in this prospectus.
Our earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $2.3 million for the year ended December 31, 1996, by $21.6
million for the year ended December 31, 1997 and by $85.8 million for the year
ended December 31, 1998. We define "earnings" as earnings before extraordinary
items and accounting changes, interest expense, amortization of deferred
financing costs, taxes and a portion of rent expense under operating leases
representative of interest. Fixed charges consist of interest expense,
amortization of deferred financing costs and a portion of rent expense under
operating leases representative of interest.
We determine cellular penetration by dividing our total ending cellular
subscribers for the period by the estimated total population covered by
applicable FCC cellular licenses or authorizations that we hold.
The average monthly revenue per cellular subscriber excludes roaming revenue
and equipment revenue.
13
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER
SUBSCRIBER DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Service revenue................................................................ $ 17,593 $ 38,410 $ 69,402
Roaming revenue................................................................ 7,852 26,262 66,479
Equipment sales revenue........................................................ 662 1,455 4,130
Other revenue.................................................................. 832 587 24
--------- --------- ---------
Total operating revenue........................................................ 26,939 66,714 140,035
--------- --------- ---------
Operating expenses:
Cost of service................................................................ 6,119 16,431 33,267
Cost of equipment.............................................................. 2,571 4,046 8,360
Marketing and selling.......................................................... 4,462 10,669 22,393
General and administrative..................................................... 3,902 11,555 26,051
Depreciation and amortization.................................................. 5,241 16,798 47,110
--------- --------- ---------
Total operating expenses....................................................... 22,295 59,499 137,181
--------- --------- ---------
Operating income................................................................. 4,644 7,215 2,854
Interest expense................................................................. (4,284) (27,640) (38,979)
Other income (expense), net...................................................... (1,503) 2,777 3,858
Minority interests in income of subsidiaries..................................... (675) (1,693) (2,487)
Income tax benefit............................................................... 593 3,625 11,469
--------- --------- ---------
Loss from continuing operations before
extraordinary items............................................................ (1,225) (15,716) (23,285)
--------- --------- ---------
Income (loss) from discontinued operations....................................... 331 332 (27,110)
Extraordinary items.............................................................. (527) (1,350) (2,166)
--------- --------- ---------
Net loss......................................................................... $ (1,421) $ (16,734) $ (52,561)
Dividends on preferred stock..................................................... (849) (2,603) (23,955)
--------- --------- ---------
Net loss applicable to common stockholders....................................... $ (2,270) $ (19,337) $ (76,516)
--------- --------- ---------
--------- --------- ---------
OTHER FINANCIAL DATA:
Ratio of earnings to combined fixed charges and
preferred stock dividends...................................................... -- -- --
Capital expenditures, excluding cost of acquisitions............................. $ 13,536 $ 17,773 $ 55,289
OTHER DATA:
Cellular subscribers (at period end)............................................. 33,955 100,093 352,005
Cellular penetration (at period end)............................................. 5.8% 6.1% 6.8%
Cellular churn................................................................... 1.8% 1.9% 2.0%
Average monthly revenue per cellular subscriber.................................. $ 48 $ 41 $ 40
Cellular cell sites (at period end).............................................. 67 135 414
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
($ IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Net fixed assets............................................................................. $ 173,054
Total assets................................................................................. 1,703,427
Total debt................................................................................... 1,121,556
Mandatorily redeemable preferred stock....................................................... 381,320
Stockholders' deficit........................................................................ (156,783)
</TABLE>
14
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes a part of the registration statement which we
have filed with the Securities and Exchange Commission under the Securities Act.
As permitted by the rules and regulations of the Securities and Exchange
Commission, this prospectus does not contain all of the information contained in
the registration statement and its exhibits and schedules. Therefore, we refer
you to the registration statement and to its exhibits and schedules. For further
information about us and about the securities we are offering, you should
consult the registration statement and its exhibits and schedules. You should be
aware that statements contained in this prospectus concerning the provisions of
any documents filed as an exhibit to the registration statement or otherwise
filed with the Securities and Exchange Commission are our summaries of all
material provisions of these documents, and in each instance we refer to the
copy of the filed document. Our statements are qualified in their entirety by
such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934. As a result, we file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
reports, proxy statements and other information we file at the public reference
facilities maintained by the Securities and Exchange Commission at the Public
Reference Room, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference facilities. You may also obtain copies of
documents we file at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. You may also access this information electronically through the
Securities and Exchange Commission's web page on the Internet at
http://www.sec.gov. This web site contains reports, proxy and information
statements and other information regarding registrants such as ourselves that
have filed electronically with the Securities and Exchange Commission. You may
also access information regarding us through our web page on the Internet at
http://www.dobson.net.
The certificate of designation governing the outstanding shares of 12 1/4%
Senior Exchangeable Preferred Stock provides that we will furnish you with
copies of the periodic reports that we are required to file with the Securities
and Exchange Commission under the Exchange Act. Even if we are not subject to
the periodic reporting and informational requirements of the Exchange Act, we
will make such filings to the extent that the Securities and Exchange Commission
accepts such filings. We will make these filings regardless of whether we have a
class of securities registered under the Exchange Act. Furthermore, we will
provide you within 15 days after such filings with annual reports containing the
information required to be contained in Form 10-K, and quarterly reports
containing the information required to be contained in Form 10-Q promulgated by
the Exchange Act. From time to time, we will also provide such other information
as is required to be contained in Form 8-K promulgated by the Exchange Act. If
the Securities and Exchange Commission does not accept our filing of such
information, or if the filing of such information is prohibited by the Exchange
Act, we will then provide promptly upon written request, at our cost, copies of
such reports to you.
15
<PAGE>
RISK FACTORS
IN ADDITION TO THE INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING WHETHER OR NOT YOU
SHOULD PARTICIPATE IN THE EXCHANGE OFFER. CERTAIN CAPITALIZED TERMS ARE DEFINED
IN "CERTAIN TERMS."
WE HAVE A SIGNIFICANT AMOUNT OF INDEBTEDNESS WHICH MAY LIMIT OUR ABILITY TO MEET
OUR DEBT SERVICE AND DIVIDEND OBLIGATIONS, TO BORROW ADDITIONAL MONEYS AND TO
SURVIVE A DOWNTURN IN OUR BUSINESS.
At December 31, 1998, we had approximately $1,121.6 million of consolidated
indebtedness, all of which would rank senior to the Preferred Stock, $381.3
million aggregate liquidation preference of Senior Preferred Stock, a deficit in
consolidated stockholders' equity of $(156.8) million and $140.0 million of
availability under our credit facilities. The terms of the Preferred Stock also
allow us to incur additional indebtedness in the future. At December 31, 1998,
assuming that our acquisitions of California 4 and Sygnet, and the related
financing were completed at that time, our earnings would have been insufficient
to cover our fixed charges and preferred stock dividends by $179.6 million. See
"Description of the Preferred Stock," "Description of the Exchange Debentures,"
"Description of Certain Indebtedness" and "Description of Capital Stock."
We have designated our subsidiaries, Logix, Dobson Tower Company,
Dobson/Sygnet and each of their subsidiaries as unrestricted subsidiaries and
they will not be subject to the covenants contained in the certificate of
designation that governs the Preferred Stock. There will be no limit under the
certificate of designation on the amount of debt that Logix, Dobson Tower
Company, Dobson/Sygnet and each of their subsidiaries will be able to incur, or
on their ability to create liens.
Our level of indebtedness could have important consequences, including:
- the debt service requirements could make it more difficult for us to pay
cash dividends on the Preferred Stock or pay cash interest on the Exchange
Debentures, if issued;
- our ability to borrow additional money for working capital, capital
expenditures, debt service or dividend payment requirements or other
purposes is limited;
- a substantial portion of our future cash flow from operations, if any,
will be required to pay principal and interest payments on our
indebtedness and will not be available for our business;
- our flexibility in planning for, or reacting to changes in, our business
and our ability to take advantage of future business opportunities may be
restricted;
- we may be more highly leveraged than certain of our competitors, which may
place us at a competitive disadvantage; and
- our high degree of leverage could make us more vulnerable in the event of
a downturn in our business.
WE EXPECT TO REQUIRE SUBSTANTIAL AMOUNTS OF CAPITAL IN THE FUTURE.
We have required, and will likely continue to require, substantial capital
to further develop and expand our cellular systems. We have budgeted $45 to $50
million for capital expenditures in 1999, approximately $32 million of which is
for the purchase of cell site and switching equipment. These amounts include
expenditures related to the Texas 10, Ohio 2 and Maryland 1 systems that we will
acquire. We have not budgeted any amounts to be expended in 1999 with respect to
the buildout of our PCS systems. We may require additional financing for future
acquisitions and for buildout requirements related to our PCS licenses.
Sources of additional capital for us may include public and private equity
and debt financings, including vendor financing. The extent of additional
financing that we will require will depend on the success of our operations. We
may not be able to obtain any additional financing on terms acceptable to us
16
<PAGE>
and within the limitations contained in the certificate of designation for the
Preferred Stock and the Senior Preferred Stock, the indenture relating to our
11 3/4% Senior Notes due 2007, the certificates of designation for each of our
other series of preferred stock, the terms of our credit facilities, our other
indebtedness or any future financing arrangements. See "Description of the
Preferred Stock," "Description of the Exchange Debentures," "Description of
Certain Indebtedness" and "Description of Capital Stock."
WE MAY BE UNABLE TO MEET OUR DEBT SERVICE REQUIREMENTS AND DIVIDEND OBLIGATIONS.
We have experienced and will experience a substantial increase in total
indebtedness and in debt service and dividend requirements, and we and our
subsidiaries are, and will continue to be, subject to significant financial
restrictions and limitations. To be able to meet debt service and dividend
requirements, including obligations under our 11 3/4% Senior Notes due 2007, the
Senior Preferred Stock, the Preferred Stock, the Dobson/Sygnet 12 1/4% Senior
Notes due 2008 and our credit facilities, we must successfully implement our
business strategy of increasing market penetration, integrating the operations
of acquired systems and further developing our cellular systems. We cannot
assure you that we will successfully implement our strategy or that we will be
able to generate sufficient cash flow from operating activities to meet debt
service and dividend obligations, as well as other cash requirements, including
for working capital and capital expenditures.
If we are unable to satisfy any of the covenants under our credit
facilities, including financial covenants, we will be unable to borrow under
these facilities during that time. Our inability to access such financing could
result in the delay or abandonment of some or all of our plans, which could
limit our ability to meet debt service and dividend obligations and could have a
material adverse effect on our business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." The instruments governing certain of our indebtedness, including our
credit facilities, contain provisions making it an event of default if we or
certain of our subsidiaries fail to pay or perform certain obligations under
other indebtedness. See "--Restrictions imposed in our governing instruments may
adversely affect our operations." Our ability to borrow under our credit
facilities will be limited by the requirement that, on a quarterly basis
beginning June 30, 2000, the amount available under our credit facilities will
reduce until the facilities terminate in June 2006, and beginning December 2000,
the amount available under Dobson/Sygnet's credit facilities will reduce until
the facilities terminate in December 2007. The reduction in availability may
require us to make significant principal payments thereunder. See "Description
of Certain Indebtedness."
WE WILL NEED TO REFINANCE OUR INDEBTEDNESS AT MATURITY OR WE WILL NEED TO SELL
ASSETS TO MEET OUR FINANCIAL OBLIGATIONS.
We will need to refinance our indebtedness under our credit facilities,
11 3/4% Senior Notes due 2007 and Dobson/Sygnet's 12 1/4% Senior Notes due 2008
at their respective maturities. We will also need to refinance our mandatory
redemption obligations under the Preferred Stock, the Senior Preferred Stock and
our other preferred stock. In addition, in the event implementation of our
strategy to develop and expand our systems is delayed or we do not generate
sufficient cash flow to meet our debt service requirements or obligations with
respect to our preferred stock, we may need to seek additional financing. Our
ability and that of our subsidiaries to do so will depend on, among other
things, our financial condition at the time, the restrictions in the instruments
governing our indebtedness and other factors, including market conditions,
beyond our control.
Two of our credit facilities mature in 2006 and the Dobson/Sygnet credit
facilities mature in 2007. These credit facilities require substantial mandatory
prepayments prior to such dates. Our outstanding 11 3/4% Senior Notes due 2007
($160.0 million principal amount) mature April 15, 2007; and the Dobson/ Sygnet
12 1/4% Senior Notes due 2008 ($200.0 million principal amount) mature December
15, 2008. We must redeem the Senior Preferred Stock and the Preferred Stock on
January 15, 2008 at a redemption price of 100% of their liquidation preference
plus unpaid dividends. See "--We may be unable to pay cash dividends on the
Preferred Stock or interest on the Exchange Debentures." We must redeem
outstanding
17
<PAGE>
shares of our Class D Preferred Stock and Class E Preferred Stock at a
redemption price of 100% of their liquidation preference (an aggregate of $85.0
million) plus accrued and unpaid dividends upon vote of the holders of a
majority of the outstanding shares of each class, after December 31, 2013, or
upon our completion of an initial public offering of our common stock. We must
redeem outstanding shares of our Class F Preferred Stock at a redemption price
of 130% of the liquidation preference plus unpaid dividends at December 31,
2013. We must redeem outstanding shares of our Class G Preferred Stock and Class
H Preferred Stock at a redemption price of 100% of their liquidation preference
(an aggregate of $25.0 million) plus unpaid dividends, upon the vote of the
holders of a majority of the outstanding shares of each class, after December
31, 2013, or upon our completion of an initial public offering of our common
stock.
The following table reflects our mandatory redemption obligations with
respect to our outstanding shares of preferred stock of all classes, assuming
that:
- no shares are redeemed or converted prior to the mandatory redemption
date,
- we are required to redeem at the earliest time provided for mandatory
redemption, and
- all dividends payable in kind are so paid:
<TABLE>
<CAPTION>
REDEMPTION
CLASS OF PREFERRED STOCK REDEMPTION DATE AMOUNT(1)
- ---------------------------------------------------------- ------------------ --------------
<S> <C> <C>
Senior Preferred Stock.................................... January 2008 $ 428,715,000
Class D and E............................................. December 2013 85,000,000
Class F(2)................................................ December 2013 30,000,000
Class G and H(2).......................................... December 2013 25,000,000
--------------
Total................................................... $ 568,715,000
--------------
--------------
</TABLE>
- ------------------------
(1) Plus accrued and unpaid dividends.
(2) We have not issued any shares of our Class H Preferred Stock. We expect to
redeem all of our Class F and Class G Preferred Stock with the proceeds of
our private offering of $170 million of another class of preferred stock.
Following such redemption, we expect to retire all of our Class F, Class G
and Class H Preferred Stock.
See "Description of the Preferred Stock," "Description of the Exchange
Debentures," and "Description of Capital Stock."
Our failure to refinance any of our indebtedness or our preferred stock
redemption obligations may cause a default thereunder and under other of our
obligations and those of our subsidiaries. If we cannot obtain such financing or
refinancing, we could be forced to dispose of assets in order to make up for any
shortfall. At December 31, 1998, approximately 80.4% of our total assets
consisted of intangible assets, principally licenses granted by the FCC. The
value of our intangible assets will depend upon a variety of factors, including
the success of our cellular business and the wireless telecommunications
industry in general. In addition, transfers of interests in such licenses are
subject to FCC approval. As a result, we cannot assure you that our assets could
be sold quickly enough, or for sufficient amounts, to enable us to meet our
obligations, including our obligations with respect to the Senior Preferred
Stock and Preferred Stock.
THE PREFERRED STOCK AND EXCHANGE DEBENTURES RANK JUNIOR IN RIGHT OF PAYMENT TO
ALL OUR INDEBTEDNESS
The Preferred Stock ranks junior to all of our present and future
indebtedness and other liabilities, equally with the Senior Preferred Stock, and
senior to all classes of our common stock and all classes of our other preferred
stock. In the event of our bankruptcy, liquidation or reorganization, our assets
will be available to pay obligations on the Preferred Stock only after all of
our outstanding indebtedness and other liabilities have been paid in full, and
there may not be sufficient assets remaining to pay amounts payable
18
<PAGE>
on the Senior Preferred Stock and the Preferred Stock. The Preferred Stock also
effectively ranks junior in right of payment to all liabilities, including
indebtedness, of our subsidiaries. At December 31, 1998, we had approximately
$1,233.3 million of consolidated indebtedness and other liabilities, excluding
deferred credits for income taxes, outstanding ranking senior to the Preferred
Stock, and our subsidiaries had $1,073.3 million of liabilities, excluding
deferred credits for income taxes. See "Description of the Preferred
Stock--Ranking."
If we issue Exchange Debentures in exchange for the Preferred Stock, the
Exchange Debentures will rank junior to all of our Senior Indebtedness, as such
term is defined under "Description of the Exchange Debentures", including
indebtedness under our 11 3/4% Senior Notes due 2007 and our credit facilities.
Our Exchange Debentures will also rank effectively junior to all liabilities,
including indebtedness, of our subsidiaries. In the event of our bankruptcy,
liquidation or reorganization, we will be able to pay obligations on the
Exchange Debentures only after all of our outstanding Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts payable on the Exchange Debentures.
The Preferred Stock permits us to issue as dividends additional shares of
preferred stock which rank equally with the Preferred Stock. The Exchange
Debentures permit us to issue as interest additional exchange debentures which
rank equally with the Exchange Debentures. The terms of the Preferred Stock and
the Exchange Debenture also permit us and our subsidiaries to incur additional
indebtedness and issue additional preferred stock, subject to certain
limitations. Such additional indebtedness may rank senior to, equally with or
junior to the Exchange Debentures, while additional indebtedness of our
subsidiaries will effectively rank senior to the Exchange Debentures. Such
additional preferred stock may rank senior (subject to a majority vote of the
Preferred Stock), equally or junior to the Preferred Stock, and will vote as
separate classes in most circumstances relating to the issuance of future senior
preferred stock.
WE ARE A HOLDING COMPANY AND DEPEND ON DISTRIBUTIONS FROM OUR SUBSIDIARIES TO
MEET OUR OBLIGATIONS INCLUDING DIVIDENDS ON THE PREFERRED STOCK. THE PREFERRED
STOCK IS EFFECTIVELY SUBORDINATED TO OUTSTANDING OBLIGATIONS OF OUR
SUBSIDIARIES.
We are a holding company with no direct operations and no significant assets
other than the stock of our subsidiaries. We depend on the cash flows of our
subsidiaries to meet our obligations, including our obligations to pay interest
and principal on our 11 3/4% Senior Notes due 2007, and dividends on the Senior
Preferred Stock and Preferred Stock. The ability of our subsidiaries to
distribute funds to us are and will be restricted by the terms of existing and
future indebtedness including our credit facilities. See "Description of Certain
Indebtedness--The Credit Facilities."
Our subsidiaries are separate legal entities that have no obligation to pay
any amounts due with respect to the Preferred Stock and, if issued, the Exchange
Debentures or to make any funds available to us. As a result, if any of our
subsidiaries liquidate their assets, our right to any of the proceeds and the
consequent right of the holders of the Preferred Stock and, if issued, the
Exchange Debentures to participate in the distribution or realize proceeds from
those assets will be effectively subordinated to the claims of the creditors of
such subsidiary, including trade creditors and holders of indebtedness of such
subsidiary, including the Dobson/Sygnet 12 1/4% Senior Notes due 2008 and the
credit facilities. Unless a bankruptcy court were to subordinate our claim, we
will not be subordinated to such creditors if we are a creditor of such
subsidiary, although our claims would still be effectively subordinated to any
security interest in the assets of such subsidiary senior to any security
interest held by us.
WE MAY BE UNABLE TO PAY CASH DIVIDENDS ON THE PREFERRED STOCK OR INTEREST ON THE
EXCHANGE DEBENTURES
We must begin paying cash dividends on the Preferred Stock on January 15,
2003. Under the indenture governing our 11 3/4% Senior Notes due 2007, we may
pay cash dividends and make other distributions on or in respect of our capital
stock, including the Senior Preferred Stock and Preferred
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Stock, only if certain financial tests are met. In addition, our credit
facilities limit the amount of cash available for dividends, loans and cash
distributions to us from our subsidiaries. Currently, the restrictions contained
in the indenture governing our 11 3/4% Senior Notes due 2007 and in our credit
facilities would prohibit us from paying cash dividends and would also prohibit
us from issuing Exchange Debentures in exchange for Preferred Stock. We cannot
assure you that our existing or future financing arrangements will permit us to
pay cash dividends on the Preferred Stock beginning January 15, 2003. In the
event that any of our financing agreements limit our ability to pay cash
dividends on the Preferred Stock when required, we will need to obtain waivers
of the limitation or refinance amounts outstanding under such agreements to make
such dividend payments. We cannot assure you that we would be able to obtain
waivers or refinance amounts outstanding under such agreements. Moreover, we
will not be able to pay cash dividends on the Preferred Stock, unless we first
have paid accrued and unpaid dividends on the Senior Preferred Stock. Our
failure to pay cash dividends on the Preferred Stock could result in a Voting
Rights Triggering Event as defined under "Description of the Preferred Stock".
RESTRICTIONS IMPOSED IN OUR GOVERNING INSTRUMENTS MAY ADVERSELY AFFECT OUR
OPERATIONS.
The instruments governing our indebtedness and that of our subsidiaries, the
certificates of designation with respect to the Senior Preferred Stock, the
Preferred Stock and our other preferred stock, and the terms of our credit
facilities impose significant operating and financial restrictions on us and on
our subsidiaries. Such restrictions significantly restrict, among other things,
our ability and that of our subsidiaries to incur additional indebtedness, pay
dividends, repay indebtedness prior to stated maturities, sell assets, make
investments, engage in transactions with stockholders and affiliates, issue
capital stock, create liens or engage in mergers or acquisitions. In addition,
the credit facilities require us to maintain certain financial ratios. These
restrictions could also limit our ability and that of our subsidiaries to obtain
future financings, make needed capital expenditures, withstand a future downturn
in our business or the economy in general, or otherwise conduct necessary
corporate activities. Our failure or that of our subsidiaries to comply with
these restrictions could lead to a default under the terms of such indebtedness
even though we are able to meet debt service and dividend obligations. In the
event of a default, the holders of such indebtedness could elect to declare all
such indebtedness to be due and payable and the holders of Preferred Stock could
obtain representation on our board of directors. We cannot assure you that we
and our subsidiaries would be able to make such payments or borrow sufficient
funds from alternative sources to make any such payment. Even if we could obtain
additional financing, we cannot assure you that we could obtain financing on
terms that are acceptable to us. In addition, indebtedness under each of the
credit facilities is secured by liens on assets. The pledge of our assets to
existing lenders could impair our ability to obtain favorable financing. See
"Description of Certain Indebtedness" and "Description of Capital Stock."
WE MAY BE UNABLE TO REPURCHASE OUR PREFERRED STOCK OR EXCHANGE DEBENTURES UPON A
CHANGE OF CONTROL.
We must offer to purchase the Preferred Stock or Exchange Debentures upon
the occurrence of a change of control at a purchase price equal to 101% of their
liquidation preference plus accrued and unpaid dividends or the principal amount
plus accrued and unpaid interest, as the case may be. See "Description of the
Preferred Stock--Change of Control" and "Description of the Exchange
Debentures--Change of Control."
The terms of our credit facilities, the indenture governing our 11 3/4%
Senior Notes due 2007 and the certificate of designation for the Senior
Preferred Stock limit our ability to prepay the Preferred Stock or the Exchange
Debentures, including required prepayments following a change of control. Prior
to commencing an offer to purchase, we would be required to:
- repay in full all indebtedness, including indebtedness under our credit
facilities and the indenture governing our 11 3/4% Senior Notes due 2007
and purchase all of our Senior Preferred Stock and other preferred stock
and that of our subsidiaries that would prohibit the repurchase of the
Preferred Stock or the Exchange Debentures, as the case may be, or
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- obtain any consents required to permit the repurchase.
If we are unable to repay all of such indebtedness or are unable to obtain
the necessary consents, then we will be unable to offer to purchase the
Preferred Stock or the Exchange Debentures, resulting in a Voting Rights
Triggering Event under the Preferred Stock or an event of default under the
indenture governing the Exchange Debentures, if issued. We cannot assure you
that we will have enough funds available at the time of any change of control
offer to repurchase the Preferred Stock or the Exchange Debentures, as described
above.
The events that constitute a change of control under the certificates of
designation for our Preferred Stock may also be events of default under the
credit facilities or our other indebtedness and that of our subsidiaries. Such
events may permit the lenders under such debt to declare the debt due and
payable and, if the debt is not paid, to require that we or our subsidiaries
sell assets that secure such debt in order to repay the lenders. In any such
case, our ability to raise cash to repurchase the Preferred Stock or the
Exchange Debentures, as the case may be, would be limited and would reduce the
practical benefit of the offer to purchase provisions to the holders of the
Preferred Stock or the Exchange Debentures. See "Description of Certain
Indebtedness."
THE SYSTEMS WE ACQUIRE MAY BE UNSUCCESSFUL AND MAY STRAIN OUR MANAGEMENT AND
FINANCIAL RESOURCES.
We are subject to risks that cellular systems that we acquire will not
perform as expected and that the returns from such systems will not support the
indebtedness we incur or equity we issue to acquire, or the capital expenditures
needed to develop, the systems. In addition, expansion of our operations may
place a significant strain on our management, financial and other resources. Our
ability to manage future growth will depend upon our ability to monitor
operations, control costs, maintain effective quality controls and significantly
expand our 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 efficiently at a
pace consistent with the growth of our business could have a material adverse
effect on our business, financial condition and results of operations. In
addition, the integration of acquired systems with existing operations will
require us to incur considerable expenses in advance of anticipated revenues and
may cause substantial fluctuations in our operating results. This will involve,
among other things, integration of switching, transmission, technical, sales,
marketing, billing, accounting, quality control, management, personnel, payroll,
regulatory compliance and other systems and operating hardware and software,
some of which may be incompatible with our existing systems. In addition,
telecommunications providers generally experience higher customer and employee
turnover rates during and after an acquisition. We cannot assure you that we
will be able to successfully integrate the systems acquired or any other
businesses we may acquire.
We recently closed into escrow for our acquisitions of the FCC licenses for
Ohio 2 RSA and Texas 10 RSA. The purchase price of each of these acquisitions is
being held in escrow pending resolution of claims made against each seller's
title to the FCC license. We cannot assure you that these claims will be
resolved in favor of the respective sellers. If the claims are ultimately
resolved in a manner adverse to either seller, we could lose our license for the
affected RSA, although we would receive back our purchase price held in escrow.
However, if this occurred, we would need to either dispose of any improvements
we had made, redeploy them in another system to be operated by us or abandon the
assets. We could incur costs and expenses in connection with such disposal,
redeployment or abandonment. In addition, we would lose the benefit of owning
these properties and the future cash flows from the properties. Depending upon
how much we had invested in the affected RSA, how much of that investment could
sell or salvage and the potential future benefit therefrom, a loss of either of
these licenses could have an adverse effect on our operations and the loss of
revenues from either such system could have an adverse effect on our financial
condition.
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WE MAY NEED TO BUILDOUT PCS LICENSED AREAS.
In April 1997, we obtained PCS licenses for nine markets as part of the FCC
"F" Block auction. Our right to hold and use each license depends on the
buildout of the PCS system to cover at least 25% of the population covered by
the license by April 2002. See "Business--Cellular Operations." We have
estimated that the capital expenditures relating to such a buildout would range
from $10.0 million to $30.0 million. The actual amount of the expenditures,
however, will depend in part on the PCS technology we select, the extent of our
buildout, costs at the time of buildout and the extent we, at our expense, must
relocate existing incumbent microwave licensees or compensate other PCS
licensees for their relocation costs. We will need additional financing for the
buildout of our PCS system. We cannot assure you that we will be able to obtain
such financing or, if such financing is available, that we can obtain it on
terms acceptable to us and within the limitations contained in the indenture
governing our 11 3/4% Senior Notes, the credit facilities, the certificates of
designation for the Preferred Stock, the Senior Preferred Stock and our other
preferred stock. If our subsidiary which holds the PCS licenses fails to satisfy
its installment financing obligations to the FCC, then the FCC may cancel our
PCS licenses. In addition, we would forfeit our investment in such PCS licenses,
and the FCC could sue the subsidiary for collection of any unpaid sums due to
the FCC plus forfeiture penalties. As of December 31, 1998, we had paid $1.0
million for such PCS licenses and owed the FCC an additional $4.1 million. We
cannot assure you that our PCS system will be profitable. The extent of
potential demand for PCS in our markets cannot be estimated with any degree of
certainty. We have no experience operating PCS systems. Sygnet holds no PCS
licenses.
When the FCC first licensed cellular systems in the United States, it
specified the technical standards of systems operations to insure nationwide
compatibility between all cellular carriers. In contrast, the FCC has not
mandated the technology standard for PCS operations, leaving each licensee free
to select among several competing technologies, some of which are not compatible
with each other. We cannot assure you that the technical standards selected by
us will be the most widely used, or technologically sound. Also, because
handsets that use one PCS technology may not be operable on other systems, the
ability to offer PCS roamer service will be affected. To the extent most
competitors in the PCS industry select a competing technology that is not
compatible to the system selected by us, our PCS business may be adversely
affected. We have not yet finalized our plans with respect to the buildout of
our PCS licensed systems, nor have we selected the digital technology to be used
in such systems.
WE FACE INTENSE COMPETITION IN OUR BUSINESS AND MANY OF OUR COMPETITORS HAVE
GREATER RESOURCES THAN DO WE.
We face intense competition in many of the areas in which we operate.
Currently, the FCC authorizes only two cellular licensees to operate in each
license area. We compete in each of our markets with one other cellular licensee
for subscribers based principally upon price, the services and enhancements
offered, the technical quality of the cellular system, customer service, system
coverage and capacity. We also compete, although to a lesser extent, with
resellers, paging companies and landline telephone service providers. Many of
our existing and potential competitors have greater financial, personnel,
technical, marketing and other resources than do we.
Our cellular operations may face increased competition from entities that
use other communications technologies or other radio frequency spectrum such as
broadband PCS licensees and enhanced specialized mobile radio licensees. We may
face competition from other technologies developed in the future including, but
not limited to, satellite systems and services provided over spectrum allocated
to the Wireless Communications Services and General Wireless Communications
Services. See "Business-- Competition."
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OUR BUSINESS IS AFFECTED BY FREQUENT AND SIGNIFICANT TECHNOLOGICAL CHANGES WHICH
MAY REQUIRE US TO SELECT NEW TECHNOLOGY BEFORE WE CAN ACCURATELY PREDICT ITS
EFFECT ON OUR OPERATIONS.
The telecommunications industry is subject to rapid and significant changes
in technology, including advancements protected by intellectual property laws.
Rapid and significant changes can be seen in
- the increasing pace of digital upgrades in existing analog wireless
systems,
- evolving industry standards,
- the availability of new radio frequency spectrum allocations for wireless
services,
- ongoing improvements in the capacity and quality of digital technology,
- shorter development cycles for new products and enhancements,
- developments in emerging wireless transmission technologies, and
- changes in end-user requirements and preferences.
We may be required to select in advance one technology over another. At the
time we must make our investment, it will be impossible to accurately predict
which technology may prove to be the most economic, efficient or capable of
attracting customer usage. There is also uncertainty as to the extent of
customer demand as well as the extent to which airtime and monthly access rates
may continue to decline.
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL.
We are managed by a small number of management and operating personnel. The
loss of certain of these individuals could have a material adverse effect on us.
We believe that our ability to manage our planned growth successfully will
depend in large part on our continued ability to attract and retain highly
skilled and qualified personnel. See "--The systems we acquire may be
unsuccessful and may strain our management and financial resources" and
"Management."
WE DEPEND ON THIRD-PARTY SERVICE MARKS TO MARKET OUR PRODUCTS AND SERVICES. THE
LOSS OF THE RIGHT TO USE THE SERVICE MARKS COULD ADVERSELY AFFECT OUR
BUSINESS.
We use the registered service marks CELLULAR ONE-Registered Trademark- and
AIRTOUCH-TM- CELLULAR-Registered Trademark- to promote the services we offer in
certain of our license areas. We have contracts with Cellular One Group, the
owner of the service mark, that govern our use of the CELLULAR
ONE-Registered Trademark- service mark. These contracts, which have five-year
terms, begin to expire in 2001. We have the option to renew these contracts for
two additional five-year terms. Our contract to use the AIRTOUCH-TM- CELLULAR
service mark is for an initial term of 20 years with provisions to extend the
term for successive five-year periods. See "Business--Service Marks." Under
these agreements, we must meet specified operating and service quality standards
for our systems. If these agreements are not renewed upon expiration or if we
fail to meet the applicable operating or service quality standards, our ability
both to attract new subscribers and retain existing subscribers could be
impaired. In addition, AT&T Wireless, which had been the single largest user of
the CELLULAR ONE-Registered Trademark- name, significantly reduced its use of
the brand name as a primary service mark. If for any reason beyond our control,
the names CELLULAR ONE-Registered Trademark- or AIRTOUCH-TM- CELLULAR were to
suffer diminished marketing appeal, our ability both to attract new subscribers
and retain existing subscribers could be materially impaired in the applicable
markets.
OUR BUSINESS IS REGULATED AND THERE IS POTENTIAL FOR ADVERSE REGULATORY CHANGE.
WE MAY BE UNABLE TO OBTAIN REGULATORY APPROVALS.
The FCC regulates the licensing, construction, operation, acquisition and
sale of our cellular systems, as well as the number of cellular and other
wireless licensees permitted in each of our markets. Changes in the regulation
of wireless activities and wireless carriers or the loss of any license or
licensed area could have a material adverse effect on our operations. In
addition, some aspects of the Telecommunications Act
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may place additional burdens upon us or subject us to increased competition and
increase our costs of doing business.
Moreover, all cellular and PCS licenses are subject to renewal upon
expiration of each license's initial ten-year term. Grant of a cellular or PCS
renewal application is based upon FCC rules establishing a presumption in favor
of licensees that have complied with their regulatory obligations during the
ten-year license period. We have already received license renewals for several
of our cellular licenses and we are not aware of any circumstances that would
prevent the grant of any future renewal applications; however, we cannot assure
you that the FCC will grant any future renewal applications or that such
applications will be free of challenge. See "Business--Regulation."
EQUIPMENT FAILURE AND NATURAL DISASTERS MAY ADVERSELY AFFECT OUR OPERATIONS.
We carry business interruption, casualty and property insurance in amounts
we believe adequate to cover the financial risks associated with any major
equipment failure or natural disaster. However, a major equipment failure or a
natural disaster affecting our central switching offices, our microwave links or
certain of our cell sites could have a material adverse effect on our
operations.
OUR RELIANCE ON ONE VENDOR FOR OUR CUSTOMER BILLING MAY ADVERSELY AFFECT THE
TIMING OF OUR RECEIPT OF FUNDS.
We rely primarily on one vendor to produce our customer billings. We are in
the process of implementing a new version of billing software throughout our
markets. If we are unable to implement this new software or if this or our
present billing vendor for any reason were to encounter significant problems in
the performance of its billing functions for us, our ability to generate
billings to our customers would be materially impaired, until we could establish
a new arrangement.
CONFLICTS OF INTEREST MAY EXIST WITH OUR CONTROLLING STOCKHOLDERS.
Everett R. Dobson, our Chairman of the Board, President and Chief Executive
Officer, and his affiliates beneficially own approximately 80% of the combined
voting power of all classes of our outstanding voting stock on a fully diluted
basis. Certain decisions concerning our operations or financial structure may
present conflicts of interest between the holders of our voting stock and the
holders of the Preferred Stock and, if issued, the Exchange Debentures. In
addition, holders of voting stock may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risk to the holders of the Preferred Stock and, if issued, the Exchange
Debentures.
THERE ARE CERTAIN FEDERAL INCOME TAX CONSEQUENCES WHICH WILL AFFECT HOLDERS OF
PREFERRED STOCK AND EXCHANGE DEBENTURES.
Because we may pay dividends on the Preferred Stock by distributing
additional shares of Preferred Stock, compliance with U.S. federal withholding
tax rules would be difficult with respect to investors who are not U.S. persons.
Accordingly, we consider the Preferred Stock to be an inappropriate investment
for any person who or which is not a U.S. person.
Distributions of cash or, to the extent of their fair market value,
distributions of additional shares of Preferred Stock will generally be treated
as dividends, taxable as ordinary income to the extent of our current and
accumulated earnings and profits, as determined under U.S. federal income tax
principles. However, we presently do not have any current or accumulated
earnings and profits as determined under U.S. federal income tax principles and
it is unlikely to have current or accumulated earnings and profits in the
foreseeable future. As a result, until such time as we have earnings and
profits, distributions of cash or additional shares of Preferred Stock on the
Preferred Stock will be treated as a nontaxable return of capital and will be
applied against and reduce the adjusted tax basis, but not below zero, in the
hands of each holder of the shares of Preferred Stock on which such distribution
is made, thus increasing the amount of any gain or reducing the amount of any
loss which would otherwise be realized by such holder upon the
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sale or other disposition of those shares of Preferred Stock. In the case of
distributions of additional shares of Preferred Stock, however, such basis
reduction largely should be offset from an overall standpoint by a corresponding
amount of tax basis for a holder in the additional shares of Preferred Stock. A
holder would recognize gain to the extent any distributions were to exceed our
current or accumulated earnings and profits and the adjusted tax basis of the
holder in the Preferred Stock.
As we expect the redemption price of the Preferred Stock to exceed its issue
price by more than a minimum amount, the difference or the "redemption premium"
generally will be taxable as a constructive distribution of additional Preferred
Stock to a holder over a certain period under a constant interest rate method
similar to that described below for accruing original issue discount on the
Exchange Debentures. However, to the extent we lack current or accumulated
earnings and profits for a taxable year to which a constructive distribution
relates
- a holder should not recognize taxable income or gain as a result of the
constructive distribution,
- there should be no net effect on the holder's adjusted tax basis of the
Preferred Stock as a result of the constructive distribution.
To the extent we have current or accumulated earnings and profits for a
taxable year to which a constructive distribution relates, the distribution will
be taxable currently to the holder as a dividend even though the holder does not
receive any actual distribution and will produce a corresponding increase in the
adjusted tax basis of the Preferred Stock with respect to which the distribution
is deemed to have been made. See "Federal Income Tax Considerations--Redemption
Premium."
Additional shares of Preferred Stock that we distribute as a dividend on our
previously issued Preferred Stock will also have redemption premium if the
redemption price of such Preferred Stock exceeds the fair market value of the
additional shares of Preferred Stock when distributed by more than a minimum
amount. Such redemption premium may differ from that attributable to the shares
of Preferred Stock that we have previously issued. Therefore, any such
additional shares of the Preferred Stock we distribute may not be fungible with
the shares of the Preferred Stock previously issued.
Further, if holders of Preferred Stock receive additional shares of
Preferred Stock as a distribution on previously issued Preferred Stock, such
holders would, to the extent we have earnings and profits for U.S. federal
income tax purposes, be required to include currently in gross income for U.S.
federal income tax purposes the fair market value of such additional shares,
even though such holders have not received any cash with respect to such
distribution.
Upon a redemption of Preferred Stock in exchange for Exchange Debentures,
the holder generally will have a capital gain or loss equal to the difference
between the issue price of the Exchange Debentures received and the holder's
adjusted tax basis in the Preferred Stock redeemed, except to the extent all or
a portion of the Exchange Debentures received is treated as a dividend payment.
Because we have the option through January 15, 2003 to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures, any Exchange
Debentures issued prior to that date will be treated as issued with original
issue discount, or "OID" for U.S. federal income tax purposes, unless under
special rules for interest holidays the amount of OID is treated as minimum. If
the Exchange Debenture has OID in excess of the minimum amount, holders would
have to accrue all such OID into income over the entire term of the Exchange
Debentures, but would not treat the receipt of stated interest on the Exchange
Debentures as interest for U.S. federal income tax purposes. The Exchange
Debentures may also be subject to the rules for "applicable high yield discount
obligations," in which case our deduction for OID on the Exchange Debentures
will be substantially deferred, and a portion of such deduction may be
disallowed.
For a discussion of these and other relevant tax issues, see "Federal Income
Tax Considerations."
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POTENTIAL FAILURE OF COMPUTER SYSTEMS TO BECOME YEAR 2000 COMPLIANT MAY
ADVERSELY AFFECT OUR OPERATIONS.
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, we established a multi-disciplined team to perform a Year
2000 impact analysis. The team consists of representatives from each of our
lines of business, as well as representatives from key corporate departments,
and is headed by a full-time Year 2000 compliance 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, we have completed an inventory of our 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." If our automated systems and those of our vendors are not year
2000 compliant, we could experience interruptions in services provided by and to
us, which could materially reduce our operating cash flow. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion of the Year 2000 issue and the potential impact on our
business.
THERE IS NO PUBLIC MARKET FOR THE PREFERRED STOCK AND THE OLD SHARES HAVE
RESTRICTIONS ON TRANSFERABILITY.
There has not been an established trading market for the Preferred Stock.
The initial purchaser has informed us that it does not currently intend to make
a market in the Preferred Stock. Accordingly, we cannot assure you as to the
development or liquidity of any market for the Preferred Stock. If a market for
the Preferred Stock were to develop, the Preferred Stock could trade for less
than the initial offering price, depending upon many factors, including
prevailing interest rates, our operating results and the markets for similar
securities, and such market may cease to continue at any time.
Your old shares were not registered under the Securities Act or any state
securities laws and may not be offered or sold, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws, or pursuant to an effective
registration statement. We have registered the new shares under the Securities
Act and are obligated to use our best efforts to complete an exchange offer for
the old shares or register resales of the old shares under the Securities Act,
but we cannot assure you that a trading market for the Preferred Stock will be
liquid or will develop at all.
THERE MAY BE ADVERSE CONSEQUENCES OF A FAILURE TO EXCHANGE.
Untendered outstanding old shares that are not exchanged for new shares
pursuant to the exchange offer will remain restricted securities. Outstanding
old shares will continue to be subject to the following restrictions on
transfer:
- outstanding old shares may be resold only if registered pursuant to the
Securities Act, if an exemption from registration is available thereunder,
or if neither such registration nor such exemption is required by law,
- outstanding old shares shall bear a legend restricting transfer in the
absence of registration or an exemption therefrom and
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- a holder of outstanding old shares who desires to sell or otherwise
dispose of all or any part of its outstanding old shares under an
exemption from registration under the Securities Act, if requested by us,
must deliver to us an opinion of independent counsel experienced in
Securities Act matters, reasonably satisfactory in form and substance to
us, that such exemption is available.
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical facts included in this
prospectus, including the description of our plans, our strategies, planned
capital expenditures, Year 2000 preparedness, acquisitions and related
financing, and anticipated cost savings, are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. You can generally identify forward-looking statements
generally by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate" or "believe." We believe that the
expectations reflected in such forward-looking statements are accurate. However,
our actual future performance will differ materially from such statements. These
plans involve a number of risks and uncertainties. Important factors that could
cause actual capital expenditures, acquisitions activity, or our performance to
differ materially from its plans include, without limitation:
- our ability to satisfy the financial covenants of our existing and future
debt instruments and to raise additional capital;
- our ability to integrate acquired systems with our existing operations and
to successfully market our services and products to existing and new
customers;
- our ability to install equipment and expand and upgrade our systems in a
timely manner and to manage our rapid growth successfully;
- our ability to compete effectively against competitors with greater
financial, technical, marketing and other resources and respond
effectively to changes in end-user requirements and preferences;
- the inability of third party vendors to provide products and services
which are Year 2000 compliant;
- the development of other technologies and products that may gain more
commercial acceptance than ours; and
- adverse regulatory changes.
We cannot assure you that anticipated future results will be achieved. Actual
events or results may differ materially as a result of risks to which we are or
may be subject. We caution you not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. We do not
intend to update or revise these forward-looking statements to reflect events or
circumstances after the date hereof including, without limitation, changes in
our business strategy or planned capital expenditures, or to reflect the
occurrence of unanticipated events.
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under our
Registration Rights Agreement dated as of December 25, 1998 with NationsBanc
Montgomery Securities LLC, as the initial purchaser of the old shares. We will
not receive any cash proceeds from the issuance of the new shares. We will only
receive old shares equal in number to the number of new shares that we issue in
the exchange offer.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We initially issued an aggregate of 64,646 old shares on December 23, 1998
to NationsBanc Montgomery Securities LLC (the "Initial Purchaser") in reliance
on Section 4(2) of the Securities Act. The Initial Purchaser subsequently
offered and sold a portion of the old shares only to "qualified institutional
buyers" as defined in and in compliance with Rule 144A. Subsequently and through
April 15, 1999, we have issued 2,500 additional old shares as the payment of
dividends on the outstanding Preferred Stock.
In connection with the sale of the old shares, we entered into a
registration rights agreement, which requires us
- to cause the old shares to be registered under the Securities Act, or
- to file with the Securities and Exchange Commission ("SEC") a registration
statement under the Securities Act with respect to an issue of new shares
identical in all material respects to the Old Shares, and
- use our best efforts to cause such registration statement to become
effective under the Securities Act and
- upon the effectiveness of that registration statement, to offer to the
holders of the old shares the opportunity to exchange their old shares for
a like principal amount of new shares, which will be issued without a
restrictive legend and which may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act.
We have filed a copy of the registration rights agreement as an exhibit to
the registration statement of which this prospectus is a part. We are making the
exchange offer to satisfy our obligations under the registration rights
agreement. The term "holder" with respect to the exchange offer means any person
in whose name old shares are registered on our books or any other person who has
obtained a properly completed stock power from the registered holder, or any
person whose old shares are held of record by The Depository Trust Company
("DTC") who desires to deliver such old shares by book-entry transfer at DTC.
We have not requested, and do not intend to request, an interpretation by
the staff of the SEC with respect to whether the new shares issued in the
exchange offer in exchange for the old shares may be offered for sale, resold or
otherwise transferred by any holder without compliance with the registration and
prospectus delivery provisions of the Securities Act. Based on interpretations
by the staff of the SEC set forth in no-action letters issued to third parties,
we believe the new shares issued in exchange for old shares may be offered for
resale, resold and otherwise transferred by any holder without compliance with
the registration and prospectus delivery provisions of the Securities Act
provided that:
- you are not a broker-dealer,
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act
- you acquire the new shares in the ordinary course of your business and
that you have no arrangement or understanding with any person to
participate in the distribution of the new shares.
Any holder who tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a distribution of the new
shares or who is our affiliate may not rely upon such interpretations by the
staff of the SEC and, in the absence of an exemption, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Any holder to comply with such
requirements may incur liabilities under the Securities Act for which the holder
is not indemnified by us. Each broker-dealer (other than an affiliate of ours)
that receives new shares for its own account in the exchange offer must
acknowledge that it will deliver a
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<PAGE>
prospectus meeting the requirements of the Securities Act in connection with any
resale of new shares. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. We have agreed
that, for a period of 180 days after the exchange date, we will make the
prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
We are not making the exchange offer to, nor will we accept surrenders for
exchange from, holders of old shares in any jurisdiction in which this exchange
offer or its acceptance would not comply with the securities or blue sky laws.
By tendering in the exchange offer, you will represent to us that, among
other things:
- you are acquiring the new shares in the exchange offer in the ordinary
course of your business, whether or not you are a holder,
- you do not have an arrangement or understanding with any person to
participate in the distribution of the new shares,
- you are not a broker-dealer, or you are a broker-dealer but will not
receive new shares for your own account in exchange for old shares,
neither you nor any other person is engaged in or intends to participate
in the distribution of the new shares, and
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act or, if you are our "affiliate," you will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
Following the completion of the exchange offer, no shares of Preferred Stock
will be entitled to the contingent increase in dividend rate applicable to the
old shares. Nor will holders of Preferred Stock have any further registration
rights, and the old shares will continue to be subject to certain restrictions
on transfer. See "--Consequences of Failure to Exchange." Accordingly, the
liquidity of the market for the old shares could be adversely affected. See
"Risk Factors--There may be adverse consequences of a failure to exchange."
Participation in the exchange offer is voluntary and you should carefully
consider whether to accept. We urge you to consult your financial and tax
advisors in making your own decisions on whether to participate in the exchange
offer.
TERMS OF THE EXCHANGE OFFER
GENERAL. Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, we will accept for exchange any and
all old shares validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the expiration date. We will issue one new share in exchange for
each old share accepted in the exchange offer. You may tender some or all of
your old shares in the exchange offer.
The form and terms of the new shares will be identical in all material
respects to the form and terms of the old shares except that the new shares will
be registered under the Securities Act and, therefore, certificates representing
new shares will not bear legends restricting their transfer. The new shares will
be treated as a single class with any old shares that remain outstanding. We are
not conditioning the exchange offer upon any minimum number of old shares being
tendered for exchange.
As of March 31, 1999, 65,151 old shares were outstanding.
You do not have any appraisal or dissenters' rights under the Oklahoma
General Corporation Act or the certificate of designation in connection with the
exchange offer. We are sending this prospectus, together with the letter of
transmittal, to all registered holders of old shares. We have not fixed any
record date for determining record holders of old shares entitled to participate
in the exchange offer. We intend
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<PAGE>
to conduct the exchange offer in accordance with the provisions of the
registration rights agreement and the applicable requirements of the Exchange
Act, and the rules and regulations of the SEC. Old shares which are not tendered
for exchange in the exchange offer will remain outstanding and dividends will
continue to accrue, but such old shares will not be entitled to any rights or
benefits under the registration rights agreement.
We will be deemed to have accepted validly tendered old shares when, as and
if we have given oral or written notice to the exchange agent. The exchange
agent will act as agent for the tendering holders for the purposes of receiving
the New Shares from us. If we do not accept any tendered old shares for exchange
because of an invalid tender or the occurrence of certain other events
identified in this prospectus, we will return the certificates for the
unaccepted old shares, without expense, to the tendering holder as promptly as
practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, subject to
the instructions in the letter of transmittal, transfer taxes if you tender old
shares in the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the exchange offer.
See "--Fees and expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The exchange offer expires at 5:00
p.m., New York City time, on , 1999, unless we, in our sole discretion,
extend the exchange offer, in which case the expiration date will be the latest
date and time to which the exchange offer is extended. Although we do not intend
to extend the exchange offer at this time, we reserve the right to extend the
exchange offer at any time by giving oral or written notice to the exchange
agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the exchange offer, all old shares previously
tendered pursuant to the exchange offer and not withdrawn will remain subject to
the exchange offer. The date of the exchange of the new shares for old shares
will be as soon as practicable following the expiration date.
We reserve the right, in our sole discretion,
- to delay accepting any old shares, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "--Conditions of the Exchange Offer" have not been satisfied, by
giving oral or written notice of such delay, extension or termination to
the exchange agent, or
- to amend the terms of the exchange offer in any manner.
We will, as promptly as practicable, notify you orally or in writing if
there is any delay in acceptance, extension, termination or amendment. If we
amend the exchange offer in any manner determined by us to constitute a material
change, we will promptly disclose the amendment by means of a prospectus
supplement that we will distribute to you. We will also extend the exchange
offer for a period of time, depending upon the significance of the amendment and
the manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during that period.
In all cases we will issue new shares for old shares accepted for exchange
in the exchange offer only after the exchange agent timely receives a properly
completed and duly executed letter of transmittal and all other required
documents. We reserve the right to waive any conditions of the exchange offer or
defects or irregularities in the tender of old shares. If any tendered old
shares are not accepted for any reason set forth in the terms and conditions of
the exchange offer or if old shares are submitted for a greater number of shares
than the holder desires to exchange, such unaccepted or non-exchanged old shares
or substitute old shares evidencing the unaccepted portion, as appropriate, will
be returned without expense to the tendering holder, unless otherwise provided
in the letter of transmittal, as promptly as practicable after the expiration or
termination of the exchange offer.
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DIVIDENDS ON THE NEW SHARES. You will not receive accrued dividends on old
shares that are accepted for exchange at the time of exchange. However, we will
pay accrued but unpaid dividends on exchanged old shares, rounded to the nearest
whole share, in new shares on the first dividend payment date following
consummation of the exchange offer.
PROCEDURES FOR TENDERING OLD SHARES. Your tender of old shares through one
of the procedures set forth below will constitute an agreement between you and
us in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal. In order to tender old shares, you
must
- properly complete and sign a letter of transmittal or a facsimile thereof
and deliver the same, together with any corresponding certificate or
certificates representing the old shares being tendered and any required
signature guarantees, to the exchange agent at its address set forth in
the letter of transmittal on or prior to the expiration date,
- comply with the procedure for book-entry transfer described below, or
- comply with the guaranteed delivery procedures described below.
You do not need to have our signature guaranteed if the tendered old shares
are registered in the name of the signer of the letter of transmittal and the
new shares to be issued in exchange are to be issued and any untendered old
shares are to be reissued in the name of the registered holder, including any
participant in DTC (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of old shares. In any other case you
must be endorse the tendered old shares or accompany them with written
instruments of transfer in form satisfactory to us and duly executed by the
registered holder. In addition, the signature on the endorsement or instrument
of transfer must be guaranteed by an eligible guarantor institution which is a
member of one of the following recognized signature guarantee programs:
- The Securities Transfer Agents Medallion Program (STAMP),
- The New York Stock Exchange Medallion Signature Program (MSF), or
- The Stock Exchange Medallion Program (SEMP).
If the new shares or old shares not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the old shares, the signature in the letter of transmittal must be
guaranteed by an eligible institution.
YOU MUST ELECT, AND ACCEPT THE RISK OF, THE METHOD OF DELIVERY OF OLD
SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE RECOMMEND THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, YOU
SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. DO NOT SEND ANY LETTER OF TRANSMITTAL OR OLD SHARES TO US. YOU
MAY REQUEST YOUR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
We understand that the exchange agent has confirmed with DTC that any
financial institution that is a participant in DTC's system may utilize DTC's
Automated Tender Offer Program ("ATOP") to tender old shares. We further
understand that the exchange agent will request, within two business days after
the date the exchange offer commences, that DTC establish an account with
respect to the old shares for the purpose of facilitating the exchange offer,
and any participant may make book-entry delivery of old shares by causing DTC to
transfer such old shares into the exchange agent's account in accordance with
DTC's ATOP procedures for transfer. However, the exchange of the old shares so
tendered will only be made after timely confirmation (a "Book-Entry
Confirmation") of such book-entry transfer and timely receipt by the exchange
agent of an agent's message, and any other documents required by the letter of
transmittal.
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The term "agent's message" means a message, transmitted by DTC and received by
the Exchange Agent and forming part of Book-Entry Confirmation, which states
that:
- DTC has received an express acknowledgment from a participant tendering
old shares which are the subject of such Book-Entry Confirmation,
- the participant has received and agrees to be bound by the terms of the
letter of transmittal, and
- we may enforce such agreement against such participant.
A tender will be deemed to have been received as of the date when
- the tendering holder's properly completed and duly signed letter of
transmittal accompanied by the old shares or a confirmation of book-entry
transfer of such old shares into the exchange agent's account at DTC, is
received by the exchange agent, or
- a notice of guaranteed delivery or letter, telegram or facsimile
transmission to similar effect from an eligible institution is received by
the exchange agent.
Issuances of new shares in exchange for old shares tendered pursuant to a
notice of guaranteed delivery or letter, telegram or facsimile transmission to
similar effect by an eligible institution will be made only against submission
of a duly signed letter of transmittal and any other required documents and
deposit of the tendered old shares.
We will determine all questions as to the validity, form, eligibility
including time of receipt, and acceptance for exchange of any tender of old
shares in our reasonable judgment. Our determination will be final and binding.
We reserve the absolute right to reject any or all tenders not in proper form or
the acceptance for exchange of which may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right to waive any of the conditions of
the exchange offer or any defect or irregularity in the tender of any old
shares. Neither we, the exchange agent or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification. Any old shares received
by the exchange agent that are not validly tendered and as to which the defects
or irregularities have not been cured or waived, or if old shares are submitted
in principal amount greater than the principal amount of old shares being
tendered by such tendering holder, such unaccepted or non-exchanged old shares
will be returned by the exchange agent to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In addition, we reserve the right in our sole discretion
- to purchase or make offers for any old shares that remain outstanding
subsequent to the expiration date, and
- to the extent permitted by applicable law, to purchase old shares in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers will differ from the terms of the
exchange offer.
GUARANTEED DELIVERY PROCEDURES. If you desire to accept the exchange offer
and time will not permit a letter of transmittal or old shares to reach the
exchange agent before the expiration date or the procedure for book-entry
transfer cannot be completed on a timely basis, you may effect a tender if the
exchange agent has received at its office, on or prior to the expiration date, a
letter, telegram or facsimile transmission from an eligible institution
- setting forth the name and address of the tendering holder,
- setting forth the name(s) in which the old shares are registered and the
certificate number(s) of the old shares to be tendered,
- stating that the tender is being made thereby, and
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<PAGE>
- guaranteeing that, within three New York Stock Exchange trading days after
the date of execution of such letter, telegram or facsimile transmission
by the eligible institution, such old shares, in proper form for transfer
or a confirmation of book-entry transfer of such old shares into the
exchange agent's account at DTC, will be delivered by such eligible
institution together with a properly completed and duly executed letter of
transmittal and any other required documents.
Unless old shares being tendered by the above-described method are deposited
with the exchange agent within the time period set forth above, accompanied or
preceded by a properly competed letter of transmittal and any other required
documents, we may, at our option, reject the tender. Copies of a notice of
guaranteed delivery which may be used by eligible institutions for the purposes
described in this paragraph are available from the exchange agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL. The letter of
transmittal contains, among other things, the following terms and conditions,
which are part of the exchange offer.
The party tendering old shares for exchange (the "transferor") exchanges,
assigns and transfers the old shares to us and irrevocably constitutes and
appoints the exchange agent as the transferor's agent and attorney-in-fact to
cause the old shares to be assigned, transferred and exchanged. The transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the old shares and to acquire new shares issuable
upon the exchange of such tendered old shares, and that, when the same are
accepted for exchange, we will acquire good and unencumbered title to the
tendered old shares, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by us to be necessary or desirable to complete the exchange, assignment and
transfer of tendered old shares or to transfer ownership of such old shares on
the account books maintained by DTC. All authority conferred by the transferor
will survive the death, bankruptcy or incapacity of the transferor and every
obligation of the transferor shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of such Transferor.
By executing a letter of transmittal, each holder will make to us the
representations set forth above under the heading "--Purpose and Effect of the
Exchange Offer."
WITHDRAWAL OF TENDERS OF OLD SHARES. Except as otherwise provided herein,
tenders of old shares may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the expiration date.
To withdraw a tender of old shares in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any such notice of withdrawal must
- specify the name of the person having deposited the old shares to be
withdrawn (the "depositor"),
- identify the old shares to be withdrawn, including the certificate number
or numbers and principal amount of such old shares,
- contain a statement that the holder is withdrawing its election to have
such old shares exchanged,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old shares were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the
old shares register the transfer of such old shares in the name of the
person withdrawing the tender, and
- specify the name in which any such old shares are to be registered, if
different from that of the depositor.
If old shares have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at the book-entry transfer facility. All
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<PAGE>
questions as to the validity, form and eligibility, including time of receipt,
of such notices will be determined by us, and our determination shall be final
and binding on all parties. Any old shares so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer and no new shares
will be issued with respect thereto unless the old shares so withdrawn are
validly retendered. Any old shares which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn old shares may be
retendered by following one of the procedures described above under
"--Procedures for Tendering Old Shares" at any time prior to the Expiration
Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, or any extension of
the exchange offer, we are not required to accept for exchange, or exchange new
shares for, any old shares, and may terminate the exchange offer as provided
herein before the acceptance of such old shares, if:
- any statute, rule or regulation shall have been enacted, or any action
shall have been taken by any court or governmental authority which, in our
reasonable judgment, would prohibit, restrict or otherwise render illegal
consummation of the exchange offer; or
- any change, or any development involving a prospective change, in our
business or financial affairs or any of our subsidiaries has occurred
which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to us; or
- there shall occur a change in the current interpretations by the staff of
the SEC which, in our reasonable judgment, might materially impair our
ability to proceed with the exchange offer.
If we determine in our reasonable judgment that any of the above conditions
are not satisfied, we may
- refuse to accept any old shares and return all tendered old shares to the
tendering holders,
- extend the exchange offer and retain all old shares tendered prior to the
expiration date, subject, however, to the right of holders to withdraw
such old shares, or
- waive such unsatisfied conditions with respect to the exchange offer and
accept all validly tendered old shares which have not been withdrawn.
If such waiver constitutes a material change to the exchange offer, we will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and we will extend the exchange offer for
a period of time, depending upon the significance of the waiver and the manner
of disclosure to the registered holders, if the exchange offer would otherwise
expire during such period.
EXCHANGE AGENT
We have appointed United States Trust Company of New York as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the
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<PAGE>
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
<TABLE>
<S> <C> <C>
By mail: By overnight courier: By hand:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
P. O. Box 844 Corporate Trust Operations 111 Broadway
Cooper Station Department Lower Level
New York, NY 10276-0844 770 Broadway - 13th Floor New York, NY 10006
Attn: Corporate Trust New York, NY 10003 Attn: Corporate Trust
Services Services
(registered or certified mail
recommended)
By Facsimile:
(212) 420-6152
(For eligible institutions only)
Confirm by Telephone:
(800) 548-6565
</TABLE>
FEES AND EXPENSES
We will bear all fees and the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telecopy, telephone or in person by our officers and regular employees and
those of affiliates. No additional compensation will be paid to any such
officers and employees who engage in soliciting tenders.
We have not retained any dealer-manager or other soliciting agent in
connection with the exchange offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the exchange offer. However, we will
pay the exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
We may also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus, the letter of transmittal and related documents to the
beneficial owners of the old shares and in handling or forwarding tenders for
exchange.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us and are estimated in the aggregate to be approximately $100,000.
These expenses include fees and expenses of the exchange agent and transfer
agent and registrar, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
old shares for new shares in the exchange offer. If, however, new shares, or old
shares for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the old shares tendered or if a transfer tax is imposed for
any reason other than the exchange of the old shares pursuant to the exchange
offer, then the amount of any such transfer taxes, whether imposed on the
registered holder or any other persons, will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The old shares that are not exchanged for new shares in the exchange offer
will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such old shares may be resold only
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- to us or any of our subsidiaries,
- to a qualified institutional buyer in compliance with Rule 144A,
- to an institutional accredited investor that, prior to such transfer,
furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of
the old shares and, if such transfer is in respect of an aggregate
principal amount of old shares at the time of transfer of less than
$100,000, an opinion of counsel acceptable to us that such transfer is in
compliance with the Securities Act,
- outside the United States in compliance with Rule 904 under the Securities
Act,
- pursuant to the exemption from registration provided by Rule 144 under the
Securities Act, if available, or
- pursuant to an effective registration statement under the Securities Act.
The liquidity of the old shares could be adversely affected by the exchange
offer. Following the consummation of the exchange offer, holders of the
Preferred Stock will have no further registration rights under the registration
rights agreement and will not be entitled to the contingent increase in the
dividend rate applicable to the old shares.
FIRPTA TREATMENT
At present, we believe that we are not a U.S. real property holding company
within the meaning of Section 897(c)(2) of the Code, and that we do not expect
to become a U.S. real property holding company in the forseeable future. No
assurance can be given, however, that the IRS will not reach a different
conclusion or that our expectation for the future will not change. If we are
found to be a U.S. real property holding company, then a Non-United States
holder of Preferred Stock may be subject to U.S. federal income tax in respect
of gain realized on the sale or other disposition of the Preferred Stock,
including an exchange for Exchange Debentures or a redemption, as if the gain
represented income effectively connected with a U.S. trade or business. A
Non-United States holder will not be subject to such tax, however, if the
Preferred Stock is regularly traded on an established securities market at the
time of a sale or other disposition, and the holder has not owned more than 5%
of the Preferred Stock at any time during the five-year period, or shorter
holding period for the Preferred Stock, ending on the sale or disposition date.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, interest, OID and premium and to the proceeds of sales of
Exchange Debentures and Preferred Stock made to Non-United States holders, other
than certain exempt recipients (such as corporations). In addition, a backup
withholding tax of 31% may apply to such payments unless the Non-United States
Holder provides appropriate certification of foreign status. Prospective
Non-United States holders should consult their own tax advisors regarding the
application of the new Treasury regulations to an investment in the Preferred
Stock and Exchange Debentures.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES THAT WOULD RESULT FROM YOUR PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED STOCK AND THE EXCHANGE DEBENTURES, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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THE COMPANY
Our organization is as follows:
[LOGO]
Our principal executive offices are located at Suite 200, 13439 North
Broadway Extension, Oklahoma City, Oklahoma 73114, telephone (405) 391-8500.
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain of our historical consolidated
financial data as of and for each of the five years ended December 31, 1998. Our
consolidated financial data as of and for each of the years in the period 1994
to 1998 have been derived from our consolidated financial statements which have
been audited by Arthur Andersen LLP. Acquisitions we made during 1996, 1997 and
1998 materially affect the comparability of data from one period to another. You
should read the data in conjunction with "Pro Forma Condensed Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
included elsewhere in this prospectus.
The historical data we present for each of the years ended December 31,
1996, 1997 and 1998 include the operations of acquisitions we made, as
applicable during those years, from the date of each acquisition.
Our earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $2.3 million for the year ended December 31, 1996, by $21.6
million for the year ended December 31, 1997 and by $85.8 million for the year
ended December 31, 1998. We define "earnings" as earnings before extraordinary
items and accounting changes, interest expense, amortization of deferred
financing costs, taxes and the portion of rent expense under operating leases
representative of interest. Fixed charges consist of interest expense,
amortization of deferred financing costs and a portion of rent expense under
operating leases representative of interest.
We determine cellular penetration by dividing our total ending cellular
subscribers for the period by the estimated total population covered by
applicable FCC cellular licenses or authorizations that we hold.
The average monthly revenue per cellular subscriber excluded roaming revenue
and equipment revenue.
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DOBSON COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE AND PER SUBSCRIBER
DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Service revenue......................................................... $ 10,922 $ 13,949 $ 17,593 $ 38,410 $ 69,402
Roaming revenue......................................................... 3,231 4,370 7,852 26,262 66,479
Equipment sales......................................................... 1,016 671 662 1,455 4,130
Other revenue........................................................... 206 693 832 587 24
--------- --------- --------- --------- ---------
Total revenue........................................................... 15,375 19,683 26,939 66,714 140,035
--------- --------- --------- --------- ---------
Operating expenses:
Cost of service......................................................... 2,991 4,654 6,119 16,431 33,267
Cost of equipment....................................................... 1,502 2,013 2,571 4,046 8,360
Marketing and selling................................................... 3,098 3,103 4,462 10,669 22,393
General and administrative.............................................. 3,193 3,035 3,902 11,555 26,051
Depreciation and amortization........................................... 1,885 2,529 5,241 16,798 47,110
--------- --------- --------- --------- ---------
Total operating expenses................................................ 12,669 15,334 22,295 59,499 137,181
--------- --------- --------- --------- ---------
Operating income.......................................................... 2,706 4,349 4,644 7,215 2,854
Interest expense.......................................................... (1,195) (1,854) (4,284) (27,640) (38,979)
Other income (expense), net............................................... 106 (210) (1,503) 2,777 3,858
Minority interests in income of subsidiaries.............................. (1,105) (1,334) (675) (1,693) (2,487)
Income tax (provision) benefit............................................ (168) (347) 593 3,625 11,469
--------- --------- --------- --------- ---------
(Loss) income from continuing operations before extraordinary items and
cumulative effect of change in accounting principle..................... 344 604 (1,225) (15,716) (23,285)
Income (loss) from discontinued operations, net of income taxes........... (110) 500 331 332 (27,110)
Extraordinary items, net of income taxes.................................. 228 -- (527) (1,350) (2,166)
--------- --------- --------- --------- ---------
Net income (loss)......................................................... $ 462 $ 1,104 $ (1,421) $ (16,734) $ (52,561)
Dividends on preferred stock.............................................. (83) (591) (849) (2,603) (23,955)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders....................... $ 379 $ 513 $ (2,270) $ (19,337) $ (76,516)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders per common share:
Before discontinued operations, extraordinary expense and cumulative
effect of change in accounting principle.............................. $ .55 $ .02 $ (4.38) $ (38.72) $ (99.75)
Discontinued operations................................................. (.23) 1.06 .70 .70 (57.25)
Extraordinary income (expense).......................................... .48 -- (1.12) (2.85) (4.57)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders per common share...... $ .80 $ 1.08 $ (4.80) $ (40.87) $ (161.57)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash dividends declared per common share.................................. $ .11 $ 1.40 $ 1.18 $ 16.13 --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding................................ 473,152 473,152 473,152 473,152 473,564
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Ratio of earnings to combined fixed charges and preferred
stock dividends......................................................... 1.25x 1.35x -- -- --
Capital expenditures, excluding cost of acquisitions...................... $ 5,267 $ 3,925 $ 17,438 $ 23,216 $ 55,289
OTHER DATA:
Cellular subscribers (at period end)...................................... 21,481 26,614 33,955 100,093 352,005
Cellular penetration (at period end)...................................... 6.5% 8.0% 5.8% 6.1% 6.8%
Cellular churn............................................................ 0.9% 1.5% 1.8% 1.9% 2.0%
Average monthly revenue per cellular subscriber........................... $ 50 $ 50 $ 48 $ 41 $ 40
Cellular sites (at period end)............................................ 36 46 67 135 414
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 607 $ 732 $ 981 $ 2,752 $ 22,324
Restricted cash and investments.............................. -- -- -- 26,777 75,580
Net fixed assets............................................. 11,590 11,414 26,794 52,374 173,054
Total assets................................................. 33,111 37,711 95,376 359,645 1,703,427
Total debt................................................... 20,661 24,319 75,750 335,570 1,121,556
Mandatorily redeemable preferred stock....................... -- 5,913 10,000 11,623 381,320
Stockholders' equity (deficit)............................... 28 (6,971) (9,802) (36,673) (156,783)
</TABLE>
40
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The accompanying unaudited pro forma condensed consolidated statements of
our operations for the year ended December 31, 1998 give effect to the following
transactions as if they occurred on January 1, 1998:
- our acquisition of California 4 and the related incurrence of $90.9
million of bank debt
- our acquisition of Sygnet
- the issuance of $50.0 million of our 12 1/4% Senior Exchangeable Preferred
Stock
- issuance of $115.0 million of preferred stock ranking junior to our
12 1/4% Senior Exchangeable Preferred Stock
- our $145.0 million equity contribution to Dobson/Sygnet
- the incurrence of $407.0 million of bank debt by a subsidiary of
Dobson/Sygnet
- the sale by Dobson/Sygnet of $200.0 million of 12 1/4% Senior Notes, and
purchase of $67.7 million of U.S. government securities
- repayment of all indebtedness outstanding under Sygnet's bank facility
- repurchase of all of Sygnet's outstanding 11 1/2% Senior Notes
- our repurchase of certain shares of our outstanding common and preferred
stock
- the $25.0 million purchase of towers by Dobson Tower Company from Sygnet,
and the related financing and leaseback of those towers to Sygnet
We provide the following unaudited pro forma condensed consolidated
financial statements and the related notes for informational purposes only. The
accompanying data do not purport to be indicative of the results that we would
have actually obtained had we completed these other transactions on the dates
indicated or that we may expect to occur in the future. You should read the
unaudited pro forma condensed consolidated financial statements and notes in
conjunction with "Selected Consolidated Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Markets and Systems" and the historical financial statements and the
related notes that we include elsewhere in this prospectus.
41
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------
DOBSON PREACQUISITION PERIOD
COMMUNICATIONS --------------------------
CORPORATION CALIFORNIA 4(1) SYGNET
--------------- --------------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AND PER
SUBSCRIBER DATA)
<S> <C> <C> <C>
OPERATING REVENUE:
Service revenue................................................................. $ 69,402 $ 2,399 $ 64,786
Roaming revenue................................................................. 66,479 2,336 28,035
Equipment sales................................................................. 4,130 273 5,794
Other........................................................................... 24 75 1,653
--------------- ------ ---------
Total operating revenue......................................................... 140,035 5,083 100,268
--------------- ------ ---------
OPERATING EXPENSES:
Cost of services................................................................ 33,267 1,451 9,433
Cost of equipment............................................................... 8,360 433 10,444
Marketing and selling........................................................... 22,393 235 12,327
General and administrative...................................................... 26,051 978 19,796
Merger related costs............................................................ -- -- 1,884
Depreciation and amortization................................................... 47,110 593 27,498
--------------- ------ ---------
Total operating expenses........................................................ 137,181 3,690 81,382
--------------- ------ ---------
Operating income (loss)........................................................... 2,854 1,393 18,886
Interest expense................................................................ (38,979) (240) (27,895)
Merger related costs............................................................ -- -- (5,206)
Other income (expense), net..................................................... 3,858 98 (319)
--------------- ------ ---------
(Loss) income before minority interests and income taxes.......................... (32,267) 1,251 (14,534)
Minority interests in income of subsidiaries...................................... (2,487) -- --
--------------- ------ ---------
(Loss) income before income taxes................................................. (34,754) 1,251 (14,534)
Income tax benefit................................................................ 11,469 -- --
--------------- ------ ---------
(Loss) income from continuing operations.......................................... (23,285) 1,251 (14,534)
Dividends on preferred stock...................................................... (23,955)
---------------
Net loss from continuing operations applicable to common stockholders............. (47,240)
---------------
Weighted average shares outstanding............................................... 473,564
---------------
Net loss from continuing operations applicable to common stockholders per share... (99.76)
---------------
<CAPTION>
PRO FORMA
ADJUSTMENTS TOTALS
----------- ---------
<S> <C> <C>
OPERATING REVENUE:
Service revenue................................................................. $ -- $ 136,587
Roaming revenue................................................................. -- 96,850
Equipment sales................................................................. -- 10,197
Other........................................................................... -- 1,752
----------- ---------
Total operating revenue......................................................... -- 245,386
----------- ---------
OPERATING EXPENSES:
Cost of services................................................................ 832(2) 44,983
Cost of equipment............................................................... -- 19,237
Marketing and selling........................................................... 2,603(2) 37,558
General and administrative...................................................... (3,435)(2) 43,390
Merger related costs............................................................ (1,884)(3) --
Depreciation and amortization................................................... 45,841(4) 121,042
----------- ---------
Total operating expenses........................................................ 43,957 266,210
----------- ---------
Operating income (loss)........................................................... (43,957) (20,824)
Interest expense................................................................ (36,961)(5) (104,075)
Merger related costs............................................................ 5,206(3) --
Other income (expense), net..................................................... -- 3,637
----------- ---------
(Loss) income before minority interests and income taxes.......................... (75,712) (121,262)
Minority interests in income of subsidiaries...................................... -- (2,487)
----------- ---------
(Loss) income before income taxes................................................. (75,712) (123,749)
Income tax benefit................................................................ 35,556(6) 47,025
----------- ---------
(Loss) income from continuing operations.......................................... (40,156) (76,724)
Dividends on preferred stock...................................................... (31,869)(7) (55,824)
----------- ---------
Net loss from continuing operations applicable to common stockholders............. (132,548)
---------
Weighted average shares outstanding............................................... 491,954
---------
Net loss from continuing operations applicable to common stockholders per share... (269.43)
---------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated condensed
financial statements.
42
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(1) This reflects the results of operations for California 4 for the three month
period in 1998 during which we did not own the property.
(2) This reclassifies certain operating expenses to conform with our historical
presentation.
(3) This eliminates costs that Sygnet incurred related to the consummation of
our acquisition of the Sygnet.
(4) This reflects the additional depreciation and amortization resulting from
the allocation of purchase price to property and equipment, cellular license
acquisition costs and intangible assets. We depreciate property and
equipment over two to ten years, cellular license acquisition costs over 15
years and intangible assets over five to ten years. The 15 year period we
use for cellular license acquisition costs is based primarily on our
internal analysis of the recovery period for our cellular investments, which
indicates that we will recover such costs through operations over a period
of not more than 15 years. Other factors that we consider include the
competitive nature of the cellular industry, the rate of technological
change and risk of obsolescence, and the specific terms and characteristics
of the licenses. See "Risk Factors--Our business is subject to intense
competition" and "--Our business is affected by frequent and significant
technological changes."
(5) This reflects:
- the $.7 million of interest expense relating to the $28.4 million of
indebtedness that we incurred under the DCOC Facility in connection with
our acquisition of California 4 (assuming an interest rate of 9.0% per
annum),
- the elimination of $.3 million of interest expense associated with the
indebtedness of California 4 which we did not assume,
- the elimination of $27.9 million of interest expense associated with the
Sygnet notes and Sygnet's existing bank facility which we repaid as part
of the Sygnet acquisition,
- $24.0 million of interest expense relating to the $200.0 million of the
Dobson/Sygnet notes,
- $33.4 million of interest expense relating to the borrowings under our new
credit facilities (assuming a weighted average rate of 8.38%),
- $.1 million of interest expense relating to the unused principal amounts
of our new credit facilities (assuming a commitment fee of .5%),
- $3.8 million of amortization of deferred financing costs relating to the
estimated $38.7 million of debt issuance costs we incurred in connection
with our offering of the Dobson/Sygnet notes,
- $1.2 million of amortization of deferred financing costs relating to the
estimated $10.8 million of debt issuance costs we incurred in connection
with our new credit facilities,
- $1.4 million of interest relating to the $17.5 million of borrowings under
the Dobson Tower Company credit facility,
- the elimination of $.3 million of interest related to the $25.0 million
borrowed under the DOC Facility to pay the initial deposit for our
acquisition of Sygnet and
- $1.0 million of interest expense related to the $15.0 million of
borrowings under existing credit facilities.
43
<PAGE>
(6) This reflects an adjustment to income tax expense for the effects of our
acquisitions of Sygnet and California 4, and the related financing, assuming
a 38% effective tax rate.
(7) This reflects dividends on the Preferred Stock, including the amortization
of the issuance costs and discounts with respect thereto as follows:
- $10.1 million for the Senior Preferred Stock that we sold in December
1998,
- $12.8 million for the Class D Preferred Stock that we sold in December
1998,
- $4.8 million for the Class F Preferred Stock that we sold in December
1998,
- $4.0 million for the Class G Preferred Stock that we sold in December
1998,
- $.9 million for the Senior Preferred Stock that we sold in January 1998
and
- the elimination of $.9 million of dividends on the Class B and C Preferred
Stock that we redeemed in December 1998.
This does not reflect dividends on the preferred stock issued by Dobson
Tower.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of rural cellular telephone services. Since we
commenced providing cellular services in 1990 in Oklahoma and the Texas
Panhandle, we have rapidly expanded our cellular operations with an acquisition
strategy targeting underdeveloped rural and suburban areas that have a
significant number of potential customers with substantial needs for cellular
communications. At December 31, 1998, our cellular systems covered a population
of 5.7 million in Arizona, California, Kansas, Maryland, Missouri, New York,
Ohio, Oklahoma, Pennsylvania and Texas.
You should read the following discussion and analysis of our historical
financial condition and results of operation in conjunction with our
consolidated financial statements and the related notes that appear elsewhere in
this prospectus.
ACQUISITIONS
We continually evaluate opportunities to acquire additional cellular
systems. The following table sets forth the cellular markets and systems we have
acquired since 1995 (ownership in parentheses if we own less than 100%):
<TABLE>
<CAPTION>
PURCHASE PRICE
ACQUISITION ($ 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>
On March 16, 1999 we purchased 13,611 cellular subscribers from the previous
operator of Ohio 2. In conjunction with our acquisition of Texas 10, we are
negotiating with AT&T Wireless for the purchase of subscribers in Texas 10.
REVENUE
Our cellular revenues consist of service, roaming and equipment sales
revenues. There has been an industry trend of declining average revenue per
minute, as competition among service providers has led to reductions in rates
for airtime and subscriptions and other charges. We believe 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. We believe that the
downward trend results primarily from the 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 29.1%, 39.4% and 47.5% of our cellular revenue for the
years ended December 31, 1996, 1997 and 1998, respectively. While the industry
trend is to reduce roaming rates, we believe that our roaming rates are
generally lower than rates offered by others in or near our system and that such
lower roaming rates mitigate against this trend, however, we cannot assure you
that such trend
45
<PAGE>
will not materially impact us in the future. Our roaming yield (roamer service
revenue, which includes airtime, toll charges and surcharges, divided by roaming
minutes of use) was $.70, $.72 and $.61 per minute (excludes Arizona 5 for 1997,
for which the roaming minutes of use were not available) for the years ended
December 31, 1996, 1997 and 1998.
Our overall cellular penetration rates increased in 1998 and 1997 compared
to 1996 due to the incremental penetration gains in existing markets. We believe
that as our 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, we 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, we have incurred, and expect to
continue to incur, losses on equipment sales, which have resulted in increased
marketing and selling costs per gross additional subscriber. While we expect to
continue these discounts and promotions, we believe that the use of such
promotions will result in increased revenue from increases in the number of
cellular subscribers.
COSTS AND EXPENSES
Our primary operating expense categories include cost of service, cost of
equipment, marketing and selling, general and administrative and depreciation
and amortization.
Our cost of service consists primarily of costs to operate and maintain our
facilities utilized in providing service to customers and amounts paid to
third-party cellular providers for providing service to our subscribers.
Our cost of equipment represents the cost associated with telephone
equipment and accessories sold to customers.
Our 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.
Our general and administrative costs include all infrastructure costs such
as customer support, billing, collections, and corporate administration.
The size and scope of our cellular operations increased substantially as as
a result of acquisitions in 1996, 1997 and 1998, and increased further as a
result of our acquisition of Sygnet. See "Pro Forma Condensed Consolidated
Financial Data." Although our cash flow from operations has increased as a
result of acquisitions made to date, the increased amortization and interest
expense and dividends associated with our outstanding senior notes, additional
bank borrowings and Senior Preferred Stock resulted in increased losses in 1997
and 1998. We expect these losses to increase as a result of the Dobson/ Sygnet
notes, our offering of the Preferred Stock and our new credit facilities, and to
continue until we expand our acquired systems and increase our subscriber base.
Our recent acquisitions have affected the comparability of our historical
results of operations for the periods discussed and these results may not be
indicative of future performance.
DISCONTINUED OPERATIONS
Through our wholly-owned subsidiary, Logix, we provide 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.
46
<PAGE>
We intend to distribute the stock of Logix to certain of our 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 us and our
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, our total
operating revenue increased $73.3 million, or 109.9%, to $140.0 million from
$66.7 million for the comparable period in 1997. Total service, roaming and
equipment revenue represented 49.6%, 47.5% and 2.9%, respectively, of our total
operating revenue during the year ended December 31, 1998 and 57.6%, 39.4% and
2.2%, respectively, of our total operating revenue during the year ended
December 31, 1997.
The following table sets forth the components of our revenue for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Service revenue..................................................... $ 38,410 $ 69,402
Roaming revenue..................................................... 26,263 66,479
Equipment sales..................................................... 1,455 4,130
Other revenue....................................................... 586 24
---------- ----------
Total............................................................. $ 66,714 $ 140,035
---------- ----------
---------- ----------
</TABLE>
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 our Central and
Eastern Regions. Our 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. Our 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. This decrease resulted from
the addition of new lower rate subscribers in the Eastern 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 our acquisitions. The remaining
$15.2 million was primarily attributable to increased roaming minutes in our
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 we
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, our 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 our Central and
Eastern Regions and expanded use of rerating agreements with providers adjacent
to our markets. As a percentage of service and roaming revenue, cost of cellular
service remained constant at 24.5% in 1998 compared to 1997.
47
<PAGE>
COST OF EQUIPMENT. For the year ended December 31, 1998, our 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 our total operating revenue, marketing and selling costs remained
constant at 16.0% in 1998 and 1997. We added 66,665 gross subscribers in 1998
and 33,354 gross subscribers in 1997.
GENERAL AND ADMINISTRATIVE COSTS. Our 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 our 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 our
increased infrastructure costs such as customer service, billing, collections
and administrative costs as a result of overall growth. The increase as a
percentage of total operating revenue resulted from inefficiencies created in
our administrative areas impacted by the fourth quarter operational split of our
wireless and wireline business segments. In addition, we experienced 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, our 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. Our acquisition of Sygnet and California
4 will materially impact depreciation and amortization expense. When giving
effect to our acquisition of Sygnet and related financing, the pro forma
depreciation and amortization expense for 1998 is approximately $121.0 million.
The additional pro forma depreciation and amortization over our historical
depreciation and amortization results primarily from the amortization of
cellular licenses.
INTEREST EXPENSE. For the year ended December 31, 1998, our interest
expense increased $11.3 million, or 41.0%, to $39.0 million in 1998 from $27.6
million in 1997. The increase resulted primarily from our increased borrowings
in 1998 to finance acquisitions. Our acquisitions of Sygnet and California 4
will materially impact interest expense. When giving effect to these
acquisitions and the related financing, the pro forma interest expense for 1998
is approximately $103.0 million. The additional pro forma interest expense over
our historical interest expense results from the additional debt incurred as a
result of the acquisitions.
OTHER INCOME (EXPENSE), NET. For the year ended December 31, 1998, our
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, we 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, we 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, our total
operating revenue increased $39.8 million, or 147.6%, to $66.7 million from
$26.9 million in 1996. Our total service, roaming and equipment revenue
represented 57.6%, 39.4% and 2.2% of our total operating revenue, respectively,
in 1997 and 65.3%, 29.1% and 2.5% of our total operating revenue, respectively,
in 1996.
48
<PAGE>
The following table sets forth the components of our revenue for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Service revenue...................................................... $ 17,593 $ 38,410
Roaming revenue...................................................... 7,852 26,263
Equipment sales...................................................... 662 1,455
Other revenue........................................................ 832 586
--------- ---------
Total............................................................ $ 26,939 $ 66,714
--------- ---------
--------- ---------
</TABLE>
Our 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 our acquisitions 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 resulted primarily from
increased penetration and usage in our Central Region. Our 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 our acquisitions of the East
Maryland and West Maryland markets. Our 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.
Our 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 our acquisitions 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 we sold more equipment in 1997.
COST OF SERVICE. For the year ended December 31, 1997, our 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 our acquisitions 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 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, our 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 we sold due to the
growth in subscribers.
MARKETING AND SELLING COSTS. Our 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. We added 33,354 gross subscribers in 1997 with subscribers added in our
Eastern Region and in Arizona 5 since their acquisitions making up 16,469 and
1,307, respectively, of the gross subscribers added. We added 11,970 gross
subscribers in 1996. As a percentage of our 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, our
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.
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The increase was primarily due to our increased billing costs as a result of the
growth in wireless subscribers, the 1997 Acquisitions, the inclusion of our
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 resulted from the addition of personnel necessary to support expanded
operations.
DEPRECIATION AND AMORTIZATION EXPENSE. For the year ended December 31,
1997, our 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 that resulted from the amortization of assets acquired in our
acquisitions 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
resulted primarily from our increased borrowings to finance the acquisitions of
the Maryland and Arizona properties.
OTHER INCOME (EXPENSE), NET. For the year ended December 31, 1997, our
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 resulted primarily from interest earned on securities we
purchased and pledged to secure payment of the first four semi-annual interest
payments on the Senior Notes.
EXTRAORDINARY EXPENSE. In 1997 and 1996, we 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 we 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, we established a multi-disciplined team to perform a Year
2000 impact analysis. 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 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, we have completed an inventory of our 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. The services we provide are based on the systems of
RBOCs and other systems outside our control. 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.
We do not have large scale legacy applications used by many
telecommunications providers. From an information systems standpoint, we have
historically relied on outsourcing relationships for most of our 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
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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 our 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 us 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
switching system in New York and portions of our ITDS billing system,
principally in the Eastern Region. The Ericsson switching equipment will be
replaced with Year 2000 compliant Nortel equipment. We expect to complete this
replacement in the third quarter of 1999. In the first quarter of 1999, we
decided to replace our 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 our Western Region markets. We are in the process of
implementing the H.O. Systems software throughout our other markets and expect
to complete the implementation in the third quarter of 1999. We estimate 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 our 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 our automated systems and services are or will
be Year 2000 compliant by the end of the third quarter of 1999.
Our 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, we have 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 our overall
disaster recovery plan, which will be completed by the end of 1999.
We will continue to analyze systems and services that utilize date-embedded
codes that may experience operational problems when the Year 2000 is reached. We
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, we will either replace the
product with one that has provided proof of compliance or will conduct our own
Year 2000 tests.
In the event any of our vendors has represented that it is Year 2000
compliant and, in fact, it is not, we would have no recourse against this vendor
other than an action for damages for either breach of contract or, in the
absence of a contractual obligation, for negligence if we could establish that
the vendor had a legal duty to us to be Year 2000 compliant. If we are unable to
provide systems and services to our customers, because either our own systems or
those of our vendors are not Year 2000 compliant, our reasonably likely worst
case scenario is that we would experience a reduction in our operating revenues
which could adversely affect our ability to meet our operating and financial
obligations.
LIQUIDITY AND CAPITAL RESOURCES
We are a holding company with no direct operations and no significant assets
other than the stock of our subsidiaries. We depend on the cash flows of our
subsidiaries to meet our obligations, including our obligations to pay interest
and principal on our indebtedness, and dividends on the Senior Preferred Stock
and Preferred Stock. Our subsidiaries are separate legal entities that have no
obligation to pay any amounts owed by us or to make any funds available to us.
The ability of our subsidiaries to distribute funds
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to us are and will be restricted by the terms of existing and future
indebtedness including our credit facilities. See "Risk Factors--We are
dependent on cash flows from our subsidiaries."
Our cellular operations require substantial capital to acquire, construct
and expand wireless telephone systems and to fund operating requirements. We
have financed our operations through bank debt and the sale of debt and equity.
At December 31, 1998, we 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. At December 31, 1997, we had 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, which compares to working capital of $10.6 million
(a ratio of current assets to current liabilities of 2.9:1) and an unrestricted
cash balance of $1.0 million at December 31, 1996.
Our net cash provided by operating activities totaled $28.0 million for 1998
compared to $6.9 million for 1997 and $5.2 for 1996. 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
our net loss for the period. 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 our net loss for the period.
Net cash used in investing activities, which totaled $43.9 million, $217.6
million and $999.1 million for the years ended December 31, 1996, 1997 and 1998,
respectively, principally related to acquisitions and capital expenditures in
all periods. Acquisitions accounted for $30.0 million, $190.7 million and $945.4
million in 1996, 1997 and 1998, respectively, and capital expenditures were
$13.5 million, $17.8 million and $55.3 million in 1996, 1997 and 1998,
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
our acquisition of Sygnet. Proceeds from long-term debt exceeded repayment
thereof by $39.4 million, $256.3 million and $768.5 million in 1996, 1997, and
1998, respectively.
In April 1997, we entered into an interest rate hedge agreement terminating
on April 24, 2002 to hedge our 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 used on our leverage. We account for this as a hedge. Subsequent
to December 31, 1998, we entered into an interest rate swap that effectively
fixed the interest rate on $110.0 million of the principal outstanding on the
Dobson/Sygnet Credit Facilities at 8.9%. The term of this interest rate swap is
24 months.
The minority partners in our partnerships that own certain of our cellular
operations receive distributions equal to their share of the profit multiplied
by estimated income tax rates. Under our bank credit agreements, our 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 us is paid or extinguished.
Our capital expenditures (excluding cost of acquisitions and discontinued
operations) were $55.3 million for the year ended December 31, 1998 and we
expect our capital expenditures (excluding cost of acquisitions) to be
approximately $45 million to $50 million for 1999. We have not budgeted any
amounts to be expended in 1999 with respect to the systems which may be acquired
in other acquisitions or our PCS system. The amount and timing of capital
expenditures may vary depending on the rate at which we expand and develop our
cellular systems and whether we consummate additional acquisitions.
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On December 23, 1998, our subsidiary 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").
We have 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, we 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, we were granted PCS licenses in nine markets in Oklahoma,
Kansas and Missouri. We 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. We are
required to build out systems covering 25% of the population covered by each of
the PCS licenses by 2002. We currently anticipate 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 we select, the extent of our
buildout, the costs at the time of buildout and the extent we must bear the
expense of relocating incumbent microwave licensees, as mandated by FCC rules.
We have not budgeted any amounts for capital expenditures in 1999 with respect
to the buildout of a PCS system.
In March 1998, our 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 we 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,
our 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. We 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 requires us to
maintain certain financial ratios. The failure to maintain such ratios would
constitute an event of default, notwithstanding our ability to meet its debt
service obligations. To date, we have 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, we had credit
available of $117.0 million under the DOC Credit Facility, subject to covenant
limitations and no availability under the DCOC Credit Facility. We expect 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. As of December 31, 1998, we
had $407.0 million outstanding under the Dobson/Sygnet Credit Facilities at a
weighted average interest rate of 8.9%. No principal amounts are due under the
facilities until 1999. 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 us 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. To date, we
believe we have maintained all required ratios. The ability of 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
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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.
The Dobson/Sygnet Notes bear interest at an annual rate of 12.25% and mature
in 2008. Of the net proceeds, $67.7 were used to purchase securities pledged to
secure the first six semi-annual interest payments, which begin June 15, 1999.
As part of our acquisition of Sygnet and the related 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 our affiliate.
Through Sygnet, we are a 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 we 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. We have no agreements with respect to any
acquisitions other than the Pennsylvania 2 Acquisition and the Maryland 1
Acquisition.
Although we cannot provide any assurance, we believe that, assuming
successful implementation of our strategy, including the further development of
our cellular systems and significant and sustained growth in our 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 our
currently expected capital expenditure, working capital and debt service
obligations. However, we 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 our
mandatory redemption obligations with respect to our preferred stock, including
the Additional Preferred Stock and Senior Exchangeable Preferred Stock. Our
ability to do so will depend on, among other things, our financial condition at
the time, the restrictions in the instruments governing our indebtedness and
other factors, including market conditions beyond our control. The actual amount
and timing of our future capital requirements may differ materially from our
estimates as a result of, among other things, the demand for our 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. We 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, we would record a liability of $5.4 million relating to an interest rate
hedge valuation at December 31, 1998. We have not determined the timing or
method of adoption of SFAS 133.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our 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 objective of our financial risk management is to
minimize the negative impact of interest rate fluctuations on our earnings and
equity. During 1998, we had an interest rate hedge on $160.0 million of our
outstanding indebtedness under the DOC Credit Facility. The hedge counterparty
is a major financial institution. Losses on the interest rate hedge in 1998 were
reflected in income and were immaterial. We did not recognize any gains or
losses in 1997 or 1996 from such interest rate hedging. We do not enter into
derivatives or other financial instruments for trading or speculative purposes.
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 our 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.
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BUSINESS
We are a leading provider of rural and suburban cellular telephone services.
Since we began providing cellular service in 1990 in Oklahoma and the Texas
Panhandle, we have rapidly expanded our 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. At
December 31, 1998, our cellular systems covered a population of 5.7 million in
Arizona, California, Kansas, Maryland, Missouri, New York, Ohio, Oklahoma,
Pennsylvania and Texas.
We believe that our 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. We focus 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. We believe
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. We have 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 our home area rates.
We seek to establish and maintain a strong and visible local presence while
achieving economies of scale and synergies through centralization of certain
functions. Our 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, we believe
that our marketing and customer service functions are more effective when
tailored to the local market population. The regional presence of our call
centers enhances our knowledge of local markets, which improves our ability to
provide customer service, credit and collection and order activation. However,
we retain centralized control of marketing, pricing, system design, engineering,
purchasing, financial and administrative functions to maximize operating
leverage and continuity over our cellular systems.
We have 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. We intend to apply these programs to the properties we acquire. We
recently closed into escrow our acquisitions of the FCC licenses for, and
certain assets related to, Texas 10 RSA for $55.0 million in cash, and Ohio 2
RSA for $39.3 million in cash. In addition, we recently entered into an
agreement for the purchase of the FCC licenses for, and certain assets related
to, Maryland 1 RSA for $9.1 million in cash, subject to adjustment.
STRATEGY
Our business strategy is to focus on the development and acquisition of
rural and suburban cellular systems. The principal elements of our strategy
include:
- INTEGRATE ACQUIRED OPERATIONS. We intend to integrate the operations of
systems we acquire with our existing cellular operations to achieve
economies of scale. Management believes that these increased efficiencies
will come from the centralized control of pricing, customer service and
marketing, system design, engineering, purchasing, financial and
administrative functions and from the consolidation of billing functions.
We expect to consolidate Sygnet's three call service centers and one of
our call centers. We intend to use our increased leverage in negotiating
prices and services from third party service providers and equipment
vendors.
- EXPAND STRATEGIC RELATIONSHIPS. We intend to continue to maintain and
expand strategic relationships with operators of cellular systems in major
MSAs near our systems. These relationships include
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roaming agreements which allow our subscribers to use the system in the
neighboring MSA at favorable rates. Under these agreements, similar
benefits are available to the MSA operator's subscribers roaming in our
areas. In addition, we will deploy digital technology in its system area
which is the same as that selected by our roaming partner in the
neighboring MSA. We also market our cellular products and services under
the predominant brand name in the neighboring MSA. These brand names
include CELLULAR ONE-Registered Trademark- and AIRTOUCH-SM- CELLULAR.
These strategic relationships and agreements enable us to increase our
roaming revenue, offer its subscribers larger home rate areas and leverage
the recognized brand names of its roaming partners and their extensive
marketing efforts. See "Risk Factors--We depend on third party service
marks to market our products area services. The loss of the right to use
the service marks could adversely affect our business."
- AGGRESSIVE LOCAL MARKETING AND PROMOTION OF CELLULAR SERVICES. Our
marketing objective is to continue to distinguish ourself as the local
market's leading cellular services provider, stressing our service
quality, local sales offices and commitment to the community. Our sales
efforts are conducted primarily through our retail outlets and our direct
sales force and, to a lesser extent, through independent agents.
- TARGETED SALES EFFORTS. We seek 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 our cellular
service.
- SUPERIOR CUSTOMER SERVICE. We intend to maintain a high level of customer
satisfaction through a variety of techniques, including maintaining
24-hour customer service. We support local customer service through our
direct sales force and our retail stores, and through regional customer
service centers.
- CONTINUED SYSTEM DEVELOPMENT. We believe that increasing capacity and
upgrading our systems will attract additional subscribers, enhance the use
of our systems by existing subscribers, increase roaming activity and
further enhance the overall efficiency of the network. We intend to
continue to upgrade our systems with digital technology to enable us to
increase roaming, by servicing the increasing number of digital cellular
subscribers and PCS subscribers with dual mode phones, and provide
enhanced capabilities, including caller ID, longer battery life and zone
billing.
- DISCIPLINED EXPANSION THROUGH ACQUISITIONS. We continually evaluate
opportunities to acquire additional rural and suburban cellular systems.
In evaluating acquisitions, we target 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.
We currently have two pending acquisitions. Sygnet is party to an agreement to
purchase the FCC license for, and certain assets related to, Pennsylvania 2 RSA
for $6.0 million. 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, Sygnet is managing the operation of the cellular
system in the market under the supervision and control of the seller. In
addition, we recently entered into an agreement to purchase
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the FCC license for, and certain assets related to, Maryland 1 RSA and the
unserved portion of Cumberland, Maryland MSA for $9.1 million, subject to
adjustment. We have no agreements with respect to any acquisitions other the
acquisitions of Maryland 1 RSA and the Pennsylvania 2 RSA.
DISCONTINUED OPERATIONS
Through our wholly owned subsidiary, Logix, we provide integrated local,
long distance, data and other telecommunications services and long-haul fiber
optic services to business customers in the Southwest United States.
We have designated Logix an unrestricted subsidiary with the result that
Logix is not be subject to certain covenant and similar restrictions which apply
to the rest of our operations. We intend to distribute the stock of Logix to
certain of our shareholders, subject to receipt of a favorable tax ruling from
the Internal Revenue Service or a favorable tax opinion acceptable to us and our
shareholders and subject to the receipt of consents from a majority of the
principal amount of our outstanding 11 3/4% Senior Notes due 2007. Holders of
our Preferred Stock will not participate in our distribution of Logix stock.
Logix is accounted for as a discontinued operation in our consolidated financial
statements.
RECENT EVENTS
On December 23, 1998, our subsidiary, Dobson/Sygnet Communications Company,
acquired Sygnet for $337.5 million in cash.
Effective January 16, 1999, we amended our operating agreement with AT&T
Wireless to modify the roaming airtime rates we will charge each other through
June 30, 2004. We believe the new rates will increase the total airtime used by
our customers which will increase our gross revenues.
Effective April 13, 1999, AT&T Wireless entered into an agreement to
purchase certain shares of our Class D Preferred Stock and common stock from one
of our existing shareholders for $20.0 million. AT&T Wireless' purchase is
subject to compliance with Hart-Scott-Rodino Act and other customary closing
conditions. Following the consummation of it stock purchase, AT&T Wireless will
have the right to appoint one member of our Board of Directors and to jointly
appoint an additional Board member.
Our first quarter total operating revenues were approximately $68 million.
Our first quarter results do not include any operating revenue from the Ohio 2
RSA and Texas 10 RSA. Our subscriber count at March 31, 1999 was approximately
381,000, including 13,611 subscribers in Ohio 2 RSA that we purchased late in
the first quarter. This is an increase from 352,000 subscribers at December 31,
1998. Net subscriber additions for the quarter, not including subscribers
purchased in Ohio 2 RSA, were approximately 16,000.
On May 5, 1999, we expect to conclude a private offering of $170.0 million
of another class of our preferred stock. We will use the net proceeds of that
offering to redeem all outstanding shares of our Class F Preferred Stock and
Class G Preferred Stock, to reduce our bank debt and for general corporate
purposes.
MARKETS AND SYSTEMS
The following table sets forth certain data as of December 31, 1998 with
respect to our existing cellular markets. We determine our market penetration by
dividing total subscribers by the total population covered by the applicable FCC
cellular license or authorizations that we or our subsidiaries hold. We recently
closed into escrow our acquisitions of the FCC licenses for, and certain assets
related to, Texas 10 RSA for $55.0 million and Ohio 2 RSA for $39.3 million. The
previous operator of Texas 10 RSA estimates the number of subscribers at 1,400.
On March 16, 1999, we purchased 13,611 subscribers in Ohio 2 RSA from the
previous operator. We are negotiating to purchase the subscribers in Texas 10
RSA.
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We recently entered into an agreement for the purchase of the FCC licenses for,
and certain assets related to, Maryland 1 RSA for $9.1 million, subject to
adjustment. Maryland 1 RSA covers a population of 29,800 and the present
operator has 400 subscribers.
<TABLE>
<CAPTION>
TOTAL TOTAL MARKET DATE
MARKETS POPS OWNERSHIP NET POPS SUBSCRIBERS PENETRATION ACQUIRED/EXPECTED
- ----------------------------------------- ---------- ------------- ---------- ----------- ------------- -------------------
<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 -- -- 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 -- -- 1999
Youngstown............................. 721,400 100.0 721,400 69,061 9.6 1999
Erie................................... 282,300 100.0 282,300 29,013 10.3 1999
Pennsylvania........................... 890,300 100.0 890,300 52,178 5.9 1999
New York............................... 480,000 100.0 480,000 28,499 5.9 1999
---------- ---------- -----------
Total................................ 2,636,100 2,636,100 178,751
---------- ---------- -----------
Total--All Regions................. 5,745,600 5,575,520 352,005
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
CENTRAL REGION
Our 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). Our 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 us to be 3,000
for the area in Dewey County not covered by our FCC license), Harmon and Greer
Counties. We also own 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 RSA is excluded because we do not manage the system. Our license for
Missouri 5 RSA covers only the Linn County portion of the RSA.
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OKLAHOMA AND TEXAS PANHANDLE
GENERAL. We 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. We operate 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. We currently have ten retail
stores, six kiosk locations and approximately 50 agents in the area. We have
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. We have 46 cell sites covering substantially all of the total Pops
in Oklahoma 5 and 7, Northwest Oklahoma and the Texas Panhandle. We have
completed upgrading our system in this area to analog/TDMA IS-136 digital
service.
KANSAS/MISSOURI
GENERAL. In March 1996, we 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. We operate under the CELLULAR
ONE-Registered Trademark- service mark in our Kansas and Missouri properties.
Since March 1996, we have increased our number of retail locations from one to
four, and currently have 22 sales agents in this area. We have 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. We also have
roaming agreements with Western Wireless and U.S. Cellular, each of which has
systems adjacent to the Kansas and Missouri properties.
SYSTEMS. Our Kansas and Missouri properties include one switch and 28 cell
sites which cover approximately 75% of the population. Selection of the digital
technology to be employed, 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, we 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, we purchased the FCC licenses for, and certain assets related
to, Texas 10 RSA for $55.0 million, subject to resolution of certain matters
regarding the seller's title to the FCC licenses. Texas 10 is located in
north-central Texas, in an area bordered by Dallas, Austin, Tyler and Longview
MSAs, with a population of approximately 317,900. We are negotiating with AT&T
Wireless for an agreement to purchase approximately 3,000 subscribers in Texas
10 and to lease certain equipment
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necessary to operate the property. We expect to convert Texas 10 subscribers to
our system and assume all operations in the first 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 area 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, we have 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. We operate under the brand name CELLULAR
ONE-Registered Trademark- in Texas 16. We have six existing retail outlets in
Texas 16 and intends to open one additional outlet.
With respect to Texas 10, we expect to market our products and services in
Texas 10 under the CELLULAR ONE-Registered Trademark- brand name. Additionally,
we intend 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, we have identified locations for three
retail outlets that we will open in the second quarter of 1999. We intend to
open additional retail outlets later in 1999.
SYSTEMS. Texas 16 has one Lucent switch and 30 cell sites which cover
substantially all of the Pops in the market area. We recently completed
upgrading our system in Texas 16, and we currently provide 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 that will cover substantially
all of the population in the market area. Texas 10 will share Texas 16's Lucent
switch.
EASTERN REGION
Our licensed systems and related assets in the Eastern Region include our
properties in eastern Maryland (Maryland 2 RSA) and western Maryland and
southeastern Pennsylvania (Cumberland MSA, Hagerstown MSA, Maryland 3 RSA and
Pennsylvania 10 West RSA) near the Washington-Baltimore area and along the
eastern shore of Maryland.
GENERAL. On March 3, 1997, we 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 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, we assumed control of customer service, billing and
activations in East Maryland and in May 1998, we assumed all operations in East
Maryland. We intend to add additional cell sites and voice channels in East
Maryland as its local subscriber base and roaming traffic increase. On February
28, 1997, we 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
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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 our Eastern Region, we operate under the brand
name CELLULAR ONE-Registered Trademark-, which is the dominant brand name within
the Washington/Baltimore area. We presently have nine retail stores, six kiosks
and 43 agents in its Eastern Region, and intend to open additional retail
locations.
We have a roaming agreement with AT&T Wireless which covers our entire
Eastern Region. We also have roaming agreements with SWBM, which operates under
the CELLULAR ONE-Registered Trademark- brand name in the Washington, D.C. area,
and with Vanguard, which operates a system adjacent to certain of our properties
on the north and east of the Eastern Region.
SYSTEMS. The Eastern Region has two switches. In addition, we have 45 cell
sites in our Eastern Region which cover substantially all the population in the
market area. We have converted our Eastern Region systems to analog/IS-136 TDMA
digital technology.
WESTERN REGION
Our licensed systems and related assets in the Western Region includes our
properties in southern California (California 7 RSA) and Arizona (Arizona 5 RSA)
("Arizona/Southern California") and California 4 RSA and Santa Cruz MSA in
Northern California.
ARIZONA/SOUTHERN CALIFORNIA
GENERAL. On October 1, 1997, we acquired a 75% interest in the Arizona 5
Partnership, which owns the FCC license for, and certain assets relating to,
Arizona 5 RSA for $39.8 million. We are the operating manager of the Arizona 5
Partnership. On July 29, 1998, we 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 has 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, we have roaming
agreements with AirTouch. We are licensed to use the AIRTOUCH-TM- CELLULAR
service mark to identify and promote its cellular telephone service in Arizona 5
and California 7. The roaming agreements provide for Airtouch and us to include
each other's service area in its home coverage area, allowing each party to
offer a wider service area. AirTouch's service area includes Phoenix and Tucson.
Airtouch's service area includes San Diego. At present, we have one retail
location and 15 agents in Arizona and two retail locations and two kiosks and
nine agents in California 7. We intend 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. We intend to continue this arrangement with US WEST until we install
our own switch. 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. We intend to replace all of the equipment
in these
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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, we acquired the corporation that owned the FCC
license for, and certain assets related to, California 4 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.
In 1998, we purchased 86.9% of the outstanding stock of the corporation that
owns the FCC cellular license for, and the assets relating to, the Santa Cruz
MSA, for $31.2 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 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. We have entered into roaming agreements with AT&T
Wireless in California 4 which will permit us to include AT&T Wireless' service
area in our home rate area, allowing us to offer a wider service area. The AT&T
Wireless service area includes San Francisco, Fresno and Modesto. We have a
roaming agreement with AT&T Wireless and Bay Area Cellular, a partnership
between AT&T Wireless and AirTouch, for Santa Cruz, and we are negotiating a new
roaming agreement. We use the brand name CELLULAR ONE-Registered Trademark- to
market our services in Northern California and we currently operate 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.
We are in the process of upgrading the systems and existing equipment in Santa
Cruz and California 4 and we expect the upgrade to be complete in the second
quarter of 1999.
NORTHERN REGION
Our 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.
YOUNGSTOWN
GENERAL. The Youngstown market includes 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 Pittsburg 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, we market our cellular
products and services under the name "Wilcom Cellular," which has a strong local
identity. At December 31, 1998, we had six retail stores and 13 kiosks and
agreements with over 26 independent sales agents.
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SYSTEMS. There are 44 cell sites covering substantially all of the total
Pops in the Youngstown market. We have completed upgrading our 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 Pittsburg. The principal industries are manufacturing,
healthcare, high-technology and tourism.
MARKETING AND ROAMING. We operate under the brand name CELLULAR
ONE-Registered Trademark- in the Erie market. At December 31, 1998, we had three
retail stores and five 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. We have completed upgrading our 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 Pinnellas 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 Pittsburg and Erie. The
Pennsylvania market also includes Route 60, a recently completed toll road,
which serves as an expressway to Pittsburg International Airport.
MARKETING AND ROAMING. We operate under the brand name CELLULAR
ONE-Registered Trademark- in the Pennsylvania market. At December 31, 1998 we
had eight retail stores and five kiosks and approximately 61 sales agents in the
area.
SYSTEMS. There are 75 cell sites covering approximately all of the
population in the Pennsylvania market. We have completed upgrading our 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.
NEW YORK
GENERAL. The New York market consists 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. Interstate 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. We operate under the brand name CELLULAR
ONE-Registered Trademark- in the New York market. At December 31, 1998 we had
nine retail stores and four kiosks and approximately 23 sales agents in the
area.
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SYSTEMS. The New York market has one switch. There are 50 cell sites
covering substantially all of the population in the New York market. We have not
upgraded its system in this area to digital service. We intend 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, we purchased the FCC license for, and
related assets of, Ohio 2 RSA for $39.3 million, subject to resolutions 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 a population of 262,100. On March 16, 1999, we
purchased 13,611 subscribers and certain assets in Ohio 2 from AirTouch for $3.9
million. We expect to assume all operations of Ohio 2 in the second quarter of
1999. Until then, AirTouch will provide certain services to us that are
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. We will market our products and services in Ohio 2
under the name AIRTOUCH-TM- CELLULAR. Ohio 2 currently has two retail outlets
and two sales agents. We plan to open three additional retail outlets in 1999.
We have a reciprocal roaming agreement with AirTouch that will allow AirTouch
and us to include each other's service area in its relevant home rate area.
SYSTEMS. We expect the system in Ohio 2 to be complete and in service in
the second quarter of 1999. Ohio 2 will have one switch and eight cell sites
covering substantially all of the population of Ohio 2. We will deploy both
analog/TDMA IS-136 and CDMA digital service in Ohio 2.
PENDING ACQUISITION
MARYLAND 1
GENERAL. On November 24, 1998, we entered into an agreement to purchase the
FCC licenses for, and certain assets related to, Maryland 1 RSA for $9.1
million, subject to adjustment. Maryland 1 is located in western Maryland. We
will operate it as a part of our West Maryland market. Our acquisition of
Maryland 1 is expected to close late in the second quarter of 1999.
DEMOGRAPHICS. Maryland 1 is adjacent to our West Maryland market. It
includes 32 miles of I-68 which connects Morgantown, West Virginia and
Cumberland, Maryland.
MARKETING AND ROAMING. Maryland 1 will be operated as part of our West
Maryland market area. Maryland 1 has two retail locations and we plan to add one
additional outlet in 1999. Maryland 1 will be operated under our existing
roaming agreements applicable to the West Maryland area.
SYSTEMS. Maryland 1 currently has five cell sites. We plan to add five
additional cell sites in 1999. We will deploy analog/TDMA IS-136 digital service
in Maryland 1.
CELLULAR OPERATIONS
PRODUCTS AND SERVICES
We provide 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, we offer 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 we offer varies depending upon
the market area. We
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also sell cellular equipment at discount prices and uses free phone promotions
as a way to encourage use of its mobile services. We offer 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. Unlike some
of our competitors, we design rate plans on a market-by-market basis. Our 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, our rate plans which include a higher monthly access
fee typically include a lower usage rate per minute. We maintain an ongoing
review of equipment and service plan pricing and, as appropriate, we revise
pricing to meet the demands of the local marketplace.
CUSTOMER SERVICE
Customer service is an essential element of our marketing and operating
philosophies. We are committed to attracting new subscribers and retaining
existing subscribers by providing consistently high-quality customer service. In
each of our cellular service areas, we maintain installation and repair
facilities and a local staff, including a market manager, customer service
representatives, technical and sales representatives. In each of our cellular
service areas, we handle our own customer-related functions such as customer
activations, account adjustments and rate plan changes. Our local offices and
installation and repair facilities enable us to service customers better,
schedule installations and make repairs. Through the use of sophisticated,
centralized monitoring equipment, we are able to centrally monitor the technical
performance of its cellular service areas.
In addition, our customers generally are able to report cellular telephone
service or account problems 24-hours a day to our regional customer service
centers located in Oklahoma City, OK and Frederick, MD on a toll-free access
number with no airtime charge. We believe that our emphasis on customer service
affords us a competitive advantage over our large competitors. We contact our
subscribers at frequent intervals in order to evaluate and measure, on an
ongoing basis, the quality and competitiveness of our services.
SALES, MARKETING AND DISTRIBUTION
We focus our marketing program on attracting subscribers who are likely to
generate high monthly revenue and low churn rates. We undertake 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 our cellular service. We have established marketing
alliances with neighboring cellular systems to create larger home rate areas and
to effectively expand our home rate area in order to increase our roaming
revenue and to attract new subscribers. We market our service offerings
primarily through our direct sales force and Company-owned retail stores. We
also use a network of dealers and other agents, such as electronics stores, car
dealerships and department stores. In addition to these traditional channels,
our marketing team continuously evaluates other, less traditional, methods of
distributing the Company's services and products, such as targeted telemarketing
and direct mail programs.
We market our cellular products and services under both national brand names
and our own brand name. See "--Service Marks." The service mark we select for
use in each of our markets depends, to a large extent, upon the service mark
used in neighboring MSAs. We market our 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, we market our 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 our advertising exposure at a fraction of the cost of what
could be achieved by us alone. We use the service mark AIRTOUCH-TM- CELLULAR in
our southern California and Arizona properties and in our Ohio 2
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market, and expect to use a national brand name in central Texas and the name
CELLULAR ONE-Registered Trademark- in northern California. In our Northern
Region, we expect to continue Sygnet's use of the CELLULAR
ONE-Registered Trademark- brand name in all of Sygnet's areas other than the
Youngstown and Sharon MSAs in which the name Wilcom Cellular will continue to be
utilized. See "--Service Marks."
We train and compensate our sales force in a manner designed to stress the
importance of customer service, high penetration levels and minimum acquisition
costs per subscriber. We believe that our 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, we
motivate our direct sales force to sell appropriate rate plans to subscribers,
thereby reducing churn, by linking payment of commissions to subscriber
retention. As a result, our 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. We
currently have 97 direct sales agents.
We believe that the after-sale telemarketing program conducted by our sales
force and customer service personnel helps to reduce our churn rate. This
program enhances customer loyalty and allows our sales staff to check customer
satisfaction as well as to offer additional calling features, such as voicemail,
call waiting and call forwarding.
We operated 67 retail outlets as of December 31, 1998. Our 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.
Our 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
We believe that regional roaming is an important service component for many
subscribers. Accordingly, where possible, we attempt to arrange reciprocal
roaming agreements that allow customers to roam at competitive prices. We
believe this increases usage on all cellular systems, including our own. Roaming
is a substantial source of our revenue. We focus 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. We
have entered into roaming agreements with operators of cellular systems in
adjoining MSAs and others which provide for reciprocal roaming rates that allow
area customers to roam at competitive
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prices which, in certain instances, are comparable to their home area rates. The
following table lists our principal roaming partners in each of our cellular
markets:
<TABLE>
<CAPTION>
CELLULAR MARKETS PRINCIPAL CELLULAR ROAMING 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>
We have agreements with NACN, which is the largest wireless telephone
network system in the world linking cellular operators throughout the United
States and Canada. NACN connects key areas across North America so that
customers can use their cellular phones to place and receive calls in these
areas as easily as they do in their home areas. Through NACN, customers receive
calls automatically without the use of complicated roaming codes as they roam in
more than 5,000 cities and towns in the United States and Canada. In addition,
special services such as call forwarding and call waiting automatically follow
subscribers as they travel.
PCS
In April 1997, we were 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 us 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
TECHNOLOGY AND SYSTEM DEVELOPMENT
OVERVIEW. Historically, most cellular services have transmitted voice and
data signals over analog-based systems, which use one continuous electronic
signal that varies in amplitude or frequency over a single radio channel.
Digital systems, on the other hand, convert voice or data signals into a stream
of digits that is compressed before transmission, enabling a single radio
channel to carry multiple simultaneous signal transmissions. This enhanced
capacity, along with enhancements in digital protocols, allows digital-based
wireless technologies to offer new and enhanced services, such as greater call
privacy and
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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. We develop or build out our 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. Historically we have met such demand through a combination of augmenting
channel capacity in existing cell sites and building new cell sites. In January
1998, we 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 us under this agreement is estimated to be $81.0
million. We are also a 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.
We expect our cell site expansion to enable us 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. We believe 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. We use two basic protocols in our digital networks. Our
primary digital technology or "protocol" is TDMA (Time Division Multiple Access)
which is a satellite and cellular phone technology that interleaves multiple
digital signals onto a single high-speed channel. For cellular, it divides each
channel into three subchannels providing service to three users instead of one.
Our other digital technology or "protocol" is CDMA (Code Division Multiple
Access) that converts analog signals into digital for transmission over our
cellular network. It provides up to 35 times the capacity of the analog network.
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.
We believe that the primary advantages and disadvantages of TDMA and CDMA
are that CDMA generally provides a greater capacity than TDMA so that more calls
can be handled at one time, while TDMA is less difficult and, therefore, less
expensive to maintain. We believe that it is highly unlikely that CDMA would
become the accepted standard in the cellular telephone industry. However, if
such should occur, we expect that we would replace our TDMA with CDMA
technology, which would require us to
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make significant capital expenditures. Because we believe it is so unlikely that
CDMA will become the accepted standard, we have not estimated the cost we would
incur in such event.
Over the next decade, we expect 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. We expect the conversion from analog to
digital technology to be an industry-wide process that will take a number of
years to complete. We have completed the conversion of many of our systems to
digital technology and expects to convert the remainder of our systems (except
for Kansas/ Missouri) by the end of 1999.
The technology which we utilize will be governed, to a large extent, by the
technology used by the large, dominant carriers in MSAs near our 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 us in each of its cellular markets.
<TABLE>
<CAPTION>
STATUS/EXPECTED
CELLULAR MARKET DIGITAL TECHNOLOGY COMPLETION 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 Not selected
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/CDMA/TDMA IS-136 Second quarter 1999
</TABLE>
INFORMATION SYSTEMS. Billing functions for most of our 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, we began replacing ITDS with another billing
vendor, H.O. Systems, Inc. The H.O. Systems'
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software is in place and functioning in our Western Region markets and we intend
to implement the H.O. Systems' software throughout our remaining regions by the
end of the third quarter of 1999. We use complementing software to the billing
system allowing the use of credit, collection and switch interfaces.
We operate a Nortel Meridian phone system with voice mail features. In
addition, our customer service and collections groups extensively utilize the
automatic call distribution queues and traffic and productivity reporting
capacities of the system.
SERVICE MARKS
We own the service mark Dobson Cellular-TM- which we use in our cellular
telephone systems in western Oklahoma. While we have not attempted to federally
register the brand name "Dobson Cellular," we believe that our prior use of this
brand name in the limited areas where it is used will enable us 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 us for products and services in each of our 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................................................ 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. We use 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 us to provide high-quality cellular telephone service to our
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 our 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 Arizona 5 Acquisition, we entered into a licensing agreement
which permits us to use the AIRTOUCH-TM-
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CELLULAR service mark to identify and promote our cellular telephone service in
Arizona 5. Our 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 us to provide high-quality cellular telephone services to our
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.
COMPETITION
We compete with various companies in each of our markets. The following
table lists the principal competitors in each of our 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
Central Texas.................. GTE
Kansas and Missouri............ SWBM; Kansas Cellular; ALLTEL; Chariton Cellular
EASTERN REGION:
East Maryland.................. BAM; Sprint
West Maryland.................. BAM; US Cellular; Sprint
WESTERN REGION:
Arizona/California............. BAM
California 4................... GTE
Santa Cruz..................... GTE
NORTHERN REGION:
Youngstown..................... ALLTEL
Erie........................... GTE Mobilenet
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, we expect
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 we compete are 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 us. 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 our competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless telecommunications
systems that encompass most of the United States.
We compete primarily against one other facilities-based cellular carrier in
each of our cellular markets. We compete for customers based principally upon
price, the services and enhancements offered, the quality of the cellular
system, customer service, system coverage and capacity. This 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.
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We also face to a lesser extent competition from PCS, ESMR and mobile
satellite service ("MSS") providers, as well as from resellers of these services
and cellular service. In the future, we 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 for Wireless Communications Services, local
multipoint Distribution Service and 220-222Mhz service. Further, the FCC has
announced plans to auction licenses in the General Wireless Communications
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 us
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 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 we may experience increased
competition from low earth-orbit satellite-based systems in the future, to date,
such systems have not affected our operations.
The commercial development and deployment of most of these new technologies
remain in an early phase. We expect 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. We believe that we can
effectively face this competition from our position as an incumbent in the
cellular industry with
- a high quality network,
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- extensive home rate areas that are not capacity constrained,
- strong distribution channels,
- superior customer service capabilities, and
- an experienced management team.
Since we operate in medium to small markets, new entrants in those markets
may be unable to offer wireless service at competitive rates 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 we operate.
REGULATION
OVERVIEW. The wireless telecommunications industry is subject to extensive
governmental regulation on the federal level and to varying degrees on the state
level. The enactment of the Telecommunications Act has impacted many aspects of
this regulation. In addition, this regulation is currently the subject of
administrative rulemakings and judicial proceedings that are significant to us.
The following is a summary of the federal laws and regulations that materially
affect the wireless telecommunications industry, in general, and us, in
particular, and a description of applicable 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 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 it should modify this 45 MHz spectrum cap.
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 areas 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
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period has expired in all its markets, except Pennsylvania 2 RSA. Our buildout
has been substantially completed in all of our markets except Ohio RSA 2, Texas
10 RSA and Pennsylvania 2 RSA.
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. We are 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,
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 us of a controlling interest in
any license or construction permit, or any rights thereunder. Although we cannot
assure you that the FCC will approve or timely act upon any future requests for
approval of applications that we file, we have no reason to believe that the FCC
would not approve or grant such requests or applications 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 our cellular licenses are classified as CMRS. As a CMRS provider, the FCC
regulates us 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. Our obligations to implement these services is scheduled to occur in
several stages ending in October 2001. Federal regulations also require cellular
and PCS carriers 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 us 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 us to make necessary system changes, although we currently have no plans for
any such expenditures.
The FCC generally grants cellular and PCS licenses for terms of ten years
that are renewable upon application to the FCC. Near the conclusion of the
license term, we must file applications for renewal of licenses to obtain
authority to operate for an additional 10-year term. The FCC may revoke our
licenses and may deny our license renewal applications for cause after
appropriate notice and hearing. The FCC
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will award a renewal expectancy to us if we meet certain standards of past
performance. If we receive a renewal expectancy, it is very likely that the FCC
will renew the area existing cellular license without becoming subject to
competing applications. To receive a renewal expectancy, we must show that we
have provided "substantial" service during our past license term, and have
substantially complied with applicable FCC rules and policies and the
Communications Act. The FCC defines "substantial" service as service which is
sound, favorable and substantially above a level of mediocre service that might
only minimally warrant renewal. If a licensee does not receive a renewal
expectancy, then the FCC will accept competing applications for the license,
subject to a comparative hearing, and the FCC may award the license to another
entity. The initial term for three of our existing licenses, apart from those we
acquired from Sygnet, expired in October 1998. The FCC has renewed each license
for a new ten year term expiring in 2008. The balance of our existing licenses
begin to expire in October 2000. The FCC has renewed three of the licenses we
acquired from Sygnet for a new ten year term, and the initial terms on the
balance of these licenses will expire beginning in 2006.
A PCS system operates under a protected geographic service area license
granted by the FCC for either an MTA or BTA on one of six frequency blocks
allocated for broadband PCS service. The FCC has divided the United States and
its possessions and territories into PCS markets based upon Rand McNally's 493
BTAs, all of which are included in the 51 MTAs. The FCC has allocated 120 MHz of
radio spectrum in the 2 GHz band for licensed broadband PCS services. The FCC
divided the 120 MHz of spectrum into six individual blocks, two 30 MHz blocks (A
and B Blocks) licensed for each of the 51 MTAs, one 30 MHz block (C Block)
licensed for each of the 493 BTAs, and three 10 MHz blocks (D, E and F Blocks)
licensed for each of the 493 BTAs, a total of more than 2,000 licenses. In 1998,
the FCC afforded financially-troubled C Block licensees the option of returning
all or half of their spectrum to the FCC for reauction. On April 15, 1999, the
FCC completed a reauction of PCS licenses in the C, E and F Blocks. A total of
302 licenses will be awarded (179 30 MHz C Block, 115 15 MHz C Block, 6 E Block
and 2 F Block), assuming full payment by all winning bidders.
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 and 15 MHz licensees must
provide service to at least 25% of the service area or make a showing of
"substantial service" 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. We were qualified to hold C and F licenses at the time such licenses were
awarded, and we anticipate remaining so qualified throughout the term of the PCS
licenses awarded to us.
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For a period of up to five years after the grant of a PCS license (subject
to extension), the FCC prohibits a PCS licensee 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 our PCS
systems efficiently and with adequate population coverage, we may need to
relocate many of these incumbent licensees, at our expense, to other frequencies
or to reimburse other previously-licensed PCS licensees for expenses they have
incurred in relocating incumbent licensees that we might otherwise have 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
a transition plan to relocate such microwave operators to other spectrum blocks
and a cost sharing plan so that if the relocation of an incumbent benefits more
than one PCS licensee, the benefitting PCS licensees will share the cost of the
relocation. This transition plan allows most microwave users to operate in the
PCS spectrum for a one-year voluntary negotiation period and an additional
one-year mandatory negotiation period. For public safety entities dedicating a
majority of their system communications for police, fire or emergency medical
services operations, the voluntary negotiation period is three years, with an
additional two-year mandatory negotiation period. 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. We have
not yet determined the extent, if any, of expenses we may need to incur for the
relocation of microwave incumbents in order to provide PCS services using our
the PCS licenses.
The FCC may deny applications for FCC authority, and in extreme case revoke
licenses, if it 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. Moreover, if
foreign nationals or their representatives, a foreign government or its
representative or any corporation organized under the laws of a foreign country
own of record or vote greater than 25 percent of our equity and the FCC
determines that the public interest would be so served, it may revoke our
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 our ability to attract
additional equity financing. We have no knowledge that any foreign national owns
any of our capital stock.
The Telecommunications Act, which made significant changes to the
Communications Act and terminated the antitrust consent decree applicable to the
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 us, 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,
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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, we 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 we will pursue relief
through settlement negotiations, administrative complaint procedures or both. If
these issues are ultimately decided in favor of the LECs, we 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 us.
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 our 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. We currently provide "dial around" equal access to all of
our 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 reviewed but have
the potential to impose upon us new costly obligations and impose burdens on our
current marketing activities.
The overall impact of the Telecommunications Act on our business 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 us 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, we are free to establish rates and offer new products and
service with a minimum of regulatory requirements. The states in which we
operate maintain nominal oversight jurisdiction, primarily focusing upon prior
approval of acquisitions and transfers and resolution of customer complaints.
The location and construction of our 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 we can put a system into commercial operation, we 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.
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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 the Telecommunications
Act precludes localities 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, the
Telecommunications Act prohibits localities 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.
We cannot assure you that any state or local regulatory requirements
currently applicable to our 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, federal or state legislators propose
legislation that could affect us, either beneficially or adversely. We 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 our business. Changes such as the
allocation by the FCC of radio spectrum for services that compete with our
business could adversely affect our operating results.
EMPLOYEES AND AGENTS
As of December 31, 1998, we had approximately 980 employees. In addition, as
of such date, we had agreements with 339 independent sales agents, including car
dealerships, electronics stores, paging service companies and independent
contractors. None of our employees are represented by a labor organization, and
we consider our employee relations to be good.
PROPERTIES
We maintain our corporate headquarters in Oklahoma City, Oklahoma. We lease
approximately 24,600 square feet at a monthly rental of approximately $19,000.
See "Management--Certain Transactions." As of December 31, 1998, our cellular
operations leased 67 and owned five sales and administrative offices, at
aggregate annual rentals of approximately $1.6 million. We anticipate that we
will review these leases from time to time and may, in the future, lease or
acquire new facilities as needed. We expect to lease or purchase additional
sales and administrative office spaces in connection with the pending
acquisitions. We do not anticipate that it will encounter any material
difficulties in meeting our future needs for any leased space. We also owned and
leased 414 cell sites as of December 31, 1998.
LEGAL PROCEEDINGS
We are not currently involved in any pending legal proceedings that
individually or in the aggregate are material to us. We are a party to routine
filings and customary regulatory proceedings with the FCC and the state public
utility commissions relating to our operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors consists of seven directors, four designated by the
Dobson Partnership, one designated by Childs, and two selected jointly by the
Dobson Partnership and Childs. Following consummation of its stock purchase,
AT&T Wireless will have the right to appoint one member of our Board and to
appoint, jointly with Childs and the Dobson Partnership, an additional Board
member. See "Principal Shareholders." Two additional directors may be designated
by holders of our Senior Preferred Stock, two by holders of the Preferred Stock
and one by the holders of our Class F Preferred Stock in the event certain
voting rights triggering events occur. See "Description of Capital Stock--Senior
Preferred Stock," "--Other Preferred Stock" and "Description of the Preferred
Stock."
Currently, we have six directors on our Board of Directors, with one vacancy
to be filled by an independent director designee of the Dobson Partnership. Upon
consummation of our acquisition of Sygnet, Albert H. Pharis, Jr., President and
Chief Executive Officer of Sygnet, and Dana L. Schmaltz, an executive officer of
Childs, became directors, and Thadeus J. Mocarski resigned as a director. Our
directors are elected to serve until they resign or are removed, or are
otherwise disqualified to serve, or until their successors are elected and
qualified. Our directors are elected for one-year terms at the annual meeting of
stockholders which is held in April of each year. Our officers are appointed at
the Board's first meeting after each annual meeting of stockholders.
Our directors and executive officers are set forth below. Certain of the
officers and directors hold or have held positions in several of our
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.
We were incorporated in February 1997 in connection with a corporate
reorganization (the "Reorganization") pursuant to which we became the holding
company parent of our subsidiary, Dobson Operating Company ("DOC"). Information
below with respect to positions held by our executive officers and directors
refers to their positions with DOC and, since February 1997, also with us.
EVERETT R. DOBSON has served as a director and officer since 1982. From 1990
to 1996, he served as a director, President and Chief Operating Officer of us
and President of our cellular subsidiaries. He was
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elected our Chairman of the Board and Chief Executive Officer 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 us as President and Chief Operating Officer of our
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 us 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 us 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 us as Treasurer in September 1998. 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-Treasurer 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 since 1990. He served as our Treasurer
from 1990 until September 1998, and he has served as Secretary of since 1990. He
has also served as General Manager and Secretary of our 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 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.
JUSTIN L. JASCHKE has been a director 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,
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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. 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 in accordance with the terms of our
Stockholders' Agreement dated December 23, 1998 with 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.
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 1997 300,000 250,000 54,800(4) -- 9,500
Chief Executive Officer 1996 300,000 142,400 77,100(4) -- 6,000
Stephen T. Dobson ................ 1998 155,200 80,000 32,600(5) -- 4,700
Secretary, Treasurer 1997 100,000 75,000 13,800(5) -- 6,500
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 1997 113,600 80,000(6) -- 6,033 --
Operating Officer 1996 -- -- -- -- --
Bruce R. Knooihuizen ............. 1998 165,000 102,500 -- 1,000 4,100
Vice President and 1997 152,500 82,500 -- -- 1,400
Chief Financial Officer 1996 65,900 37,500 57,600(7) 7,541 --
R. Thomas Morgan ................. 1998 135,000 60,000 -- 1,207 --
Vice President and 1997 6,000 40,000(8)
Chief Information Officer 1996 --
</TABLE>
- ------------------------
(1) The bonus amount for Everett R. Dobson with respect to services performed in
1998 has not yet been determined. The bonuses for 1997 represent the bonuses
paid in 1998 with respect to services performed in 1997. 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.
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(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,
1997and 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 $40,000 received upon commencement of employment.
The Named Executive Officers listed below were granted options to purchase
shares of our Class B or Class C Common Stock in 1998. No stock options were
exercised by the Named Executive Officers in 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ANNUAL RATES
INDIVIDUAL GRANTS OF
-------------------------------- STOCK APPRECIATION FOR
NUMBER OF PERCENT OF TOTAL OPTION TERM(1)
OPTIONS OPTIONS GRANTED TO EXERCISE PRICE ----------------------
NAME GRANTED EMPLOYEES IN 1998 ($/SHARE) EXPIRATION 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 01/29/98 $ 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 UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/98(#) OPTIONS AT 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.
EMPLOYMENT AGREEMENTS
In connection with the employment of Bruce R. Knooihuizen in 1996 and G.
Edward Evans in 1997, we 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 our Class B Common Stock at $100 per share vesting at the rate of 20%
per year. The terms of Mr. Evans'
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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 our 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. We 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 our Class
B Common Stock held by these officers become fully vested upon a change of
control.
Effective September 1, 1998, we entered into a consulting agreement with
Russell L. Dobson. Under the terms of the agreement, Mr. Dobson has been
retained by us from September 1, 1998 through August 31, 2008. In exchange for
Mr. Dobson's services, we will provide monthly compensation of $15,000 and
insurance benefits commensurate with our employee plan. Mr. Dobson's
responsibilities include representing us at various functions, assisting with
regulatory matters and assisting executive officers in strategic planning and
forecasting. In addition, Mr. Dobson has agreed not to compete with us. During
1998, we paid Mr. Dobson approximately $195,000 under the consulting agreement.
Effective December 23, 1998, Albert H. Pharis, Jr. became a consultant to
us, to assist us 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 our 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.
DIRECTOR COMPENSATION
We reimburse directors for out-of-pocket expenses incurred in attending
board meetings. Justin L. Jaschke, in connection with his election as a director
in October 1996, was granted an option to acquire 833 shares of our 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.
Directors who are our officers or our consultants receive no additional
compensation for services rendered as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors determines the
compensation of our 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. Commencing in
February 1999, the members of our Compensation Committee are Russell L. Dobson
and Dana L. Schmaltz. For a description of certain transactions between Mr.
Dobson and us, see "--Certain Transactions."
STOCK OPTION PLAN
We adopted our 1996 Stock Option Plan, as amended (the "Plan") to encourage
our key employees by providing opportunities to participate in ownership and our
future growth through the grant of incentive stock options and nonqualified
stock options. The Plan also permits the grant of options to our directors. The
Plan is presently administered by our Board of Directors, but in the future may
be administered by a committee of the Board (whether the Board or a committee,
the "Committee"). As of March 31, 1999 we had granted options to purchase an
aggregate of 29,767 shares of Class B Common Stock and 3,622 shares of Class C
Common Stock under the Plan.
The maximum number of shares for which we may grant options under the Plan
is 30,166 shares of Class B Common Stock and 30,166 shares of Class C Common
Stock, subject to adjustment in the event of any stock dividend, stock split,
recapitalization, reorganization or certain defined change of control events.
Shares subject to previously expired or terminated options become available
again for grants of options. The shares that we will issue under the Plan will
be newly issued shares.
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The Compensation Committee determines the number of shares and other terms
of each grant. The price payable upon the exercise of an incentive stock option
may not be less than 100% of the fair market value of our Class B Common Stock
and the Class C Common Stock at the time of grant, or in the case of an
incentive stock option granted to an employee owning stock possessing more than
10% of the total combined voting power of all classes of our stock (a "10%
Shareholder"), 110% of the fair market value on the date of grant. We may grant
incentive stock options to an employee only to the extent that the aggregate
exercise price of all such options under all of our plans becoming exercisable
for the first time by the employee during any calendar year does not exceed
$100,000. The price payable upon the exercise of a nonqualified stock option
must be at least the minimum legal consideration required under the laws of
Oklahoma.
Each option that we have granted or will grant under the Plan will expire on
the date specified by the Committee, but not more than ten years from the date
of grant or, in the case of a 10% Shareholder, not more than five years from the
date of grant. Unless otherwise agreed, an incentive stock option will terminate
not more than 90 days (or twelve months in the event of death or disability)
after the optionee's termination of employment.
An optionee may exercise an option by giving notice to us, accompanied by
full payment of the purchase price in cash or, at the discretion of the
Committee,
- common stock having a fair market value equal to the exercise price,
- the optionee's personal recourse note bearing interest payable not less
than annually at no less than 100% of the lowest applicable federal rate
(as defined in Section 1274(d) of the Internal Revenue Code),
- an assignment of proceeds from the sale of a portion of the stock subject
to the option being exercised, or
- a combination of the foregoing.
Outstanding options become nonforfeitable and exercisable in full
immediately prior to certain defined change of control events. Unless otherwise
determined by the Committee, outstanding options will terminate immediately
prior to the consummation of our dissolution or liquidation.
The Plan may be terminated or amended by the Board of Directors at any time
subject, in the case of certain amendments, to shareholder approval. If not
earlier terminated, the Plan expires on June 1, 2006.
CERTAIN TRANSACTIONS
We have adopted a policy requiring that any material transaction between us
and persons or entities affiliated with our officers, directors or principal
stockholders be on terms no less favorable to us 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 our Class A Common Stock.
Prior to November 1, 1998, we leased our 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, we entered into an agreement with the buyer to lease the building
for a one-year term at a monthly rent of approximately $19,000. In August 1995,
we loaned WillRuss $60,000, which was paid in full in September 1995, together
with interest at an annual rate of 10%.
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We made a $300,000 home mortgage loan to G. Edward Evans in February 1997 in
connection with his employment. See "--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 the Reorganization in February 1997, the shareholders of DOC exchanged
their DOC stock for our stock, and we assumed outstanding DOC stock options,
substituting shares of our Class B Common Stock for the DOC stock subject to
options. Also, in February 1997, we issued 100,000 shares of our Class C
Preferred Stock. See "Description of the Preferred Stock."
Transactions with us described below refer to DOC if they occurred prior to
February 1997.
In March 1996, the Fleet Investors purchased 100,000 shares of our Class B
Preferred Stock for $10.0 million. In connection with this transaction, we
entered into a Shareholders' Agreement providing for, among other matters,
registration rights, restrictions on the transfer of our stock, put and call
rights with respect to the Class B Preferred Stock, and the issuance of
additional stock upon the happening of certain events. The Fleet Investors also
granted us a stock option. In connection with the Reorganization, we entered
into a new Shareholders' Agreement having substantially the same terms and
conditions. In January 1998, we issued the Fleet Investors 100,000 shares of our
Class C Preferred Stock. In connection with the Sygnet acquisition, the Fleet
Investors converted their Class B Preferred Stock into Class A Common Stock and
disposed of all their Class A Common Stock and Class C Preferred Stock. In
addition, the Shareholders' Agreement was terminated.
The Dobson Trusts, were co-borrowers with us and certain of our subsidiaries
under a prior bank facility, which was first entered into in 1994. We
guaranteed, and pledged the equity securities of certain of our subsidiaries as
security for, the obligations of the Dobson Trusts under a $6.0 million
promissory note maturing in 2004 (the "Trust Loan"), and the Dobson Partnership
guaranteed our loan obligations and those of our subsidiaries under the prior
bank facility. All borrowings were secured by shares of our Class A Common
Stock. We paid dividends on the Class A Common Stock in amounts sufficient to
permit the Dobson Trusts to service the Trust Loan. The Dobson Trusts incurred
legal fees totaling approximately $.5 million in connection with the negotiation
and closing of the credit agreement for the prior bank facility in 1994 and an
amendment effected in 1996. Such fees were paid by us. We used $7.5 million of
bank borrowings to pay a dividend to holders of our Class A Common Stock, of
which $6.0 million was used to fully pay the Trust Loan and $.5 million was used
to pay indebtedness owed to us by the Dobson Trusts with respect to the legal
fees described above.
Everett R. Dobson and Russell L. Dobson beneficially owned 67% of the
capital stock of ATTI. In December 1996, we consolidated $263,000 of ATTI's
outstanding indebtedness to us in an unsecured promissory note which provided
for interest at an annual rate of 10%. The consolidation refinanced earlier
loans made prior to 1994. At September 30, 1997, National Telecommunications
Technologies, Inc. ("Natelco"), a wholly-owned subsidiary of ATTI, was indebted
to us in the aggregate principal amount of $307,000, representing funds we
advanced during 1992, 1993 and 1995. The indebtedness was evidenced by an
unsecured promissory note which provided for interest at an annual rate of 10%.
The ATTI and Natelco loans (combined principal amount of $570,000) were paid in
full on October 1, 1997 in connection with the closing of our acquisition of the
Arizona 5. We loaned another subsidiary of ATTI $21,000 in 1994 and $32,000 in
1995, at annual interest rates of 12% and 14%, respectively. These loans were
paid in full in October 1995 and January 1996.
Through September 30, 1997, we performed certain management services for
ATTI and its subsidiaries, including accounting, plant and central office
management and engineering. Billings for the services were based on the time
spent by, and hourly rates of, our personnel and expenses incurred. During 1995,
1996, and the nine months ended September 30, 1997, the aggregate amounts billed
for management fees and expenses to ATTI and its subsidiaries were approximately
$210,000, $333,000 and $110,000, respectively. The amounts owed by these
entities to us for management fees at December 31, 1995 and 1996 and September
30, 1997 were $1.0 million, $1.2 million and $1.3 million, respectively. All
amounts owed by
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ATTI and it subsidiaries for management services rendered prior to September 30,
1997 were paid in October 1997 in connection with the closing of our acquisition
of Arizona 5. In connection with our Arizona 5 acquisition, ATTI became our
wholly owned subsidiary, and a new company, NATELCO, LLC (an affiliate of
Everett R. Dobson and Russell L. Dobson), was created. For the years ended
December 31, 1997 and 1998 the amounts billed for management fees and expenses
to NATELCO, LLC were $21,000 and $47,466, respectively. The amounts owed by
NATELCO, LLC to us for management fees at December 31, 1997 and 1998 were $8,900
and $0, respectively.
ATTI beneficially owned a 20.55% partnership interest in the Arizona 5
Partnership. In connection with the Arizona 5 Acquisition, we purchased all of
the outstanding capital stock of ATTI for $14.2 million, of which Everett R.
Dobson and Russell L. Dobson, together, received $9.5 million. The purchase
price for the ATTI stock was based on ATTI's beneficial ownership in the Arizona
5 Partnership and our negotiations with the other partner of the Arizona 5
Partnership.
In March 1996, we made a $1.4 million unsecured loan to Everett R. Dobson.
The loan was repaid on October 1, 1997 in connection with our Arizona 5
Acquisition. Interest on the amount borrowed was payable quarterly at the same
annual rate as that payable under our prior bank facility. The loan consolidated
amounts borrowed prior to 1994, together with accrued interest.
In June 1997, Everett R. Dobson executed a promissory note in our favor for
approximately $354,000, which refinanced loans made to him during 1996, together
with accrued interest. The loan was repaid on October 1, 1997 in connection with
our Arizona 5 acquisition. The loan bore interest at 8% per annum. In December
1996, we made a one-year loan in the amount of $12,900 to Russell L. Dobson
which bore interest at 9% per annum. In June 1997, we made an additional loan to
Russell L. Dobson in the principal amount of $423,000, of which $304,000
consolidated amounts owed to us since prior to 1994, and $119,000 refinanced a
loan made to him in November 1996, in each case together with accrued interest.
This loan bore interest at an annual rate of 9.07%. Both loans to Russell L.
Dobson were paid in full on October 1, 1997 in connection with our Arizona 5
Acquisition. The interest rate charged on our loan to Everett R. Dobson
represented our costs of borrowed funds. The interest rate on the loans to
Russell L. Dobson approximated the prevailing market rates at the time the loans
were first made.
In 1995, we bought 75,000 shares of common stock of Zenex for $75,000 and
400,000 shares of Zenex preferred stock for $400,000, and received an option to
purchase additional shares of Zenex common stock. In early 1996, we purchased an
additional 275,000 shares of Zenex preferred stock for $275,000. In October
1996, Zenex redeemed all shares of Zenex preferred stock held by us and
purchased our option for an aggregate of $825,000. At the same time, the Company
sold 30,000 shares of Zenex common stock to an unrelated party for $142,000. In
July 1997, we purchased 30,000 shares of Zenex common stock for $150,000 and
resold the shares in November 1997 to Everett R. Dobson at a price equal to our
cost. In September 1997, we purchased a loan for $263,882 made by a bank to
Zenex and resold such loan to Everett R. Dobson in November 1997 at a price
equal to our cost plus accrued interest. Everett R. Dobson was director of Zenex
from August 1995 to September 1997.
In November 1997, Everett R. Dobson purchased an interest in our loan to
Gila River Telecommunications Subsidiary, Inc., a wholly owned subsidiary of the
Gila River Indian Community. We repurchased this interest in June 1998.
In January 1998, our subsidiary 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 acquisition, we purchased for $1.9 million all
of our outstanding shares (100,000 shares) of Class C Preferred Stock held by
the Fleet Investors and also purchased 43,348 shares of
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our Class A Common Stock from Fleet Investors for $31.1 million. Thadeus J.
Mocarski, a principal of the Fleet Investors, was one of our directors and
resigned as a director upon consummation of the Sygnet acquisition. As part of
the Sygnet acquisition, the Dobson Partnership acquired 37,630 shares of Class G
Preferred Stock from us in exchange for 37,630 shares of Class A Common Stock.
See "Description of Capital Stock--Other Preferred Stock" for a description of
the Class D Purchase Agreement and Investors Agreement which we entered into in
connection with the Sygnet acquisition.
In the Tower Sale Leaseback, Dobson Tower Company purchased cellular towers
from Sygnet for $25.0 million and leased the towers back to Sygnet. Everett R.
Dobson, one of our directors, executive officers and principal shareholders,
owns preferred stock issued by Dobson Tower Company. All of Dobson Tower
Company's common stock is owned by us.
On May 5, 1999 we expect to redeem all outstanding shares of our Class G
Preferred Stock for $25 million plus accrued dividends of $1,000,000. All of the
Class G Preferred Stock was initially acquired by the Dobson Partnership in
December 1998 as part of the financing of our acquisition of Sygnet and in
exchange for shares of our outstanding common stock valued at $25.0 million.
In connection with our acquisition of Sygnet and the related financing, we
engaged in a number of transactions with the Dobson Partnership and with Childs.
See "Description of Capital Stock--Other Preferred Stock."
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PRINCIPAL SHAREHOLDERS
The following table provides information concerning beneficial ownership of
our voting securities at December 31, 1998, by (a) each person known by us to
beneficially own more than 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 G PREFERRED STOCK
CLASS A COMMON STOCK CLASS D PREFERRED
STOCK ------------------------
---------------------- ---------------------- PERCENT PERCENT OF
NAME AND ADDRESS OF BENEFICIAL NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF OF TOTAL VOTING
OWNER SHARES CLASS SHARES CLASS SHARES CLASS POWER(1)
- ------------------------------- --------- ----------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Everett R. Dobson (2) ......... 471,388 95.8% 3,534 4.7% 37,853 100.0% 84.8%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson ............. 3,154 * -- -- -- -- *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
J.W. Childs
Associates, L.P. (3)(4)...... 17,412 3.5% 71,560 95.3% -- -- 14.7%
One Federal St.
Boston, MA 02110
All directors, nominees and
executive officers as a group
(11 persons)................. 491,954 100.0% 75,094 100.0% 37,853 100.0% 100.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) In calculating the percent of total voting power, the voting power of shares
of Class A Common Stock (one vote per share) and Class 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.
(4) Effective April 13, 1999, J.W. Childs Associates, LP agreed to sell 15,472.4
shares, or 20.6% of Class D Preferred Stock and 3,764.84 shares, or less
than one percent, of our common stock to AT&T Wireless. The transaction is
subject to compliance with the Hart-Scott-Rodino Act and other customary
closing conditions.
Except as set forth above, none of our directors, nominees or executive
officers owns or has the right to acquire within 60 days after April 5, 1999 any
of our voting securities.
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DESCRIPTION OF THE PREFERRED STOCK
The following summary of certain provisions of the Preferred Stock is not
complete and is qualified in its entirety by reference to the provisions of the
certificate of designation for the Preferred Stock (the "Certificate of
Designation"), a copy of the form of which we will make available upon request.
The definitions of certain terms used in the Certificate of Designation and in
the following summary are set forth under "--Certain Definitions." In this
description, "Dobson" or "Dobson Communications" refers only to Dobson
Communications and not to any of our subsidiaries.
GENERAL
Our Certificate of Incorporation authorizes the Board of Directors to issue
classes of preferred stock from time to time in one or more series, with such
designations, voting powers, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions as may be
determined by the Board of Directors. We have authorized 3,000,000 shares of
preferred stock, par value $1.00, including 184,000 shares of Preferred Stock,
with a liquidation preference of $1,000 per share. These shares include the
65,152 shares of Preferred Stock issued in Old Shares and additional shares of
Preferred Stock which may be used to pay dividends on the Preferred Stock if we
elect to pay dividends in additional Preferred Stock. We filed a Certificate of
Designation with respect thereto with the Secretary of State of Oklahoma as
required by Oklahoma law. The Preferred Stock is exchangeable, at our option,
into the Exchange Debentures, at any time. See "--Exchange." The outstanding
Preferred Stock is fully paid and nonassessable and the holders thereof have no
subscription or preemptive rights related thereto. United States Trust Company
of New York will be the transfer agent and registrar for the Preferred Stock
(the "Transfer Agent" and "Registrar").
RANKING
The Preferred Stock, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of Dobson, ranks
- senior to all classes of our Common Stock, our Class A Preferred Stock,
the Class D Preferred Stock, Class E Preferred Stock, Class F Preferred
Stock, Class G Preferred Stock, Class H Preferred Stock and to each other
class of capital stock or series of preferred stock established in the
future 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 our liquidation,
winding-up and dissolution (collectively referred to, together with all
classes of our common stock, as our "Junior Securities");
- equal with the Senior Preferred Stock and, subject to certain conditions,
with any class of capital stock or series of preferred stock which we may
issue in the future, 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 our liquidation, winding-up and
dissolution (collectively referred to as "Parity Securities"); and
- subject to certain conditions, junior to each class of capital stock or
series of preferred stock which we may issue in the future, the terms of
which expressly provide that such class or series will rank senior to the
Preferred Stock as to dividend distributions and distributions upon our
liquidation, winding-up and dissolution (collectively referred to as
"Senior Securities").
The Preferred Stock is subject to the issuance of series of Junior
Securities, Parity Securities and Senior Securities, PROVIDED that we may not
issue any new class of Senior Securities without the approval of the holders of
at least a majority of the shares of Preferred Stock then outstanding, voting or
consenting, as the case may be, separately as one class, except that, without
the approval of holders of the Preferred
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Stock, we may issue shares of Senior Securities in exchange for, or the proceeds
of which are used to redeem or repurchase, all shares of Preferred Stock then
outstanding or our indebtedness.
DIVIDENDS
Holders of Preferred Stock are entitled to receive, when, as and if declared
by our Board of Directors, out of funds legally available therefor, dividends on
the Preferred Stock at a rate per annum equal to 12.25% of the liquidation
preference per share, payable quarterly. All dividends will be cumulative,
whether or not earned or declared, on a daily basis from the Issue Date and will
be payable quarterly in arrears on January 15, April 15, July 15 and October 15
of each year, commencing January 15, 1999. On and before January 15, 2003, we
may pay dividends, at our option, in cash or in additional fully paid and
nonassessable shares of Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. Dividends paid in additional
shares of Preferred Stock will be calculated and paid to registered holders to
the nearest whole share. We may pay dividends in cash during the period on or
before January 15, 2003 on the Senior Preferred Stock only if we also pays
dividends in cash on the Preferred Stock during such period.
The Depository Trust Company ("DTC") will not permit the allocation of
fractional shares. Consequently, payments made to Cede & Co. (as nominee for
DTC) will include cash in lieu of fractional shares based on the liquidation
preference of the Preferred Stock. Registered holders other than Cede & Co., if
any, will continue to receive fractional shares of Preferred Stock calculated to
the fifth decimal place.
After January 15, 2003, we must pay only cash dividends. However, the Senior
Note Indenture, the certificate of designation for the Senior Preferred Stock
and the credit facilities restrict our payment of cash dividends, and future
agreements may provide the same. If any dividend, or portion thereof, payable on
any dividend payment date 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.
No full dividends may be declared or paid or funds set apart for the payment
of dividends 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 for
such payments on the Preferred Stock. If full dividends are not so paid, the
Preferred Stock will share dividends on a pro rata basis with the Parity
Securities. No dividends may be paid or set apart for such payment on Junior
Securities (except dividends on Junior Securities in additional shares of Junior
Securities) and no Junior Securities or Parity Securities may be repurchased,
redeemed or otherwise retired nor may funds be set apart for payment with
respect thereto if full cumulative dividends shall not have been paid on the
Preferred Stock.
OPTIONAL REDEMPTION
We may redeem the Preferred Stock (subject to contractual and other
restrictions and to the legal availability of funds) at any time on or after
January 15, 2003, at our option, in whole or in part, 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
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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%
2005.............................................................................. 102.042%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, on or prior to January 15, 2001, we may redeem Preferred Stock
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 our common stock, but only if such redemption date occurs within 180 days
after consummation of such sale and at least 65% aggregate liquidation
preference of Preferred Stock originally issued remains outstanding after each
such redemption.
We will not exercise our optional redemption rights provided in the
certificate of designation with respect to our Senior Preferred Stock unless we
contemporaneously redeems the Preferred Stock pro rata.
We may not effect an optional redemption of the Preferred Stock unless prior
thereto full unpaid cumulative dividends are set apart for such payment.
In the event we effect a partial redemption of Preferred Stock, we will
select the shares to be redeemed PRO RATA or by lot, as we determine, except
that we may redeem shares held by any holder of fewer than 100 shares without
regard to such pro rata redemption requirement. The Senior Note Indenture and
the credit facilities restrict our ability to redeem the Preferred Stock and
future agreements may contain similar provisions. See "Description of Certain
Indebtedness--The Senior Notes," "--The DOC Facility" and "--The DCOC Facility."
We will provide notice of redemption first-class mail to each holder's
registered address at least 30 but no more than 60 days prior to the redemption
date. If we redeem any Preferred Stock in part, the notice of redemption that
related to such Preferred Stock shall state the portion of the liquidation
preference to be redeemed. We will issue new shares of Preferred Stock having an
aggregate liquidation preference equal to the unredeemed portion in the name of
the holder thereof upon cancellation of the original Preferred Stock and, unless
we fail to pay the redemption price on the redemption date, after the redemption
date, dividends will cease to accrue on the Preferred Stock called for
redemption.
MANDATORY REDEMPTION
We must redeem the Preferred Stock (subject to the legal availability of
funds therefor but without regard to any contractual or other restrictions with
respect thereto) in whole on January 15, 2008 (the "Mandatory Redemption Date")
at a price, payable in cash, equal to the liquidation preference thereof plus
all accumulated and unpaid dividends to the date of redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, we will be required, subject to
any contractual and other restrictions and the legal availability of funds
therefor, to make an offer (the "Change of Control Offer") to each holder of
Preferred Stock to repurchase all or any part of such holder's Preferred Stock
at a cash purchase price equal to 101% of the liquidation preference thereof,
plus an amount in cash equal to all accumulated and unpaid dividends (including
an amount in cash equal to a prorated dividend for the period from the dividend
payment date immediately prior to the date of purchase to the date of purchase)
(the "Change of Control Payment"). The Change of Control Offer must be made
within 30 days following
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a Change of Control, must remain open for at least 30 and not more than 40 days
and must comply with the requirements of Rule 14e-1 under the Exchange Act and
any other applicable securities laws and regulations. Notwithstanding the
foregoing, we are not required to make a Change of Control Offer if any
indebtedness that was outstanding on the Closing Date would prohibit such Change
of Control Offer or any Indebtedness under the DOC Facility or the DCOC Facility
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
the Certificate of Designation, be deemed to be the date on which such Change of
Control shall have occurred.
Our Board of Directors cannot waive any of the provisions in the Certificate
of Designation relating to a purchase upon a Change of Control. We could, in the
future, enter into certain transactions, including certain recapitalizations,
that would not constitute a Change of Control, but would increase the amount of
indebtedness outstanding at such time. If a Change of Control were to occur, we
would be obligated to offer to repurchase all Indebtedness outstanding on the
Closing Date which would prohibit a Change of Control Offer prior to making an
offer to repurchase Preferred Stock, and there can be no assurance that we would
have sufficient funds to pay the purchase price for all Preferred Stock that we
would be required to purchase. In the event that we were required to purchase
outstanding Preferred Stock pursuant to a Change of Control Offer, we expect
that we would need to seek third-party financing to the extent we do not have
available funds to meet our purchase obligations. However, there can be no
assurance that we would be able to obtain such financing. In addition, our
ability to purchase the Preferred Stock may be limited by other then-existing
agreements and by restrictions imposed by Oklahoma law.
LIQUIDATION PREFERENCE
Upon our voluntary or involuntary liquidation, dissolution or winding-up,
holders of Preferred Stock will be entitled to be paid, out of our assets
available for distribution, $1,000 per share, 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 distribution is made on any
Junior Securities, including, without limitation, our Class A Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock, Class
G Preferred Stock, Class H Preferred Stock and our Common Stock. However, in a
bankruptcy proceeding commenced by or against us under the U.S. Bankruptcy Code,
the claim of a holder of Preferred Stock may be limited to the sum of
- the initial offering price, and
- that portion of the difference between the liquidation preference and the
initial offering price not held to be the equivalent of "unmatured
interest" for purposes of the U.S. Bankruptcy Code.
If, upon our voluntary or involuntary liquidation, dissolution or
winding-up, the amounts payable with respect to the Preferred Stock and all
other Parity Securities are not paid in full, holders of the Preferred Stock and
the Parity Securities will share equally and ratably in any distribution of our
assets 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 will not be entitled to any further
participation in any distribution of our assets. However, a merger,
consolidation or sale of all or substantially all of our assets that complies
with the provisions described below under "--Consolidation, Merger and Sale of
Assets" will not be deemed to be a liquidation, dissolution or winding-up of us.
The Certificate of Designation does not contain any provision requiring that
we set aside funds to protect the liquidation preference of the Preferred Stock,
although such liquidation preference will be substantially in excess of the par
value of such Preferred Stock. In addition, we are not aware of any provision of
Oklahoma law or any controlling decision of the courts of the State of Oklahoma
(our state of incorporation) that requires a restriction upon our surplus solely
because the liquidation preference of the
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Preferred Stock will exceed its par value. Consequently, there will be no
restriction upon or surplus solely because the liquidation preference of the
Preferred Stock will exceed the par value and there will be no remedies
available to holders of the Preferred Stock before or after the payment of any
dividend, other than in connection with our liquidation, solely by reason of the
fact that such dividend would reduce our surplus to an amount less than the
difference between the liquidation preference of the Preferred Stock and its par
value.
VOTING RIGHTS
The holders of Preferred Stock have no voting rights with respect to general
corporate matters except as provided by law or as set forth in the Certificate
of Designation. The Certificate of Designation provides that if
(a) 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),
(b) we fail to discharge any redemption obligation with respect to the
Preferred Stock,
(c) we fail 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 by the provisions set forth above under the
caption "--Change of Control,"
(d) a breach or violation of the provisions described under the caption
"--Covenants" occurs and such breach or violation continues for a period of 30
consecutive days or more after we receive notice thereof by holders of 25% or
more of the shares of Preferred Stock then outstanding,
(e) there occurs with respect to any issue or issues of our indebtedness
and/or any significant subsidiary having an outstanding principal amount of $10
million or more in the aggregate for all such issues of ours and/or any
Significant Subsidiary, whether such Indebtedness now exists or shall hereafter
be created,
(f) 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
(g) 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 will be
adjusted to permit the holders of the majority of the then outstanding shares of
Preferred Stock, voting separately as a class, to elect two directors. Such
voting rights and the term of office of such elected directors will continue
until such time as all dividends in arrears on the Preferred Stock are paid in
full (and, in the case of dividends payable after January 15, 2003, paid in
cash) and any failure, breach or default referred to in clause (b), (c), (d) or
(e) is remedied, at which time the term of any directors elected pursuant to the
provisions of this paragraph shall terminate. 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 such event described in clauses (a) through (e) above is referred
to herein as a "Voting Rights Triggering Event." Within 15 days of the time we
become aware of the occurrence of any default referred to in clause (d) or (e)
above, we shall give written notice thereof to holders of the Preferred Stock.
The Certificate of Designation provides that, upon the occurrence of a
Voting Rights Triggering Event, the number of directors constituting the Board
of Directors will be increased by two directors, whom the holders of Preferred
Stock are entitled to elect. Whenever the right of the holders of Preferred
Stock to elect directors shall cease, the number of directors constituting the
Board of Directors will be
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restored to the number of directors constituting the Board of Directors prior to
the time or event that entitled the holders of Preferred Stock to elect
directors.
Any vacancy occurring in the office of a director elected by the holders of
Preferred Stock may be filled by the remaining director elected by such holders
unless and until such vacancy shall be filled by such holders.
The Certificate of Designation provides that, except as stated above under
"--Ranking," we will not authorize any class of Senior Securities without the
affirmative vote or consent of the holders of at least a majority of the shares
of Preferred Stock then outstanding, voting or consenting, as the case may be,
separately as one class. The Certificate of Designation also provides that we
may not amend the Certificate of Designation so as to affect adversely the
specific rights, preferences, privileges or voting rights of holders of the
Preferred Stock, or authorize the issuance of any additional shares of Preferred
Stock, other than to pay dividends in kind, without the affirmative vote or
consent of the holders of at least a majority of the outstanding shares of
Preferred Stock, voting or consenting, as the case may be, separately as one
class. The holders of at least a majority of the outstanding shares of Preferred
Stock, voting or consenting, as the case may be, separately as one class, may
also waive compliance with any provision of the Certificate of Designation. The
Certificate of Designation also provides that, except as set forth above,
- the creation, authorization or issuance of any shares of Junior
Securities, Parity Securities or Senior Securities, or
- the increase or decrease in the amount of authorized capital stock of any
class, including any preferred stock
shall not require the consent of the holders of Preferred Stock and shall not be
deemed to affect adversely the rights, preferences, privileges or voting rights
of the holders of Preferred Stock.
Under Oklahoma law, the holders of Preferred Stock will be entitled to vote
as a class upon a proposed amendment to the Certificate of Incorporation,
whether or not entitled to vote thereon by the Certificate of Incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Certificate of Designation. Reference is
made to the Certificate of Designation for the full definitions of all such
terms as well as any other capitalized terms used herein for which no definition
is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or which is 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. The term "Acquired Indebtedness" does not
include Indebtedness of a 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.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of Dobson 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:
(1) the net income of any Person other than net income attributable to a
Restricted Subsidiary in which any Person other than Dobson or any of its
Restricted Subsidiaries has a joint interest and the net
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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;
(2) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to the first paragraph of the "Limitation on
Restricted Payments" covenant described below (and in such case, except to
the extent includable pursuant to clause (1) 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 Dobson or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by Dobson or any of its Restricted Subsidiaries;
(3) except in the case of any restriction or encumbrance permitted under the
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, 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;
(4) any gains or losses on an after-tax basis attributable to Asset Sales;
(5) except for purposes of calculating the amount of Restricted Payments that
may be made pursuant to first paragraph of the "Limitation on Restricted
Payments" covenant described below, any amount paid or accrued as dividends
on Preferred Shares of Dobson or any Restricted Subsidiary owned by Persons
other than Dobson and any of its Restricted Subsidiaries; and
(6) 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:
- an investment by Dobson 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 Dobson or any of its
Restricted Subsidiaries but only if such Person's primary business is
related, ancillary or complementary to the businesses of Dobson and its
Restricted Subsidiaries on the date of such investment, or
- an acquisition by Dobson or any of its Restricted Subsidiaries of the
property and assets of any Person other than Dobson or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person but only if the property and assets
acquired are related, ancillary or complementary to the businesses of
Dobson and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by Dobson or any of
its Restricted Subsidiaries other than to Dobson or another Restricted
Subsidiary of
- all or substantially all of the Capital Stock of any Restricted
Subsidiary, or
- all or substantially all of the assets that constitute a division or line
of business of Dobson or any of its Restricted Subsidiaries.
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"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 Dobson or any of its Restricted Subsidiaries
to any Person other than Dobson or any of its Restricted Subsidiaries of
- all or any of the Capital Stock of any Restricted Subsidiary,
- all or substantially all of the property and assets of an operating unit
or business of Dobson or any of its Restricted Subsidiaries, or
- any other property and assets of Dobson or any of its Restricted
Subsidiaries outside the ordinary course of business of Dobson or such
Restricted Subsidiary and, in each case, that is not governed by the
provisions described under "Consolidation, Merger and Sale of Assets".
The term "Asset Sale" shall not include
- sales or other dispositions of inventory, receivables and other current
assets,
- sales or other dispositions of assets for consideration at least equal to
the fair market value of the assets sold or disposed of, but only if 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, Dobson and its Restricted Subsidiaries existing on the date
of such sale or other disposition, or
- sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing
(1) the sum of the products of
- the number of years from such date of determination to the dates of
each successive scheduled principal payment of such debt security, and
- the amount of such principal payment by
(2) by the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, 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:
(1) prior to the occurrence of a Public Market, a "person" or "group",
within the meaning of Section 13(d) or 14(d)(2) of 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 Dobson Communications, on a
fully diluted basis, than is beneficially owned by the Existing
Stockholders and their Affiliates on such date.
(2) After the occurrence of a Public Market, a "person" or "group", within
the meaning of Section 13(d) of (14(d)(2) of the Exchange Act, becomes
the ultimate "beneficial owner", as defined in
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Rule 13d-3 under the Exchange Act,of more than 35% of the total voting
power of the Voting Stock of Dobson on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of
the Voting Stock of Dobson, on a fully diluted basis, than is held by the
Existing Stockholders on such date.
(3) Individuals who on December 23, 1998 constituted the Board of Directors,
together with any new directors whose election by the Board of Directors
or whose nomination for election by Dobson'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
December 23, 1998 or whose election or nomination for election was
previously so approved, cease for any reason to contribute 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 $.001 per
share, of Dobson.
"Class A Preferred Stock" means the Class A Non-Voting, Non-Convertible
Preferred Stock, par value $1.00 per share, of Dobson.
"Class D Preferred Stock" means the Class D 15% Convertible Preferred Stock,
par value $1.00 per share, of Dobson.
"Class E Preferred Stock" means the Class E Preferred Stock, par value $1.00
per share, of Dobson.
"Class F Preferred Stock" means the Class F 16% Preferred Stock, par value
$1.00 per share, of Dobson.
"Class G Preferred Stock" means the Class G 16% Convertible Preferred Stock,
par value $1.00 per share, of Dobson.
"Class H Preferred Stock" means the Class H Preferred Stock, par value $1.00
per share, of Dobson.
"Closing Date" means January 22, 1998.
"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
- Consolidated Interest Expense,
- income taxes, other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or sales
of assets,
- depreciation expense,
- amortization expense, and
- 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 Dobson and its Restricted Subsidiaries in
conformity with GAAP. 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 the
amount of the Adjusted Consolidated Net Income attributable to such
Restricted Subsidiary multiplied by the quotient of
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- 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
- 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,
(1) 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;
(2) all commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing; and
(3) the net costs associated with Interest Rate Agreements; and Indebtedness
that is Guaranteed or secured by Dobson 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 Dobson and its Restricted Subsidiaries during such period;
EXCLUDING, HOWEVER,
- any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (3) 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
(3) of the definition thereof) and
- any premiums, fees and expenses and any amortization thereof
payable in connection with the offering of the Senior Notes and the
Senior 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
- the aggregate amount of Indebtedness of Dobson 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 (6) or (7) of the " Limitation
on Restricted Payments" covenant, the maximum fixed redemption or
repurchase price of the Preferred Stock and any Senior Securities or
Parity Securities at the time of determination, to
- the aggregate amount of Consolidated EBITDA for the then most recent
four fiscal quarters for which financial statements of the Company have
been filed with the SEC (such four fiscal quarter period being the
"Four Quarter Period"),
In determining the Consolidated Leverage Ratio, 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;
- 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
- 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 Dobson or any Restricted Subsidiary during such
Reference Period and that would have constituted Asset Dispositions or
Asset Acquisitions had
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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.
To the extent that pro forma effect is given to an Asset Acquisition or Asset
Disposition, such pro forma calculation shall be based upon the four full fiscal
quarters immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired or disposed of for which
financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of Dobson 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 Dobson 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.
"Credit Facilities" means the DOC Facility and the DCOC Facility.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"DCOC" means Dobson Cellular Operations Company.
"DCOC Facility" means the $120 million and $80 million credit facilities
created and established by the DCOC Facility Agreement.
"DCOC Facility Agreement" means the agreement among DCOC, NationsBank of
Texas, N.A., First Union National Bank and Toronto Dominion (Texas), Inc., dated
as of March 25, 1998, establishing the DCOC Facility, together with all other
agreements, instruments, and documents executed or delivered pursuant thereto or
in connection therewith, in each cash as such agreement, other agreements,
instruments or documents may be amended, supplemented, extended, renewed,
replaced or otherwise modified from time to time.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is
(1) required to be redeemed prior to the Mandatory Redemption Date,
(2) 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
(3) convertible into or exchangeable for Capital Stock referred to in above
or Indebtedness having a scheduled maturity prior to the Mandatory
Redemption Date. 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 the "Change of Control" covenant and such Capital Stock
specifically provides that such Person will not repurchase or redeem any
such stock pursuant to such provision prior to Dobson's repurchase of
such Senior Preferred Stock as is required to be repurchased pursuant to
the "Change of Control" covenant.
"Dobson/Sygnet" means Dobson/Sygnet Communications Company.
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"Dobson/Sygnet Indenture" means the Indenture dated as of December 23, 1998
between Dobson/ Sygnet and United States Trust Company of New York, relating to
the Dobson/Sygnet Notes, as such indenture may be amended, supplemented,
extended, renewed, replaced or otherwise modified from time to time.
"Dobson/Sygnet Notes" means the 12 1/4% Senior Notes due 2008 to be issued
by Dobson/Sygnet under the Dobson/Sygnet Indenture.
"DOC Facility" means that certain credit facility created and established by
the DOC Facility Agreement.
"DOC Facility Agreement" means the Third Amended and Restated Credit
Agreement among Dobson Operating Company, Corestates Bank, N.A., Toronto
Dominion (Texas), Inc. and NationsBank of Texas, N.A. dated as of March 25,
1998, 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.
"Existing Stockholders" means Everett R. Dobson.
"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. For purposes of clause 8 of the second
paragraph of the "Limitation on Indebtedness" covenant,
- 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
- in the event the aggregate fair market value of any other property
received by Dobson 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.
"FCC" means the Federal Communications Commission.
"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.
"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
the Certificate of Designation shall be computed in conformity with GAAP applied
on a consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Certificate of Designation shall be made without giving effect to
- the amortization of any expenses incurred in connection with the offering
of the Senior Notes and the Senior Preferred Stock, and
- except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
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"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
- 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
- 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.
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.
"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; with the condition 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,
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments,
(3) 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 (1) or (2) above or (5), (6), (7) or (8) 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),
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six
months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables,
(5) all obligations of such Person as lessee under Capitalized Leases,
(6) 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; but
only if the amount of such Indebtedness is the lesser of
- the fair market value of such asset at such date of determination,
and
- the amount of such Indebtedness,
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person,
(8) the maximum fixed redemption or repurchase price of Disqualified Stock
of such Person at the time of determination and
(9) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
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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, but only if
- 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,
- 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
- 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 Dobson 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
- the designation of a Restricted Subsidiary as an Unrestricted Subsidiary,
and
- the fair market value of the Capital Stock or any other Investment held by
Dobson 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, including without limitation, by
reason of any transaction permitted by clause (3) of the "Limitation on
the Issuance and Sale of Capital Stock of Restricted Subsidiaries"
covenant.
For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant described below,
(1) "Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to Dobson or any of its
Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary,
(2) the fair market value of the assets (net of liabilities (other than
liabilities to Dobson 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
(3) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"Issue Date" means the date on which the Preferred Stock was originally
issued.
"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).
"Logix" means Logix Communications Enterprises, Inc., formerly named Dobson
Wireline Company.
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"Logix Notes" means the 12 1/4% Senior Notes due 2008 issued by Logix under
the Logix Indenture.
"Logix Indenture" means the Indenture dated as of June 12, 1998 between
Logix and United States Trust Company of New York, relating to the Logix Notes,
as such indenture may be amended, supplemented, extended, renewed, replaced or
otherwise modified from time to time.
"Mandatory Redemption Date" means January 15, 2008.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means,
(1) 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 Dobson or any Restricted Subsidiary)
and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of
(a) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset
Sale,
(b) 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 Dobson and its Restricted
Subsidiaries, taken as a whole,
(c) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either
- is secured by a Lien on the property or assets sold, or
- is required to be paid as a result of such sale, and
(d) appropriate amounts to be provided by Dobson or any Restricted
Subsidiary as a reserve against any liabilities associated with such
Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP, and
(2) 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 Dobson or any Restricted Subsidiary of
Dobson 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 DCOC Facility Commitment Letter" means the commitment letter (including
the Summary of Terms and Conditions attached thereto) dated January 7, 1998
among Dobson, 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.
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"New DOC Facility Commitment Letter" means the commitment letter (including
the Summary of Terms and Conditions attached thereto) dated January 7, 1998
among Dobson, Dobson Operating Company, NationsBank of Texas, N.A. and
NationsBanc Montgomery Securities LLC.
"New Shares" means shares of Dobson's 12 1/4% Senior Exchangeable Preferred
Stock which have been registered under the Securities Act and which are issued
in exchange for surrendered Old Shares.
"Offer to Purchase" means an offer by Dobson to purchase Preferred Stock
from the Holders commenced by mailing a notice to the Transfer Agent and each
Holder stating:
(1) the covenant pursuant to which the offer is being made and that all
Preferred Stock validly tendered will be accepted for payment on a pro
rata basis;
(2) 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");
(3) that any Preferred Stock not tendered will continue to accrue dividends
pursuant to its terms;
(4) that, unless Dobson 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;
(5) 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;
(6) 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
(7) 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; but only
if that each share of Preferred Stock purchased and each new share of
Preferred Stock issued is in a liquidation preference of $1,000 or
integral multiples thereof.
On the Payment Date, Dobson shall
- accept for payment on a pro rata basis Preferred Stock or portions thereof
validly tendered pursuant to an Offer to Purchase;
- deposit with the Paying Agent money sufficient to pay the purchase price
of all Preferred Stock or portions thereof so accepted; and
- 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 Dobson.
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; but only if each share of Preferred Stock
purchased and each new share of Preferred Stock issued is in a liquidation
preference of $1,000 or integral multiples thereof. Dobson 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. Dobson will comply with Rule 14e-1
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under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable, in the event that Dobson
is required to repurchase Preferred Stock pursuant to an Offer to Purchase.
"Old Shares" means shares of Dobson's 12 1/4% Senior Exchangeable Preferred
Stock originally issued on December 23, 1998 and all additional shares of
Dobson's 12 1/4% Senior Exchangeable Preferred Stock issued in the payment of
dividends thereon.
"Permitted Investment" means
(1) an Investment in Dobson 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, Dobson or a Restricted Subsidiary; but
only if such person's primary business is related, ancillary or
complementary to the businesses of Dobson and its Restricted Subsidiaries
on the date of such Investment;
(2) Temporary Cash Investments;
(3) 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
(4) stock, obligations or securities received in satisfaction of judgments.
"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,
the Preferred Stock and all other series and classes of such preferred stock or
preference stock.
"Preferred Stock" means the Old Shares and the New Shares.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of Dobson pursuant to an effective registration statement under the
Securities Act.
A "Public Market" shall be deemed to exist if
- a Public Equity Offering has been consummated, and
- at least 15% of the total issued and outstanding Common Stock of Dobson
has been distributed by means of an effective registration statement under
the Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of Dobson other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means
- Indebtedness of Dobson under the Senior Notes, the Senior Note Indenture,
the DOC Facility Agreement and the DCOC Facility Agreement and all fees,
expenses and indemnities payable in connection with any of the foregoing,
and
- all other Indebtedness of Dobson, 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 equal with or subordinated in right of payment to the Exchange
Debentures.
The term "Senior Indebtedness" shall not include
- any Indebtedness of Dobson that, when Incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code, was
without recourse to Dobson,
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- any Indebtedness of Dobson to a Subsidiary of the Company or to a joint
venture in which Dobson has an interest,
- any Indebtedness of Dobson, to the extent not permitted by the "Limitation
on Indebtedness" or the "Senior Subordinated Indebtedness" covenants
described below,
- any repurchase, redemption or other obligation in respect of Disqualified
Stock,
- any Indebtedness to any employee of Dobson or any of its Subsidiaries,
- any liability for federal, state, local or other taxes owed or owing by
Dobson or
- any Trade Payables. Senior Indebtedness will also include interest
accruing subsequent to events of bankruptcy of Dobson 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 Dobson 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 Exchange Debentures" means Dobson's 12 1/4% Senior Subordinated
Debentures due 2008 which may be issued by the Company in exchange for Senior
Preferred Stock.
"Senior Notes" means the 11 3/4% Senior Notes due 2007 issued by Dobson
under the Senior Note Indenture.
"Senior Preferred Stock" means Dobson's 12 1/4% Senior Exchangeable
Preferred Stock Mandatorily Redeemable 2008 issued by Dobson on January 22,
1998.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries,
- for the most recent fiscal year of Dobson, accounted for more than 10% of
the consolidated revenues of Dobson and its Restricted Subsidiaries or
- as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of Dobson and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of
Dobson for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means,
- 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
- 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.
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"Temporary Cash Investment" means any of the following:
(1) 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,
(2) 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,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above,
(4) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation other than an Affiliate of Dobson
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
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by Dobson 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.
"Unrestricted Subsidiary" means Logix, Dobson/Sygnet, Dobson Tower Company
or any other Subsidiary of Dobson that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the manner
provided below and any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Restricted Subsidiary including any newly acquired
or newly formed Subsidiary of Dobson 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; on the condition that
(1) any Guarantee by Dobson 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 Dobson or such Restricted
Subsidiary (or both, if applicable) at the time of such designation;
(2) either the Subsidiary to be so designated has total assets of $1,000 or
less or if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the "Limitation on Restricted
Payments" covenant described below; and
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(3) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; on the condition that immediately after giving effect to
such designation
- 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 the Certificate of
Designation, and
- no Voting Rights Triggering Event, or an event which with the giving of
notice or the passage of time, or both, would become a Voting Rights
Triggering Event, shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the
Transfer Agent by promptly providing the Transfer Agent a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
The Certificate of Designation contains, among others, the following
covenants:
LIMITATION ON INDEBTEDNESS
Neither Dobson nor any Restricted Subsidiary may Incur any Indebtedness
other than Indebtedness existing on the Closing Date. However, Dobson 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 7 to 1.
Notwithstanding the foregoing, Dobson and any Restricted Subsidiary (except
as specified below) may Incur the following types of Indebtedness;
(1) Indebtedness outstanding at any time in an aggregate principal amount
not to exceed $250 million;
(2) Indebtedness to Dobson evidenced by a promissory note or 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 Dobson or another
Restricted Subsidiary shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (2);
(3) 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 (1), (2), (4), (6) or (9) 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), but only if 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
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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 on the condition that in no event may Indebtedness of Dobson be
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (3);
(4) 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, but only if
such agreements
- are designed solely to protect the Company or its Subsidiaries
against fluctuations in foreign currency exchange rates or interest
rates and
- 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 Dobson 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 Dobson (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;
(5) Indebtedness of Dobson, to the extent the net proceeds thereof are
promptly
(a) used to purchase Senior Preferred Stock and Preferred Stock, pro
rata, tendered in an Offer to Purchase, or similar offer to purchase
made under the certificate of designation relating to the Senior
Preferred Stock, made as a result of a Change in Control, or
(b) deposited to defease the Senior Notes;
(6) Guarantees of Indebtedness of Dobson by any Restricted Subsidiary;
(7) 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;
(8) Indebtedness of Dobson not to exceed, at any one time outstanding, two
times the sum of
(a) the Net Cash Proceeds received by Dobson on or after the Closing Date
from the issuance and sale of its Capital Stock (other than
Disqualified Stock), including the Preferred Stock, to a Person that
is not a Subsidiary of the Company to the extent such Net Cash
Proceeds have not been used pursuant to clause (C) (2) of the first
paragraph, or clause (9) of the second paragraph, of the "Limitation
on Restricted Payments" covenant described below to make a Restricted
Payment, and
(b) 80% of the fair market value of property other than cash received by
Dobson 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 Dobson; on the condition that such Indebtedness does
not mature prior to the Mandatory Redemption Date; and
(9) Indebtedness outstanding at any time in an aggregate principal amount
not to exceed $25 million.
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The maximum amount of Indebtedness that Dobson or a Restricted Subsidiary
may Incur pursuant to this "Limitation on Indebtedness" covenant 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.
For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant, 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 "Limitation on Indebtedness" covenant, 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, Dobson, 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.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
Dobson 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 Dobson that exist by reason of any Liens or Guarantees
arising or created in respect of some but not all such Senior Indebtedness.
LIMITATION ON LIENS
Dobson 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.
LIMITATION ON RESTRICTED PAYMENTS
Dobson and its Restricted Subsidiaries are not permitted to take any of the
following actions (each a "Restricted Payment"):
(1) declare or pay any dividend or make any distributions on or with respect to
its Junior Securities. However, dividends or distributions are permitted if
they are payable solely in Junior Securities, other than Disqualified Stock,
or in options, warrants or other rights to acquire shares of Junior
Securities, or are payable to Dobson or any Restricted Subsidiary. If such
Restricted Subsidiary is not a wholly owned Subsidiary, then distributions
or dividends may be payable to its other shareholders only if on a pro rata
basis measured by value,
(2) purchase, redeem, retire or otherwise acquire for value any Junior
Securities of
(a) Dobson 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 Sureties) held by any Affiliate of Dobson
(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 Dobson,
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(3) make any Investment, other than a Permitted Investment, if at the time of,
and after giving effect to, the proposed Restricted Payment:
(a) a Voting Rights Triggering Event or an event which would become a Voting
Rights Triggering Event upon the giving of notice, occurs and continues
to occur or would result therefrom or shall have occurred will be
continuing, or
(b) Dobson could not incur at least $1.00 of Indebtedness under paragraph
(1) of the "Limitations on Indebtedness" covenant, or
(c) the aggregate amount of such Restricted Payments and all other
Restricted Payments declared or made after the Closing Date of the
Indebtedness would exceed the sum of:
(1) 50% of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of such
loss) accrued during the period treated as one accounting period,
beginning on April 1, 1998 to the end of the most recent fiscal
quarter preceding the date of such Restricted Payment for which
consolidated financial statements of Dobson have been filed with the
SEC, plus
(2) the aggregate Net Cash Proceeds received by Dobson after January 22,
1999 as a capital contribution or from issuing or selling its Capital
Stock, and options, warrants and other rights to acquire Dobson's
Capital Stock other than Disqualified Stock, to a Person who is not a
Subsidiary of Dobson (except to the extent such Net Cash Proceeds are
used to Incur Indebtedness pursuant to clause (3) under the
"Limitations on Indebtedness" covenant) (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 that constitute
Restricted Payments resulting from payments of interest, dividends,
repayments or loans or advances, returns of capital or other
transfers of assets to Dobson or any Restricted Subsidiary or from
the Net Cash Proceeds from the sale of any Investment (except to the
extent any such payment or proceeds are included in the calculation
of Adjusted Consolidated Net Income), or from redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investment"). Not to exceed,
in each case, the amount of Investments previously made by Dobson or
any Restricted Subsidiary in such Unrestricted Subsidiary.
The following actions will not be deemed to violate the limitation on Restricted
Payments;
(A) the payment of any dividend within 60 days after the date of declaration
thereof if, at the date of declaration, such payment would comply with the
subparagraphs (1), (2) and (3) above;
(B) the repurchase, redemption or other acquisition of Junior Securities of
Dobson (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 Dobson;
(C) the declaration or payment of dividends on the Dobson's Common Stock
following a Public Equity Offering of such Common Stock, of up to 6% per annum
of the Net Cash Proceeds received by Dobson in such Public Equity Offering;
(D) payments or distributions, to dissenting stockholders in connection with
a consolidation, merger or transfer of assets that complies with the provisions
described under "Consolidation, Merger and Sale of Assets";
(E) the purchase, redemption, acquisition, cancellation or other retirement
for value of shares of Junior Securities of Dobson to the extent necessary in
the good faith judgment of Dobson's Board of
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Directors, to prevent the loss or secure the renewal or reinstatement of any
license or franchise held by Dobson or any Restricted Subsidiary from any
governmental agency;
(F) the purchase of shares of Fleet Investors Preferred Stock 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; but only if
- after giving pro forma effect to any such purchase the Consolidated
Leverage Ratio would be less than 7.5 to 1, and
- if the event triggering the exercisability of the put rights constitutes a
Change of Control, no such repurchase shall be made prior to Dobson's
repurchase of the Fleet Investors Preferred Stock in the "Change of
Control" covenant;
(7) the declaration or payment of dividends on the Fleet Investors Preferred
Stock if after giving pro forma effect to any such dividend, the Consolidated
Leverage Ratio would be less than 6 to 1 or following a Public Equity Offering
of Junior Securities, but only if
- the Net Cash Proceeds received by Dobson in such Public Equity Offering is
at least equal to $90 million, and
- the aggregate amount of dividends permitted to be made in any fiscal year
of Dobson under clause (3) and this clause (7) shall not exceed 6% of the
Net Cash Proceeds received by Dobson in the Public Equity Offering;
(8) the purchase, redemption, retirement or other acquisition for value of
Junior Securities of Dobson, or options to purchase such shares, held by
Dobson's directors, employees or former directors or employees or of 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, but only if 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;
(9) Investments in any Person, the primary business of which is related,
ancillary or complementary to the business of Dobson 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 Dobson 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, except to
the extent such Net Cash Proceeds are used to Incur Indebtedness outstanding
pursuant to clause (8) of the "Limitation on Indebtedness" covenant or to make
Restricted Payments pursuant to clause (c)(2) of the first paragraph, or clause
(2) of this paragraph, of this "Limitation on Restricted Payments" covenant; or
(10) the distribution on or with respect to the holders of Dobson's Junior
Securities of the Capital Stock of Logix; PROVIDED that, except in the case of
clauses (1) and (2), 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 that is permitted as provided in the preceding
paragraph (other than an exchange of Junior Securities for Junior Securities
referred to in clause (2)) and the Net Cash Proceeds from any issuance of Junior
Securities referred to in clause (2) or Capital Stock referred to in clause (9)
shall be included in calculating whether the conditions of clause (c) of the
first paragraph of this "Limitation on Restricted Payments" covenant have been
met with respect to any subsequent Restricted Payments.
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LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Dobson and its Restricted Subsidiaries will not, create or otherwise cause
or permit to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Restricted Subsidiary to:
- pay dividends or make any other distributions permitted by applicable law
on any Capital Stock of such Restricted Subsidiary owned by Dobson or any
other Restricted Subsidiary,
- pay any Indebtedness owed to Dobson or any other Restricted Subsidiary,
- make loans or advances to Dobson or any other Restricted Subsidiary or
- transfer any of its property or assets to Dobson or any other Restricted
Subsidiary.
However, the prohibition does not apply to any encumbrances or restrictions:
(1) existing on the Closing Date in the certificate of designation for the
Senior Preferred Stock, the Bank Facility Agreement, the Senior Note
Indenture or any other agreements in effect on the Closing Date or in the
Certificate of Designation, and any amendments, extensions, refinancings,
renewals or replacements of such agreements; on the condition that, other
than as contemplated in clause (4) 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;
(2) existing under or by reason of applicable law;
(3) existing with respect to any Person or the property or assets of such
Person acquired by Dobson 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;
(4) in the case of restrictions relating to the transfers of property,
restrictions 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,
- exist by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of
Dobson or any Restricted Subsidiary not otherwise prohibited by the
Certificate of Designation or
- arise or 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 Dobson or any
Restricted Subsidiary in any manner material to Dobson or any
Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or
(6) contained in the terms of:
(a) the DOC Facility Agreement or the DCOC Facility Agreement if the
encumbrances and restrictions that would prevent dividends or
distributions to Dobson to permit it to pay
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dividends on the Preferred Stock or Exchange Debentures apply only
prior to January 15, 2003 or upon a default other than a breach of
warranty but only if:
- the event of default is not a payment default, bankruptcy default
or loss of a material license or cellular system, and
- restriction will terminate 180 days after the occurrence of the
event of default, and
- the financial covenants which create the encumbrance or restriction
are no less favorable to Dobson or the Subsidiaries than the
covenants contained in the committment letter for the DOC Facility
and the DCOC Facility, or
(b) any Indebtedness, or any agreement creating Indebtedness, of a
Restricted Subsidiary if:
- the indebtedness or restriction applies only if there is a payment
default with respect to a financial covenant, and
- the indebtedness or restriction is not materially more
disadvantageous to holders of Preferred Stock than is customary in
comparable financings, and
- Dobson determines that the encumbrance or restriction will not
materially affect the ability to pay dividends on the Preferred
Stock or interest on the Exchange Debentures.
Dobson and its Restricted Subsidiaries are not precluded from:
- creating, incurring, assuming or permitting to exist any Liens
otherwise permitted under the "Limitation on Liens" covenant, or
- restricting the sale of their assets that secure Indebtedness of
Dobson or its Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Dobson and its Restricted Subsidiaries will not sell, directly or
indirectly, any shares of Capital Stock of a Restricted Subsidiary, including
options, warrants or other rights to purchase shares of such Capital Stock,
except:
(1) to Dobson or a Wholly Owned Restricted Subsidiary;
(2) 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;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary.
However, any remaining Investment in such Person after giving effect to
the issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant, if made on the date of such
issuance or sale; and
(4) sales of Common Stock of a Restricted Subsidiary but only if the assets
of such Restricted Subsidiary consist solely of assets relating to the
Dobson's PCS or resale business.
LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES
Dobson and its Restricted Subsidiaries will not, directly or indirectly,
engage in 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 Dobson or any Affiliate of Dobson or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to Dobson or such
Restricted Subsidiary than could be obtained in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
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The above limitation does not not apply to:
(1) transactions
(a) approved by a majority of the disinterested members of the Board of
Directors, or
(b) for which Dobson 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 Dobson or such
Restricted Subsidiary from a financial point of view;
(2) any transaction solely between Dobson and any of its Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
Dobson who are not employees of Dobson;
(4) any payments or other transactions pursuant to any tax-sharing agreement
between Dobson and any other Person with which Dobson files a
consolidated tax return or with which Dobson is part of a consolidated
group for tax purposes; or
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant.
Any transaction covered by the first paragraph of this "Limitation on
Transactions with Stockholders and Affiliates" covenant and not covered by
clauses (2) through (5) of this paragraph, the aggregate amount of which exceeds
$2 million in value, must be approved or determined to be fair by a majority of
the disinterested members of the Board of Directors.
LIMITATIONS ON SENIOR PREFERRED STOCK
Dobson will not
- exchange any Preferred Stock for Senior Exchange Debentures unless it will
have previously exchanged, or will contemporaneously exchange, all of the
Preferred Stock for Exchange Debentures, or
- redeem any Preferred Stock unless it will contemporaneously redeem a pro
rata portion of the Preferred Stock.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not we are required to file reports with the SEC, for so long as
any Preferred Stock is outstanding, we will file with the SEC all reports and
other information as it would be required to file with the SEC by Section 13(a)
or 15(d) under the Exchange Act if it were subject thereto. We shall supply the
Transfer Agent and each Holder or shall supply to the Transfer Agent for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We will not consolidate or merge with, or sell, lease or otherwise dispose
of all or substantially all of our property and assets in one transaction or a
series of related transactions to any Person or permit any Person to merge with
or into us unless:
(1) the resulting, surviving or transferee Person ("the Successor Company")
will be a person organized and existing under the laws of the United
States of America, or, any state or jurisdiction thereof and the
Preferred Stock shall be converted into or exchanged for and shall become
shares of the Successor Company having substantially the same powers,
preferences and relative participating, optional or other special rights
and the qualifications, limitations or restrictions that the Preferred
Stock had immediately prior to such transaction;
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(2) 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;
(3) immediately after giving effect to such transaction on a pro forma
basis, we, or the Successor Company or resulting company, as the case may
be, shall have a Consolidated Net Worth equal to or greater than our
Consolidated Net Worth immediately prior to such transaction;
(4) immediately after giving effect to such transaction on a pro forma basis
we, or the Successor Company or resulting company, as the case may be,
could Incur at least $1.00 of Indebtedness under the first paragraph of
the "Limitation on Indebtedness" covenant. However, this clause (4) shall
not apply to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth. In connection with any
such merger or consolidation, no consideration other than common stock in
the surviving Person or our Common Stock shall be issued or distributed
to our stockholders; and
(5) We deliver to the Transfer Agent an Officers' Certificate, attaching the
arithmetic computations to demonstrate compliance with clauses (3) and
(4), 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. Clauses (3) and (4) above will not apply if, in
the good faith determination of our Board of Directors, the principal
purpose of the transaction is to change our state of incorporation and
the transaction does not have as one of its purposes the evasion of the
foregoing limitations.
EXCHANGE
Subject to the "Limitations on Senior Preferred Stock" covenant and, the
legal availability of funds, we may exchange all of the outstanding Preferred
Stock, including any Preferred Stock issued as payment for dividends, for
Exchange Debentures, subject to the conditions set forth below. Presently, the
exchange of the Preferred Stock for Exchange Debentures would be restricted by
covenants in the Senior Note Indenture, the DOC Facility Agreement and the DCOC
Facility Agreement. We can give you no assurance that the conditions in such
covenants for the exchange of Preferred Stock for Exchange Debentures will be
satisfied or that the exchange will occur or that future Indebtedness of the
Company would not also restrict an exchange. See "Description of Certain
Indebtedness--The Senior Notes," "--The DOC Facility" and "--The DCOC Facility."
In order to effect such exchange, we shall
- if necessary to satisfy the condition set forth in clause (b) in the
following paragraph based upon the written advice of our counsel, file a
registration statement with the SEC relating to the exchange, and
- if a registration statement is filed with the SEC, use its best efforts to
cause such registration statement to be declared effective as soon as
practicable by the SEC unless the opinion referred to in clause (b) in the
following paragraph shall have been subsequently delivered.
In order to effectuate the exchange, we shall send a written notice of
exchange by mail to each holder of record of Preferred Stock. This notice shall
state:
(1) that we are exchanging the Preferred Stock into Exchange Debentures
pursuant to the Certificate of Designation, and
(2) on the date fixed for exchange (the "Exchange Date"), if the conditions
set forth in clauses (a) through (e) below are satisfied and the exchange
is permitted under our then outstanding
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indebtedness, we shall issue Exchange Debentures in exchange for the
Preferred Stock as provided in the next paragraph. However, on the
Exchange Date:
(a) we shall have legally available funds sufficient for the exchange
including under Oklahoma law;
(b) a registration statement relating to the Exchange Debentures shall
have been declared effective under the Securities Act prior to such
exchange and shall continue to be effective on the Exchange Date or
we 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
each holder of an Exchange Debenture that is not our Affiliate will
not be subject to any restrictions imposed by the Securities Act upon
the resale of such Exchange Debenture, and we have relied upon such
exemption for such exchange;
(c) the Exchange Debenture Indenture and the trustee thereunder shall
have been qualified under the Trust Indenture Act
(d) immediately after giving effect to such exchange, no Default or Event
of Default would exist under the Exchange Debenture Indenture; and
(e) we shall have delivered to the Trustee under the Exchange Debenture
Indenture a written opinion of counsel regarding the satisfaction of
the conditions set forth in clauses (a), (b) and (c).
If the issuance of the Exchange Debentures is not permitted on the Exchange
Date or any of the conditions set forth in clauses (a) through (e) of the
preceding sentence are not satisfied on the Exchange Date, we shall use its best
efforts to satisfy such conditions and effect such exchange as soon as
practicable.
Upon any exchange, holders of outstanding Preferred Stock will be entitled
to receive a principal amount of Exchange Debentures for Preferred Stock, the
liquidation preference of which, plus the amount of accumulated and unpaid
dividends, including a prorated dividend for the period from the immediately
preceding dividend payment date to the Exchange Date, with respect to which,
equals such principal amount. However, we may pay cash for any or all accrued
and unpaid dividends in lieu of issuing Exchange Debentures in respect of such
dividends. The Exchange Debentures will be issued in registered form, without
coupons, in principal amounts of $1,000 and integral multiples thereof to the
extent practicable, and will also be issued in principal amounts less than
$1,000 so that each holder of Preferred Stock will receive certificates
representing the entire principal amount of Exchange Debentures to which its
Preferred Stock entitle it. Subject to restrictions in the Senior Note
Indenture, the DOC Facility Agreement, the DCOC Facility Agreement and any of
its other then-existing Indebtedness, we may pay cash in lieu of issuing an
Exchange Debenture in a principal amount less than $1,000. On and after the date
of exchange, dividends will cease to accrue on the outstanding Preferred Stock,
and all rights of the holders of Preferred Stock, except the right to receive
the Exchange Debentures, cash equal to the accrued and unpaid dividends to the
Exchange Date, and, if we so elect, cash in lieu of any Exchange Debenture which
is in an amount that is less than $1,000, will terminate. The person entitled to
receive the Exchange Debentures issuable upon such exchange will be treated for
all purposes as the registered holder of such Exchange Debentures.
We will comply with the provisions of Rule 13e-4 promulgated pursuant to the
Exchange Act in connection with any exchange, to the extent applicable.
PREFERRED STOCK EXCHANGE OFFER REGISTRATION
We have agreed to use our best efforts, at our cost, to file and cause to
become effective a registration statement with respect to a registered offer to
exchange the Old Shares for the New Shares in the exchange
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offer. When that registration statement is declared effective, we will offer the
New Shares in return for surrender of the Old Shares. The exchange offer must
remain open for not less than 20 business days after the date that notice of the
exchange offer is mailed to holders of the Old Shares. In the event that
applicable interpretations of the staff of the SEC do not permit us to effect
such an exchange offer, or under certain other circumstances, we shall, at our
cost, use our best efforts to cause to become effective a shelf registration
statement with respect to resales of the Old Shares and to keep such
registration statement effective until the expiration of the time period
referred to in Rule 144(k) under the Securities Act after the Issue Date. In the
event of such shelf registration, we shall provide to each holder of Preferred
Stock copies of the prospectus, notify each holder of Preferred Stock when a
registration statement for the Preferred Stock has become effective and take
certain other actions as are required to permit resales of the Preferred Stock.
If the exchange offer is not consummated and a shelf registration statement
is not declared effective on or prior to 180 days after the Issue Date,
additional dividends will accrue, at an annual rate of .5% of the liquidation
preference thereof, on the Old Shares from the date that is 180 days after the
Issue Date, payable in additional shares of Preferred Stock quarterly in arrears
on each January 15, April 15, July 15 and October 15, commencing July 15, 1999,
until the exchange offer is consummated or such shelf registration statement is
declared effective. Holders of Old Shares who do not participate in the exchange
offer may thereafter hold a less liquid security. Holders of Old Shares will not
be named as selling securityholders in a exchange offer registration statement.
PREFERRED STOCK BOOK-ENTRY; DELIVERY AND FORM
Preferred Stock will be represented by a single, permanent global Preferred
Stock certificate, in definitive, fully registered form (the "Restricted Global
Preferred Stock Certificate") and will be deposited with a custodian for DTC and
registered in the name of a nominee of DTC. The Restricted Global Preferred
Stock Certificate (and any Preferred Stock issued in exchange therefor) will be
subject to certain restrictions on transfer set forth therein and will bear the
legend regarding such restrictions set forth under "Notice to Investors." The
Preferred Stock is not issuable in bearer form.
THE GLOBAL PREFERRED STOCK CERTIFICATE
Upon the issuance of the Restricted Global Preferred Stock Certificate, DTC
or its custodian will credit, on its internal system, the respective liquidation
preference of the individual beneficial interests represented by such Restricted
Global Preferred Stock Certificate, to the accounts of persons who have accounts
with such depositary. Such accounts initially will be designated by or on behalf
of the Placement Agents. Ownership of beneficial interests in a Restricted
Global Preferred Stock Certificate will be limited to persons who have accounts
with DTC ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the Restricted Global Preferred Stock
Certificate will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified Institutional Buyers
may hold their interests in the Restricted Global Preferred Stock Certificate
directly through DTC if they are participants in such system, or indirectly
through organizations that are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Restricted Global Preferred Stock Certificate, DTC or such nominee, as the case
may be, will be considered the sole owner or holder of the Preferred Stock
represented by such Restricted Global Preferred Stock Certificate for all
purposes under the Certificate of Designation and the Preferred Stock. No
beneficial owner of an interest in a Restricted Global Preferred Stock
Certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
Certificate of Designation.
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Payments made with respect to a Restricted Global Preferred Stock
Certificate will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company nor the Placement Agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Restricted
Global Preferred Stock Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payments made with
respect to the Restricted Global Preferred Stock Certificate, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the amount of such Restricted Global
Preferred Stock Certificate as shown on the records of DTC or its nominee. We
also expect that payments by participants to owners of beneficial interests in
such Restricted Global Preferred Stock Certificates held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
We understand that DTC will take any action permitted to be taken by a
holder of Preferred Stock (including the presentation of Preferred Stock for
exchange as described below) only at the direction of one or more participants
to whose account the interests in the Restricted Global Preferred Stock
Certificate are credited and only in respect of such portion of the aggregate
liquidation preference of Preferred Stock as to which such participant or
participants has or have given such direction.
We understand that DTC is a limited purpose trust company organized under
the laws of the State of New York, a "banking organization" within the meaning
of New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "Clearing
Agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Restricted Global Preferred Stock
Certificate among participants of DTC, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Initial Purchaser nor we will have any responsibility for
the performance by DTC or its respective participants or indirect participants
of its or their respective obligations under the rules and procedures governing
their operations.
CERTIFICATED PREFERRED STOCK
If DTC is at any time unwilling or unable to continue as a depositary for
the Restricted Global Preferred Stock Certificate and a successor depositary is
not appointed by us within 90 days, we will issue certificated Preferred Stock
in exchange for the Restricted Global Preferred Stock Certificate, which will
bear the legend referred to under the heading "Notice to Investors."
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DESCRIPTION OF THE EXCHANGE DEBENTURES
In the event we issue the Exchange Debentures, we will issue them under the
Exchange Debenture Indenture between the United States Trust Company of New
York, as trustee (the "Trustee") and ourselves, a copy of the form of which we
make available upon request. The terms of the Exchange Debentures include those
stated in the Exchange Debenture Indenture and those made part of the Exchange
Debenture Indenture by reference to the Trust Indenture Act.
The following summary of certain provisions of the Exchange Debenture
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act and to all of the
provisions of the Exchange Debenture Indenture, including the definitions of
certain terms therein and those terms made a part of the Exchange Debenture
Indenture by reference to the Trust Indenture Act. The definitions of certain
terms used in the Exchange Debentures and the Exchange Debenture Indenture and
in the following summary are set forth below under "--Certain Definitions." In
this description, "Dobson" or "Dobson Communications" refers only to Dobson
Communications Corporation and not to any of our subsidiaries.
GENERAL
The Exchange Debentures will be our unsecured obligations and, will be
initially limited in aggregate principal amount to the aggregate liquidation
preference of the Preferred Stock (including any Preferred Stock issued in
payment of dividends), plus accrued and unpaid dividends, on the date of
exchange of the Preferred Stock into Exchange Debentures (plus any additional
Exchange Debentures issued in lieu of cash interest as described herein). We
will issue the Exchange Debentures in fully registered form only in
denominations of $1,000 and integral multiples thereof (other than as described
in "Description of Preferred Stock--Exchange" or with respect to additional
Exchange Debentures issued in lieu of cash interest as described herein). The
Exchange Debentures will be our senior subordinated obligations, subordinated to
all of our existing and future Senior Indebtedness and senior to all of our
subordinated obligations.
Principal of, premium, if any, and interest on the Exchange Debentures will
be payable, and the Exchange Debentures may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar. At our
option, interest, to the extent paid in cash, may be paid by check mailed to the
registered address of holders of the Exchange Debentures as shown on the
register for the Exchange Debentures. The Trustee will initially act as Paying
Agent and Registrar. We may change any Paying Agent and Registrar without prior
notice to Holders of the Exchange Debentures. Holders of the Exchange Debentures
must surrender Exchange Debentures to the Paying Agent to collect principal
payments.
The Exchange Debentures will mature on January 15, 2008. Each Exchange
Debenture will bear interest at the same rate in effect with respect to the
Preferred Stock on the date we issue the Exchange Debentures from the Exchange
Debenture Issue Date or from the most recent interest payment date to which
interest has been paid or provided for. Interest will be payable semi-annually
in cash, or, on or prior to January 15, 2003, at our option, in additional
Exchange Debentures, in arrears on each of January 15 and July 15 commencing
with the first such date after the issue date of the Exchange Debentures. We may
pay dividends in cash during the period on or before January 15, 2003 on the
exchange debentures which may be issued upon exchange of the Senior Preferred
Stock only if it also pays interest in cash on the Exchange Debentures during
such period. Interest on the Exchange Debentures will be computed on the basis
of a 360-day year of twelve 30-day months and the actual number of days elapsed.
Because of our option through January 15, 2003 to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures, any Exchange
Debentures we issue prior to that date will be treated as issued with original
issue discount unless under special rules for interest holidays the amount of
original issue discount is treated as minimal. See "Federal Income Tax
Considerations."
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We may, subject to the covenants described below under "Covenants" and
applicable law, issue additional Exchange Debentures under the Exchange
Debenture Indenture. Those Exchange Debentures we issue in exchange for
Preferred Stock and any additional Exchange Debentures we issue subsequently
would be treated as a single class for all purposes under the Exchange Debenture
Indenture.
SUBORDINATION
The Exchange Debentures will be our senior subordinated Indebtedness of the
Company, subordinated to the prior payment when due of the principal of, and
premium, if any, and accrued and unpaid interest on, all of our existing and
future Senior Indebtedness and senior to the prior payment when due of the
principal of, and premium, if any, and accrued and unpaid interest on, all of
our subordinated Indebtedness.
Upon
(a) any distribution to our creditors in the event of our liquidation or
dissolution or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to us or our property or
(b) an assignment for the benefit of creditors or any marshalling of our
assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full of all obligations due in respect of
such Senior Indebtedness (including interest after the commencement of
any such proceeding at the rate specified in the applicable Senior
Indebtedness) before holders of the Exchange Debentures will be entitled
to receive any payment with respect to the Exchange Debentures. Until all
obligations with respect to Senior Indebtedness are paid in full, any
distribution to which holders of the Exchange Debentures would be
entitled will be made to holders of Senior Indebtedness. Notwithstanding
the foregoing, holders of the Exchange Debentures may receive securities
that are subordinated, at least to the same extent as the Exchange
Debentures, to Senior Indebtedness and any securities issued in exchange
for Senior Indebtedness.
In addition, we may not make any payment upon or in respect of the Exchange
Debentures (except in such subordinated securities) if
(a) a default in the payment of any principal, premium, if any, interest or
other obligations with respect to any Designated Senior Indebtedness
occurs and is continuing beyond any applicable grace period (whether upon
maturity, as a result of acceleration or otherwise) or
(b) any other default occurs and is continuing with respect to any
Designated Senior Indebtedness that permits holders of such Designated
Senior Indebtedness to accelerate its maturity, and the Company and the
Trustee receive a notice of such default (a "Payment Blockage Notice")
from the holders, or from the trustee, agent or other representative of
the holders, of any such Designated Senior Indebtedness. Payments on the
Exchange Debentures may and shall be resumed upon the earlier of
(1) the date upon which the default is cured or waived or
(2) in the case of a default referred to in clause (b) above, 179 days
after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Indebtedness
has been accelerated. No new period of payment blockage may be
commenced within 360 days after the receipt by the Trustee of any
prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 180 days.
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The Exchange Debenture Indenture will further require that we promptly
notify holders of Senior Indebtedness if payment on the Exchange Debentures is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of the Exchange Debentures may recover less
ratably than other creditors of ours. We are expected to incur substantial
amounts of additional indebtedness in the future.
OPTIONAL REDEMPTION
We may redeem the Exchange Debentures at any time on or after January 15,
2003, at our option, in whole or in part, upon not less than 30 nor more than 60
days' prior written notice mailed by first-class mail to each holder's last
address as it appears in the Security Register, at the redemption prices
(expressed as a percentage of the principal amount thereof) set forth below,
plus accrued and unpaid interest thereon to the redemption date (subject to the
right of holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the redemption
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%
2005.............................................................................. 102.042%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, on or prior to January 15, 2001, we may redeem Exchange
Debentures having an aggregate principal amount of up to 35% of the aggregate
liquidation preference of the Preferred Stock originally issued at a redemption
price equal to 112.250% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date, with the proceeds of any sale of our common
stock, but only if such redemption occurs within 180 days after consummation of
such sale and at least 65% aggregate principal amount of Exchange Debentures
originally issued remains outstanding after each such redemption.
We will agree it will not exercise its optional redemption rights with
respect to the Senior Exchange Debentures unless it contemporaneously redeems
the Exchange Debentures pro rata.
In the case of any partial redemption, the Trustee will select the Exchange
Debentures for redemption in compliance with the requirements of the principal
national securities exchange, if any, on which the Exchange Debentures are
listed or, if the Exchange Debentures are not listed on a national securities
exchange, on a proportional basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate; but only if no
Exchange Debenture of $1,000 in principal amount or less shall be redeemed in
part. If we redeem any Exchange Debenture in part only, the notice of redemption
relating to such Exchange Debenture shall state the portion of the principal
amount thereof to be redeemed. We will issue a new Exchange Debenture in
principal amount equal to the unredeemed portion thereof in the name of the
holder thereof upon cancellation of the original Exchange Debenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Exchange Debenture Indenture. Reference is
made to the Exchange Debenture Indenture for the full definitions of all such
terms as well as any other capitalized terms used herein for which no definition
is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or which is 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
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Subsidiary or such Asset Acquisition. If the term "Acquired Indebtedness" does
not include Indebtedness of a 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.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of Dobson and its Restricted Subsidiaries for such period
determined in conformity with GAAP; but only if the following items shall be
excluded in computing Adjusted Consolidated Net Income without duplication:
(1) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than Dobson 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 Dobson or any of its
Restricted Subsidiaries by such other Person or such Unrestricted
Subsidiary during such period;
(2) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such
case, except to the extent includable pursuant to clause (1) 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 Dobson 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;
(3) except in the case of any restriction or encumbrance permitted under
clause (6) of the "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant, 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;
(4) any gains or losses (on an after-tax basis) attributable to Asset Sales;
(5) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any amount
paid or accrued as dividends on Preferred Shares of Dobson or any
Restricted Subsidiary owned by Persons other than Dobson and any of its
Restricted Subsidiaries; and
(6) all extraordinary gains and extraordinary losses, net of tax.
"Adjusted Consolidated Net Tangible Assets" means the total amount of assets
of Dobson and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom
(1) all current liabilities of the Company and its Restricted Subsidiaries
(excluding intercompany items) and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles (other than FCC license
acquisition costs), all as set forth on the most recent quarterly or
annual consolidated balance sheet of Dobson and its Restricted
Subsidiaries, prepared in conformity with GAAP and filed with the
Commission pursuant to the "Commission Reports and Reports to Holders"
covenant.
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"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
(1) an investment by Dobson 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 Dobson or any of
its Restricted Subsidiaries; but only if such Person's primary business
is related, ancillary or complementary to the businesses of Dobson and
its Restricted Subsidiaries on the date of such investment or
(2) an acquisition by Dobson or any of its Restricted Subsidiaries of the
property and assets of any Person other than Dobson or any of its
Restricted Subsidiaries that constitute substantially all of a division
or line of business of such Person; but only if that the property and
assets acquired are related, ancillary or complementary to the businesses
of Dobson and its Restricted Subsidiaries on the date of such
acquisition.
"Asset Disposition" means the sale or other disposition by Dobson or any of
its Restricted Subsidiaries (other than to Dobson or another Restricted
Subsidiary) of
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary, or
(2) all or substantially all of the assets that constitute a division or
line of business of Dobson 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 Dobson or any of its Restricted Subsidiaries
to any Person other than Dobson or any of its Restricted Subsidiaries of
(1) all or any of the Capital Stock of any Restricted Subsidiary,
(2) all or substantially all of the property and assets of an operating unit
or business of Dobson or any of its Restricted Subsidiaries or
(3) any other property and assets of Dobson or any of its Restricted
Subsidiaries outside the ordinary course of business of Dobson or such
Restricted Subsidiary and, in each case, that is not governed by the
provisions described under "Consolidation, Merger and Sale of Assets",
but the term "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, on
the condition 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, Dobson
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 the "Limitation on
Restricted Payments" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing
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(1) 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
(2) by the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, 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:
(1) (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 Dobson on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of the Voting Stock of
Dobson, on a fully diluted basis, than is held by the Existing
Stockholders and their Affiliates on such date; or
(2) individuals who on the Closing Date constituted the Board of Directors
(together with any new directors whose election by the Board of Directors
or whose nomination for election by Dobson'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 $.001 per
share, of Dobson.
"Class A Preferred Stock" means the Class A Non-Voting, Non-Convertible
Preferred Stock, par value $1.00 per share, of Dobson.
"Class D Preferred Stock" means the Class D 15% Convertible Preferred Stock,
par value $1.00 per share, of Dobson.
"Class E Preferred Stock" means the Class E Preferred Stock, par value $1.00
per share, of Dobson.
"Class F Preferred Stock" means the Class F 16% Preferred Stock, par value
$1.00 per share, of Dobson.
"Class G Preferred Stock" means the Class G 16% Convertible Preferred Stock,
par value $1.00 per share, of Dobson.
"Class H Preferred Stock" means the Class H Preferred Stock, par value $1.00
per share, of Dobson.
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"Closing Date" means January 22, 1998.
"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:
- Consolidated Interest Expense,
- income taxes, other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or sales
of assets,
- depreciation expense,
- amortization expense, and
- 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 Dobson 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 the amount of the Adjusted Consolidated Net Income attributable
to such Restricted Subsidiary multiplied by 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 Dobson 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 without limitation
(1) 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;
(2) all commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;
(3) the net costs associated with Interest Rate Agreements; and Indebtedness
that is Guaranteed or secured by Dobson 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 Dobson and its Restricted Subsidiaries during such period;
excluding, however,
- any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (3) 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
(3) of the definition thereof) and
- any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Senior Notes and the
Senior Preferred Stock, all as determined on
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a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
- the aggregate amount of Indebtedness of Dobson and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date
to
- the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of Dobson have been filed
with the Commission (such four fiscal quarter period being the "Four
Quarter Period")
- In determining the Consolidated Leverage Ratio, 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;
- 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
- 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 Dobson 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.
To the extent that PRO FORMA effect is given to an Asset Acquisition or Asset
Disposition, such PRO FORMA calculation shall be based upon the four full fiscal
quarters immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired or disposed of for which
financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of Dobson 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
Dobson 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.
"Credit Facilities" means the DOC Bank Facility and the DCOC Facility.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"DCOC" means Dobson Cellular Operations Company.
"DCOC Facility" means the $120.0 million and $80.0 million credit facilities
created and established by the DCOC Facility Agreement.
"DCOC Facility Agreement" means the agreement among DCOC, NationsBank of
Texas, N.A., First Union National Bank and Toronto Dominion (Texas), Inc., each
dated as of March 25, 1998, establishing
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the DCOC Facility, together with all other agreements, instruments, and
documents executed or delivered pursuant thereto or in connection therewith, in
each cash as such agreement, other agreements, instruments or documents may be
amended, supplemented, extended, renewed, replaced or otherwise modified from
time to time.
"Dobson/Sygnet" means Dobson/Sygnet Communications Company.
"Dobson/Sygnet Indenture" means the Indenture dated as of December 23, 1998
between Dobson/ Sygnet and United States Trust Company of New York, relating to
the Dobson/Sygnet Notes, as such indenture may be amended, supplemented,
extended, renewed, replaced or otherwise modified from time to time.
"Dobson/Sygnet Notes" means the 12 1/4% Senior Notes due 2008 to be issued
by Dobson/Sygnet under the Dobson/Sygnet Indenture.
"DOC Facility" means that certain credit facility created and established by
the DOC Facility Agreement.
"DOC Facility Agreement" means the Third Amended and Restated Credit
Agreement among Dobson Operating Company, Corestates Bank, N.A., Toronto
Dominion (Texas), Inc. and NationsBank of Texas, N.A. dated as of March 25,
1998, 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.
"Existing Stockholders" means Everett R. Dobson.
"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. For purposes of clause (8) of the second
paragraph of the "Limitation on Indebtedness" covenant,
- 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
- in the event the aggregate fair market value of any other property
received by Dobson 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.
"FCC" means the Federal Communications Commission.
"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.
"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
the Exchange Debenture Indenture shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes of
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determining compliance with the terms of the covenants and with other provisions
of the Exchange Debenture Indenture shall be made without giving effect to
- the amortization of any expenses incurred in connection with the offering
of the Senior Notes and the Senior Preferred Stock, and
- 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
- 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
- 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);
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.
"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; with the condition 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,
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments,
(3) 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 (1) or (2) above or (5), (6) or (7) 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),
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six
months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables,
(5) all obligations of such Person as lessee under Capitalized Leases,
(6) 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; but
only if that the amount of such Indebtedness is the lesser of
(a) the fair market value of such asset at such date of determination
and
(b) the amount of such Indebtedness,
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(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person and
(8) 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, but only if
- 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,
- 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
- 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 Dobson 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
- the designation of a Restricted Subsidiary as an Unrestricted Subsidiary,
and
- the fair market value of the Capital Stock or any other Investment, held
by Dobson or any of its Restricted Subsidiaries, of or in any Person that
has ceased to be a Restricted Subsidiary, including without limitation, by
reason of any transaction permitted by clause (3) of the "Limitation on
the Issuance and Sale of Capital Stock of Restricted Subsidiaries"
covenant.
For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant described below,
(1) "Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to Dobson or any of its
Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary,
(2) the fair market value of the assets (net of liabilities (other than
liabilities to Dobson 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
(3) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"Issue Date" means the date on which the Preferred Stock was originally
issued.
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"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).
"Logix" means Logix Communications Enterprises, Inc., formerly named Dobson
Wireline Company.
"Logix Notes" means the 12 1/4% Senior Notes due 2008 issued by Logix under
the Logix Indenture.
"Logix Indenture" means the Indenture dated as of June 12, 1998 between
Logix and United States Trust Company of New York, relating to the Logix Notes,
as such indenture may be amended, supplemented, extended, renewed, replaced or
otherwise modified from time to time.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means,
(1) 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 Dobson or any Restricted Subsidiary)
and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of
(a) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset
Sale,
(b) 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 Dobson and its Restricted
Subsidiaries, taken as a whole,
(c) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either is secured by
a Lien on the property or assets sold or is required to be paid as a
result of such sale, and
(d) appropriate amounts to be provided by Dobson or any Restricted
Subsidiary of Dobson as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP, and
(2) 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 Dobson or any
Restricted Subsidiary of Dobson) 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 DCOC Facility Commitment Letter" means the commitment letter (including
the Summary of Terms and Conditions attached thereto) dated January 7, 1998
among Dobson, 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
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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, Dobson Operating Company, NationsBank of Texas, N.A. and
NationsBanc Montgomery Securities LLC.
"Offer to Purchase" means an offer by Dobson to purchase Exchange Debentures
from the Holders commenced by mailing a notice to the Transfer Agent and each
Holder stating:
(1) the covenant pursuant to which the offer is being made and that all
Exchange Debentures validly tendered will be accepted for payment on a
PRO RATA basis;
(2) 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");
(3) that any Exchange Debentures not tendered will continue to accrue
dividends pursuant to its terms;
(4) that, unless Dobson defaults in the payment of the purchase price, any
Exchange Debentures accepted for payment pursuant to the Offer to
Purchase shall cease to accrue dividends on and after the Payment Date;
(5) that Holders electing to have Exchange Debentures purchased pursuant to
the Offer to Purchase will be required to surrender the Exchange
Debentures, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of the Exchange Debentures 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;
(6) 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 principal amount of Exchange Debentures delivered for purchase and a
statement that such Holder is withdrawing its election to have such
Exchange Debentures purchased; and
(7) that Holders whose Exchange Debentures are being purchased only in part
will be issued new Exchange Debentures equal in principal amount to the
unpurchased portion of the Exchange Debentures surrendered; but only if
that each Exchange Debenture purchased and each new Exchange Debenture
issued is in a principal amount of $1,000 or integral multiples thereof.
On the Payment Date, the Company shall
(a) accept for payment on a PRO RATA basis Exchange Debentures or
portions thereof validly tendered pursuant to an Offer to Purchase;
(b) deposit with the Paying Agent money sufficient to pay the purchase
price of all Exchange Debentures or portions thereof so accepted; and
(c) deliver, or cause to be delivered, to the Trustee all Exchange
Debentures or portions thereof so accepted together with an Officers'
Certificate specifying the Exchange Debentures or portions thereof
accepted for payment by Dobson.
The Paying Agent shall promptly mail to the Holders of Exchange Debentures
so accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Exchange Debenture
equal in principal amount to any unpurchased portion of the Exchange Debentures
surrendered; but only if each Exchange Debenture purchased and each new Exchange
Debenture issued is in a principal amount of $1,000 or integral multiples
thereof. Dobson will publicly announce the results of an Offer to Purchase as
soon as practicable after the Payment Date. The
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Trustee shall act as the Paying Agent for an Offer to Purchase. Dobson will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that Dobson is required to repurchase Exchange Debentures pursuant
to an Offer to Purchase.
"Permitted Investment" means
(1) an Investment in Dobson 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, Dobson or a Restricted Subsidiary; but
only if 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;
(2) Temporary Cash Investments;
(3) 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
(4) stock, obligations or securities received in satisfaction of judgments.
"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 including,
without limitation, all series and classes of such preferred stock or preference
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
- a Public Equity Offering has been consummated, and
- at least 15% of the total issued and outstanding Common Stock of Dobson
has been distributed by means of an effective registration statement under
the Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of Dobson other than an
Unrestricted Subsidiary.
"Senior Exchange Debentures" means Dobson's 12 1/4% Senior Subordinated
Debentures due 2008 which may be issued by the Company in exchange for Senior
Preferred Stock.
"Senior Indebtedness" means
- Indebtedness of Dobson under the Senior Notes, the Senior Note Indenture,
the DOC Facility Agreement and the DCOC Facility Agreement and all fees,
expenses and indemnities payable in connection with any of the foregoing,
and
- all other Indebtedness of Dobson (other than the Exchange Debentures),
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 equal with, or
subordinated in right of payment to, the Exchange Debentures;
The term "Senior Indebtedness" shall not include
- any Indebtedness of Dobson that, when Incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code, was
without recourse to Dobson,
- any Indebtedness of Dobson to a Subsidiary of Dobson or to a joint venture
in which Dobson has an interest,
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- any Indebtedness of Dobson, to the extent not permitted by the "Limitation
on Indebtedness" or the "Senior Subordinated Indebtedness" covenants
described below,
- any repurchase, redemption or other obligation in respect of Disqualified
Stock,
- any Indebtedness to any employee of Dobson or any of its Subsidiaries,
- any liability for federal, state, local or other taxes owed or owing by
Dobson, or
- 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 Dobson 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 Dobson
under the Senior Note Indenture.
"Senior Preferred Stock" means Dobson's 12 1/4% Senior Exchangeable
Preferred Stock Mandatorily Redeemable 2008 issued by Dobson on January 22,
1998.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries,
- for the most recent fiscal year of Dobson, accounted for more than 10% of
the consolidated revenues of the Company and its Restricted Subsidiaries
or
- as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of Dobson and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means,
- 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
- 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:
(1) 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,
(2) 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
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Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above,
(4) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of Dobson)
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
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by Dobson 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.
"Unrestricted Subsidiary" means Logix, Dobson/Sygnet, Dobson Tower Company
or any other Subsidiary of Dobson that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the manner
provided below and 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; on the condition that
(A) any Guarantee by Dobson 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 the Subsidiary to be so designated has total assets of $1,000 or less
or if such Subsidiary has assets greater than $1,000, such designation would
be permitted under the "Limitation on Restricted Payments" covenant
described below; and
(C) if applicable, the Incurrence of Indebtedness and the Investment referred to
in clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" and "Limitation on Restricted Payments" covenants described
below. The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; on the condition that immediately after giving
effect to such designation
- 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 the Indenture and
- no Default or Event of Default shall have occurred and be continuing.
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Any such designation by the Board of Directors shall be evidenced to the
Trustee by promptly providing the Trustee a copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
The Exchange Debenture Indenture will contain, among others, the following
covenants:
LIMITATION ON INDEBTEDNESS
Neither Dobson nor any Restricted Subsidiary may Incur any Indebtedness
other than the Exchange Debentures, the Senior Exchange Debentures and
Indebtedness existing on the Closing Date. However, Dobson 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, Dobson and any Restricted Subsidiary (except
as specified below) may Incur the following types of Indebtedness:
(1) Indebtedness outstanding at any time in an aggregate principal amount
not to exceed $250 million, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below;
(2) Indebtedness to Dobson evidenced by a promissory note or to any of its
Restricted Subsidiaries, on the condition 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 Dobson or
another Restricted Subsidiary, shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this
clause (2);
(3) 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 (1), (2), (4), (6) or (9) of this
paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded, plus premiums, accrued interest, fees
and expenses, on the condition that Indebtedness the proceeds of which
are used to refinance or refund the Exchange Debentures or Indebtedness
that ranks equally with, or subordinated in right of payment to, the
Exchange Debentures shall only be permitted under this clause (3) if
(a) in case the Exchange Debentures are refinanced in part or the
Indebtedness to be refinanced ranks equally with the Exchange
Debentures, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness
is outstanding, is expressly made to rank equally with, or
subordinate in right of payment to, the remaining Exchange
Debentures,
(b) in case the Indebtedness to be refinanced is subordinated in right of
payment to the Exchange Debentures, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to
which such new Indebtedness is issued or remains outstanding, is
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expressly made subordinate in right of payment to the Exchange
Debentures at least to the extent that the Indebtedness to be
refinanced is subordinated to the Exchange Debentures and
(c) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature 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 on
the condition that in no event may Indebtedness of Dobson be
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (3);
(4) 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, but only to
the extent that such agreements
- are designed solely to protect the Company or its Subsidiaries
against fluctuations in foreign currency exchange rates or interest
rates, and
- 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 Dobson 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 Dobson (other
than Guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary of
Dobson for the purpose of financing such acquisition), in an amount
not to exceed the gross proceeds actually received by Dobson or any
Restricted Subsidiary in connection with such disposition;
(5) Indebtedness of Dobson, to the extent the net proceeds thereof are
promptly
(a) used to purchase Exchange Debentures tendered in an Offer to Purchase
made as a result of a Change in Control, or
(b) deposited to defease the Senior Notes or to defease the Exchange
Debentures as described below under "Defeasance";
(6) Guarantees of the Exchange Debentures and Guarantees of Indebtedness of
Dobson by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation
on Issuance of Guarantees by Restricted Subsidiaries" covenant described
below;
(7) 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
Dobson or a Restricted Subsidiary after the Closing Date;
(8) Indebtedness of Dobson not to exceed, at any one time outstanding, two
times the sum of
- the Net Cash Proceeds received by Dobson on or after the Closing
Date from the issuance and sale of its Capital Stock (other than
Disqualified Stock), including the Preferred Stock, to a Person
that is not a Subsidiary of Dobson to the extent such Net Cash
Proceeds
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have not been used pursuant to clause (C)(2) of the first
paragraph, or clause (11) of the second paragraph, of the
"Limitation on Restricted Payments" covenant described below to
make a Restricted Payment, and
- 80% of the fair market value of property other than cash received
by Dobson 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 Dobson, on the condition that such Indebtedness
does not mature prior to the Stated Maturity of the Exchange
Debentures and has an Average Life longer than the Exchange
Debentures; and
(9) Indebtedness outstanding at any time in an aggregate principal amount
not to exceed $25 million, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below.
The maximum amount of Indebtedness that Dobson or a Restricted Subsidiary may
Incur pursuant to this "Limitation on Indebtedness" covenant 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.
For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant, 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 and any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, 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, Dobson, 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.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
Dobson shall not Incur any Indebtedness that is subordinate in right of
payment to any Senior Indebtedness unless such Indebtedness is 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 Dobson that exist by reason of any Liens or Guarantees
arising or created in respect of some but not all such Senior Indebtedness.
LIMITATION ON LIENS
Dobson 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 secured equally and ratably with (or, if
the Secured Indebtedness is 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.
LIMITATION ON RESTRICTED PAYMENTS
Dobson and its Restricted Subsidiaries are not permitted to take any of the
following actions (each a "Restricted Payment"):
(1) declare or pay any dividend or make any distribution on or with respect to
its Capital Stock. However, dividends or distributions are permitted if they
are payable solely in shares of its Capital Stock other than Disqualified
Stock or in options, warrants or other rights to acquire shares of such
Capital Stock and pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries held by minority stockholders, on the condition 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
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quarter beginning immediately following the Closing Date) held by Persons
other than Dobson or any of its Restricted Subsidiaries,
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of
(a) Dobson or an Unrestricted Subsidiary (including options, warrants or
other rights to acquire such shares of Capital Stock) held by any Person
or
(b) a Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Affiliate of Dobson
(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 Dobson,
(3) make any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of Dobson that is subordinated in right of payment to
the Exchange Debentures or
(4) make any Investment, other than a Permitted Investment, in any Person
if, at the time of, and after giving effect to, the proposed Restricted
Payment:
(a) a Default or Event of Default shall have occurred and be continuing,
(b) the Company could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant or
(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 Dobson 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 the "Commission Reports and Reports to Holders" covenant PLUS
(2) the aggregate Net Cash Proceeds received by Dobson after the Closing Date
from the issuance and sale permitted by the Exchange Debenture Indenture of
its Capital Stock other than Disqualified Stock to a Person who is not a
Subsidiary of Dobson (except to the extent such Net Cash Proceeds are used
to Incur Indebtedness pursuant to clause (8) under the "Limitation on
Indebtedness" covenant) or from the issuance to a Person who is not a
Subsidiary of Dobson of any options, warrants or other rights to acquire
Capital Stock of Dobson (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 Stated Maturity
of the Exchange Debentures) 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 (11) of the second paragraph of this "Limitation on Restricted
Payments" covenant) 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 Dobson 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 Dobson or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
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The following actions will not be deemed to violate the Limitation on
Restricted Payments:
(1) 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
subparagraphs (1), (2) and (3) above;
(2) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
Exchange Debentures including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (3) of the second paragraph of part (a) of the "Limitation on
Indebtedness" covenant;
(3) the repurchase, redemption or other acquisition of Dobson's Capital Stock
(or options, warrants or other rights to acquire such Capital Stock) in
exchange for, or out of the proceeds of a substantially concurrent offering
of, shares of Capital Stock (other than Disqualified Stock);
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Exchange Debentures
in exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of the Dobson's Capital Stock (other than Disqualified
Stock);
(5) the declaration or payment of dividends on the Dobson's Common Stock
following a Public Equity Offering of such Common Stock, of up to 6% per
annum of the Net Cash Proceeds received by Dobson in such Public Equity
Offering;
(6) 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 of the Exchange Debenture
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of Dobson;
(7) the purchase, redemption, acquisition, cancellation or other retirement for
value of shares of Dobson's Capital Stock to the extent necessary in the
good faith judgment of Dobson's Board of Directors, to prevent the loss or
secure the renewal or reinstatement of any license or franchise held by
Dobson or any Restricted Subsidiary from any governmental agency;
(8) the purchase of shares of Fleet Investors Preferred Stock of Dobson (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; but only if
(a) after giving pro forma effect to any such purchase the Consolidated
Leverage Ratio would be less than 7.5 to 1, and
(b) if the event triggering the exercisability of the put rights constitutes
an Asset Sale or Change of Control, no such repurchase shall be made
prior to Dobson's repurchase of such Exchange Debentures as are required
to be repurchased pursuant to the "Limitation on Asset Sales" and
"Repurchase of Exchange Debentures upon a Change of Control" covenants
described below;
(9) the declaration or payment of dividends on the Fleet Investors Preferred
Stock.
(a) if after giving pro forma effect to any such dividend, the Consolidated
Leverage Ratio would be less than 6 to 1 or
(b) following a Public Equity Offering of Capital Stock, but only if (A) the
Net Cash Proceeds received by Dobson 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 Dobson under clause (5) and
this clause (9) shall not exceed 6% of the Net Cash Proceeds received by
Dobson in the Public Equity Offering;
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(10) the purchase, redemption, retirement or other acquisition for value of
Capital Stock of Dobson, or options to purchase such shares, held by
directors, employees or former directors or employees of Dobson 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 Capital
Stock or options were issued, but only if the aggregate consideration paid
for such purchase, redemption, acquisition, cancellation or other retirement
of such shares of Capital Stock or options after the Closing Date does not
exceed $500,000 in any calendar year, or $1.5 million in the aggregate; or
(11) Investments in any Person, the primary business of which is related,
ancillary or complementary to the business of Dobson 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 Dobson 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 Dobson, except to the extent such Net Cash Proceeds are used
to Incur Indebtedness outstanding pursuant to clause (8) of the "Limitation
on Indebtedness" covenant or to make Restricted Payments pursuant to clause
(C)(2) of the first paragraph, or clause (2) or (3) of this paragraph, of
the "Limitation on Restricted Payments" covenant; or (12) the distribution
on or with respect to the holders of Dobson's Capital Stock of the Capital
Stock of Logix; on the condition that, except in the case of clauses (1) and
(3), no Default or Event of Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein.
Each Restricted Payment that is permitted pursuant to as provided in the
preceding paragraph (other than the Restricted Payment referred to in clause (2)
thereof and an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause (3) or (4) thereof), and the Net Cash Proceeds from any
issuance of Capital Stock referred to in clauses (3), (4), and (11) shall be
included in calculating whether the conditions of clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant have been met
with respect to any subsequent Restricted Payments. In the event the proceeds of
an issuance of Capital Stock of Dobson are used for the redemption, repurchase
or other acquisition of the Exchange Debentures, or Indebtedness that is PARI
PASSU with the Exchange Debentures, then the Net Cash Proceeds of such issuance
shall be included in clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Dobson and its Restricted Subsidiaries will not create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by Dobson or
any other Restricted Subsidiary,
(2) pay any Indebtedness owed to Dobson or any other Restricted Subsidiary,
(3) make loans or advances to Dobson or any other Restricted Subsidiary, or
(4) transfer any of its property or assets to Dobson or any other Restricted
Subsidiary.
However, the prohibition does not apply to any encumbrances or restrictions:
(1) existing on the Closing Date in 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 (4)
below, the encumbrances and restrictions in any such amendments,
extensions,
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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;
(2) existing under or by reason of applicable law;
(3) existing with respect to any Person or the property or assets of such
Person acquired by Dobson 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;
(4) in the case of clause (4) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant,
(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
Dobson or any Restricted Subsidiary not otherwise prohibited by the
Indenture 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 Dobson
or any Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or
(6) contained in the terms of
(a) the DOC Facility Agreement or the DCOC Facility Agreement, if the
encumbrances or restrictions that would prevent payments of dividends
or other distributions to Dobson to pay cash interest on the Exchange
Debentures applies on or prior to January 15, 2003, or applies
thereafter only in the event of an event of default (other than a
breach of a representation or warranty, but only if
- event of default is not a payment default, 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
- the financial covenants which create such encumbrance or
restriction on dividends or other distributions in the DOC Facility
Agreement or the DCOC Facility Agreement are no less favorable to
Dobson or its Subsidiaries than the financial covenants set forth
in the New DOC Facility Commitment Letter or the New DCOC Facility
Commitment Letter, respectively; or
(b) any Indebtedness or any agreement creating Indebtedness of a
Restricted Subsidiary, if:
- the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant
- Dobson determines the encumbrance or restriction is not materially
more disadvantageous to the Holders of the Exchange Debentures than
is customary in comparable financings, and
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- Dobson determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or
interest payments on the Exchange Debentures. Dobson and its
Restricted Subsidiaries are not precluded from
- creating, incurring, assuming or suffering to exist any Liens
otherwise permitted in the "Limitation on Liens" covenant, or
- restricting the sale or other disposition of property or assets of
Dobson or any of its Restricted Subsidiaries that secure
Indebtedness of Dobson or any of its Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Dobson and its Restricted Subsidiaries will not sell, directly or
indirectly, any shares of Capital Stock of a Restricted Subsidiary including
options, warrants or other rights to purchase shares of such Capital Stock
except
(1) to Dobson or a Wholly Owned Restricted Subsidiary;
(2) 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;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary,
but only if any Investment in such Person remaining after giving effect
to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant, if made on the date of such
issuance or sale; and
(4) sales of Common Stock of a Restricted Subsidiary but only if the assets
of such Restricted Subsidiary consist solely of assets relating to
Dobson's PCS or resale business and the Net Cash Proceeds, if any, of
such sale are applied in accordance with clause (A) or (B) of the
"Limitation on Asset Sales" covenant described below.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
Dobson and its Restricted Subsidiaries will not guarantee, directly or
indirectly, any Indebtedness of Dobson which ranks equally with or subordinate
in right of payment to the Exchange Debentures ("Guaranteed Indebtedness"),
unless
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Exchange Debenture Indenture providing for
a Guarantee (a "Subsidiary Guarantee") of payment of the Exchange
Debentures by such Restricted Subsidiary, and
(2) such Restricted Subsidiary waives, and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any
other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee. However, that this paragraph
shall not be applicable to any Guarantee of any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and
was not Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary. If the Guaranteed Indebtedness
(a) ranks equally with the Exchange Debentures, then the Guarantee of
such Guaranteed Indebtedness shall rank equally with, or be
subordinated to, the Subsidiary Guarantee, or
(b) is subordinated to the Exchange Debentures, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary
Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Exchange Debentures.
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Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon
(1) any sale, exchange or transfer, to any Person not an Affiliate of
Dobson, of all of Dobson's and each Restricted Subsidiary's Capital Stock
in, or all or substantially all the assets of, such Restricted
Subsidiary, which sale, exchange or transfer is not prohibited by the
Exchange Debenture Indenture, or
(2) the release or discharge of the Guarantee which resulted in the creation
of such Subsidiary Guarantee, except a discharge or release by or as a
result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES
Dobson and its Restricted Subsidiaries will not, directly or indirectly,
engage in 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 Dobson or with any Affiliate of Dobson or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to Dobson or
such Restricted Subsidiary than could be obtained, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The above limitation does not limit, and shall not apply to:
(1) transactions
(a) approved by a majority of the disinterested members of the Board of
Directors, or
(b) for which Dobson or a Restricted Subsidiary delivers to the Trustee a
written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to Dobson or such Restricted
Subsidiary from a financial point of view;
(2) any transaction solely between Dobson and any of its Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
Dobson who are not employees of Dobson;
(4) any payments or other transactions pursuant to any tax-sharing agreement
between Dobson and any other Person with which Dobson files a
consolidated tax return or with which Dobson is part of a consolidated
group for tax purposes; or
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this "Limitation on Transactions with
Stockholders and Affiliates" covenant and not covered by clauses (2)
through (5) of this paragraph, the aggregate amount of which exceeds $2
million in value, must be approved or determined to be fair by a majority
of the disinterested members of the Board of Directors.
LIMITATION ON ASSET SALES
Dobson and its Restricted Subsidiaries will not consummate any Asset Sale,
unless
(1) the consideration received by Dobson or such Restricted Subsidiary is at
least equal to the fair market value of the assets sold or disposed of
and
(2) at least 85% of the consideration received consists of cash or Temporary
Cash Investments.
In the event and to the extent that the Net Cash Proceeds received by Dobson
or any of its Restricted Subsidiaries from one or more Asset Sales occurring on
or after the Closing Date in any period of 12
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consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of Dobson and its subsidiaries has been
filed pursuant to the "Commission Reports and Reports to Holders" covenant),
then Dobson shall or shall cause the relevant Restricted Subsidiary to
(1) within 12 months after the date Net Cash Proceeds so received exceed 10%
of Adjusted Consolidated Net Tangible Assets
(a) apply an amount equal to such excess Net Cash Proceeds to permanently
repay Senior Indebtedness of Dobson or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant
described above or Indebtedness of any other Restricted Subsidiary,
in each case owing to a Person other than Dobson or any of its
Restricted Subsidiaries, or
(b) invest an equal amount, or the amount not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in
property or assets (other than current assets) of a nature or type or
that are used in a business (or in a company having property and
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 the
business of, Dobson and its Restricted Subsidiaries existing on the
date of such investment, and
(2) apply, no later than the end of the 12-month period referred to in
clause (1), such excess Net Cash Proceeds, (to the extent not applied
pursuant to clause (1)), as provided in the following paragraph of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied, or to be committed to be applied, during
such twelve-month period as set forth in clause (1) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, Dobson must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Exchange Debentures equal to the Excess Proceeds
on such date, at a purchase price equal to 101% of the principal amount thereof,
plus, in each case, accrued interest, if any, to the Payment Date.
LIMITATIONS ON SENIOR EXCHANGE DEBENTURES
We will not
- pay interest in cash on the Senior Exchange Debentures unless it will
contemporaneously pay interest in cash on the Exchange Debentures or
- redeem any Senior Exchange Debentures unless it will contemporaneously
redeem a pro rata portion of the Exchange Debentures.
REPURCHASE OF EXCHANGE DEBENTURES UPON A CHANGE OF CONTROL
We must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all Exchange Debentures then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest (if any) to the Payment Date.
There can be no assurance that we will have sufficient funds available at
the time of any Change of Control to make any debt payment (including
repurchases of Exchange Debentures) required by the foregoing covenant (as well
as may be contained in other securities of ours which might be outstanding at
the time). The above covenant requiring us to repurchase the Exchange Debentures
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would
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prohibit such Exchange Debenture repurchase, either prior to or concurrently
with such Exchange Debenture repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not we are required to file reports with the Commission, for so
long as any Exchange Debentures are outstanding, we will 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. We shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the Exchange
Debenture Indenture:
(1) default in the payment of principal of (or premium, if any, on) any
Exchange Debenture when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise, whether or not such payment
is prohibited by the provisions described above under "--Ranking";
(2) default in the payment of interest on any Exchange Debenture when the
same becomes due and payable, and such default continues for a period of
30 days, whether or not such payment is prohibited by the provisions
described above under "--Ranking";
(3) default in the performance or breach of the provisions of the Exchange
Debenture Indenture applicable to mergers, consolidations and transfers
of all or substantially all of the assets of Dobson or the failure to
make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or "Repurchase of Exchange Debentures upon a
Change of Control" covenant;
(4) Dobson defaults in the performance of or breaches any other covenant or
agreement of Dobson in the Exchange Debenture Indenture or under the
Exchange Debentures (other than a default specified in clause (1), (2) or
(3) above) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of
25% or more in aggregate principal amount of the Exchange Debentures;
(5) there occurs with respect to any issue or issues of Indebtedness of
Dobson or any Significant Subsidiary having an outstanding principal
amount of $10 million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created,
- 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
- 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;
(6) any final judgment or order (not covered by insurance) for the payment
of money in excess of $10 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against
Dobson or any Significant Subsidiary and shall not be paid or discharged,
and there shall be any period of 30 consecutive days following entry of
the final judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
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(7) a court having jurisdiction in the premises enters a decree or order for
- relief in respect of Dobson or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect,
- appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of Dobson or any
Significant Subsidiary or for all or substantially all of the
property and assets of Dobson or any Significant Subsidiary, or
- the winding up or liquidation of the affairs of Dobson or any
Significant Subsidiary and, in each case, such decree or order
shall remain unstayed and in effect for a period of 30 consecutive
days; or
(8) Dobson or any Significant Subsidiary
- commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case
under any such law,
- consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of Dobson or any Significant Subsidiary or for all or
substantially all of the property and assets of Dobson or any
Significant Subsidiary, or
- effects any general assignment for the benefit of creditors.
If an Event of Default, other than an Event of Default specified in clause
(7) or (8) above that occurs with respect to Dobson, occurs and is continuing
under the Exchange Debenture Indenture, the Trustee or the Holders of at least
25% in aggregate principal amount of the Exchange Debentures, then outstanding,
by written notice to Dobson (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare the
principal of, premium, if any, and accrued interest on the Exchange Debentures
to be immediately due and payable. Upon a declaration of acceleration, such
principal of, premium, if any, and accrued interest shall be immediately due and
payable on the condition that so long as the DOC Facility Agreement and the DCOC
Facility Agreement are in effect, such declaration shall not become effective
until the earlier of
(1) five Business Days after the receipt of the acceleration notice by the
agents thereunder and Dobson, and
(2) acceleration of the Indebtedness under either the DOC Facility Agreement
or the DCOC Facility Agreement. In the event of a declaration of
acceleration because an Event of Default set forth in clause (5) above
has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering
such Event of Default pursuant to clause (5) shall be remedied or cured
by Dobson or the relevant Significant Subsidiary or waived by the holders
of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto.
If an Event of Default specified in clause (7) or (8) above occurs with
respect to Dobson, the principal of, premium, if any, and accrued interest on
the Exchange Debentures then outstanding shall automatically become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. At any time after declaration of acceleration, but
before a judgment or decree for the payment of the money due has been obtained
by the Trustee, the Holders of at least a majority in principal amount of the
outstanding Exchange Debentures by written notice to Dobson and to the Trustee,
may waive all past defaults and rescind and annul a declaration of acceleration
and its consequences if
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Exchange Debentures
that have become due solely by such declaration of acceleration, have
been cured or waived and
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(2) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction. For information as to the waiver of defaults,
see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Exchange Debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or the Exchange Debenture
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Exchange Debentures not joining in the giving of such direction and
may take any other action it deems proper that is not inconsistent with any such
direction received from Holders of Exchange Debentures. A Holder may not pursue
any remedy with respect to the Exchange Debenture Indenture or the Exchange
Debentures unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of outstanding
Exchange Debentures make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding Exchange Debentures do not give the
Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a Exchange
Debenture to receive payment of the principal of, premium, if any, or
interest on, such Exchange Debenture or to bring suit for the enforcement
of any such payment, on or after the due date expressed in the Exchange
Debentures, which right shall not be impaired or affected without the
consent of the Holder.
If a bankruptcy case is commenced by or against Dobson under the U.S.
Bankruptcy Code after the issuance of the Exchange Debentures, the claim of a
holder with respect to the principal amount thereof may be limited to an amount
equal to the sum of
(1) the initial price of the Exchange Debentures and
(2) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code.
Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."
The Exchange Debenture Indenture requires certain officers of Dobson to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of Dobson and its
Restricted Subsidiaries and Dobson's and its Restricted Subsidiaries'
performance under the Exchange Debenture Indenture and that Dobson has fulfilled
all obligations thereunder, or, if there has been a default in the fulfillment
of any such obligation, specifying each such default and the nature and status
thereof. Dobson will also be obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the Exchange
Debenture Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Dobson will not consolidate or merge with, or sell, convey, transfer, lease
or otherwise dispose of all or substantially all of its property and assets in
one transaction or a series of related transactions to any Person or permit any
Person to merge with or into Dobson unless:
(1) Dobson shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which Dobson is merged or
that acquired or leased such property and
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assets of Dobson shall be a corporation organized and validly existing
under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed
and delivered to the Trustee, all of the obligations of Dobson on all of
the Exchange Debentures and under the Exchange Debenture Indenture;
(2) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, Dobson or any Person becoming the successor obligor of the
Exchange Debentures shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of Dobson immediately prior to
such transaction;
(4) immediately after giving effect to such transaction on a pro forma basis
Dobson, or any Person becoming the successor obligor of the Exchange
Debentures, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant; on the condition that this clause (4) shall not
apply to a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth. However, in connection with any
such merger or consolidation, no consideration, other than Common Stock
in the surviving Person or Dobson, shall be issued or distributed to the
stockholders of Dobson; and
(5) Dobson delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (3) and
(4) above) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with. However
clauses (3) and (4) above will not apply if, in the good faith
determination of the Board of Directors of Dobson, whose determination
shall be evidenced by a Board Resolution, the principal purpose of the
transaction is to change the state of incorporation of Dobson and the
transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Exchange Debenture Indenture provides that
Dobson will be deemed to have paid and will be discharged from any and all
obligations in respect of the Exchange Debentures on the 123rd day after the
deposit referred to below, and the provisions of the Exchange Debenture
Indenture will no longer be in effect with respect to the Exchange Debentures
(except for, among other matters, certain obligations to register the transfer
or exchange of the Exchange Debentures, to replace stolen, lost or mutilated
Exchange Debentures, to maintain paying agencies and to hold monies for payment
in trust) if, among other things,
(1) Dobson has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in
an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Exchange Debentures on the Stated Maturity of
such payments in accordance with the terms of the Exchange Debenture
Indenture and the Exchange Debentures,
(2) Dobson has delivered to the Trustee
(a) either
- an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of
Dobson's exercise of its option under this "Defeasance" provision
and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based
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upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change
in applicable federal income tax law after the Closing Date such
that a ruling is no longer required or
- a ruling directed to the Trustee received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of Counsel
and
(b) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940
and after the passage of 123 days following the deposit (except with
respect to any trust funds for the account of any Holder who may be
deemed an "insider" for purposes of the United States Bankruptcy
Code, after one year following the deposit); the trust funds will not
be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law,
(3) immediately after giving effect to such deposit on a pro forma basis, no
Default or Event of Default shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the
date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which Dobson or any of its Subsidiaries is a party or by which
Dobson or any of its Subsidiaries is bound,
(4) Dobson is not prohibited from making payments in respect of the Exchange
Debentures by the provisions described above under "--Ranking" and
(5) if at such time the Exchange Debentures are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the Exchange Debentures will not be delisted as a result of
such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The Exchange
Debenture Indenture further provides that the provisions of the Exchange
Debenture Indenture will no longer be in effect with respect to clauses (3) and
(4) under "Consolidation, Merger and Sale of Assets" and all the covenants
described herein under "Covenants," clauses (3) and (4) under "Events of
Default" with respect to such clauses (3) and (4) under "Consolidation, Merger
and Sale of Assets" and such covenants and clauses (5) and (6) under "Events of
Default" shall be deemed not to be Events of Default, upon, among other things,
the deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Exchange Debentures on the Stated Maturity of such payments in accordance with
the terms of the Exchange Debenture Indenture and the Exchange Debentures, the
satisfaction of the provisions described in clauses (B)(2), (C), (D) and (E) of
the preceding paragraph and the delivery by Dobson to the Trustee of an Opinion
of Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event Dobson
exercises its option to omit compliance with certain covenants and provisions of
the Exchange Debenture Indenture with respect to the Exchange Debentures as
described in the immediately preceding paragraphs and the Exchange Debentures
are declared due and payable because of the occurrence of an Event of Default
that remains applicable, the amount of money and/or U.S. Government Obligations
on deposit with the Trustee will be sufficient to pay amounts due on the
Exchange Debentures at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Exchange Debentures at the time of the
acceleration resulting from such Event of Default. However, Dobson will remain
liable for such payments.
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MODIFICATION AND WAIVER
Modifications and amendments of the Exchange Debenture Indenture may be made
by Dobson and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding Exchange Debentures.
However, no such modification or amendment may, without the consent of each
holder affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Exchange Debenture,
(2) reduce the principal amount of, premium, if any, or interest on, any
Exchange Debenture,
(3) change the place or currency of payment of principal of premium, if any,
or interest on, any Exchange Debenture,
(4) impair the right to institute suit for the enforcement of any payment on
or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any Exchange Debenture,
(5) modify the subordination provisions in a manner adverse to the holders
in any material respect,
(6) reduce the above-stated percentage of outstanding Exchange Debentures
the consent of whose holders is necessary to modify or amend the Exchange
Debenture Indenture,
(7) waive a default in the payment of principal of, premium, if any, or
interest on, the Exchange Debentures,
(8) modify any of the provisions of the Exchange Debenture Indenture
described under "--Ranking" in a manner adverse to the Holders, or
(9) reduce the percentage of aggregate principal amount of outstanding
Exchange Debentures the consent of whose holders is necessary for waiver
of compliance with certain provisions of the Exchange Debenture Indenture
or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Exchange Debenture Indenture will provide that no recourse for the
payment of the principal of, premium, if any, or interest on, any of the
Exchange Debentures, or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
Dobson contained in the exchange Indenture or in any of the Exchange Debentures,
or because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator or past, present or future shareholder, officer,
director, employee or controlling person of Dobson. Each holder, by accepting
such Exchange Debenture, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Exchange Debenture Indenture provides that, except during the
continuance of an Event of Default, the Trustee will perform only such duties as
are specifically set forth in the Exchange Debenture Indenture. If an Event of
Default has occurred and is continuing, the Trustee will exercise those rights
and powers vested in it under such Exchange Debenture Indenture and use the same
degree of care and skill in its exercise of such rights and powers as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Exchange Debenture Indenture and provisions of the Trust Indenture Act
of 1939, as amended, incorporated by reference in the Exchange Debenture
Indenture, contain limitations on the rights of the Trustee thereunder, should
it become a creditor of Dobson, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engaged in other
transactions. However, if the Trustee acquires any conflicting interest, it must
eliminate such conflict or resign.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
DOBSON/SYGNET CREDIT FACILITIES
The Dobson/Sygnet Credit Facilities provided by NationsBank, as Agent,
include a $50.0 million senior secured, reducing revolving credit facility (the
"Revolving Credit Facility") and a series of three term loans aggregating $380.0
million ("Term Loan Facilities") to be used by Dobson/Sygnet for permitted
acquisitions, restricted payments, the Sygnet acquisition, to refinance Sygnet's
existing indebtedness and to fund, capital expenditures, permitted investments,
working capital and other corporate purposes.
The following summary of the material provisions of the Dobson/Sygnet Credit
Facilities does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the definitive loan documentation. Capitalized
terms that are used but not defined in this section have the meanings that are
given such terms in the Commitment Letter.
The Dobson/Sygnet Credit Facilities aggregate $430.0 million and include
- a $50.0 million, 7 3/4 year reducing revolving credit facility,
- a $125.0 million, 7 3/4 year term loan ("Term Loan A"),
- a $155.0 million, 8 1/4 year term loan ("Term Loan B"), and
- a $100.0 million, 9 year term loan ("Term Loan C").
Borrowings under the Revolving Credit Facility and Term Loans A and B bear
interest payable at least quarterly, at Sygnet's option, at
(1) the "Applicable Margin" plus the greater of
- the Federal Funds Effective Rate plus 0.5%, and
- the prime rate (the "Base Rate"), or
(2) the "Applicable Margin" plus Reserve Adjusted LIBOR ("LIBOR") for
interest periods of 1, 2, 3 or 6 months.
The "Applicable Margin" for the Revolving Credit Facility and Term Loan A
fluctuates based on Sygnet's leverage and is the Base Rate plus 0.75% to 2.00%
or LIBOR plus 1.75% to 3.00%. For Term Loan B, the "Applicable Margin"
fluctuates based on Sygnet's leverage and is the Base Rate plus 1.75% to 2.25%
or LIBOR plus 2.75% to 3.25%. Term Loan C bears interest at LIBOR plus 3.75% for
interest periods of 1, 2, 3 or 6 months.
Commencing with the quarter ending December 31, 2000, the borrowing
commitment 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>
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Commencing with the quarter ending December 31, 2000, 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>
The commitments under the Dobson/Sygnet Credit Facilities will be
permanently reduced by:
- 100% of the net cash proceeds from sales of assets in excess of $5.0
million to the extent not reinvested within 12 months,
- an amount equal to 100% of the net cash proceeds received from certain
equity or debt issuances, and
- 75% or 50% of excess cash flow, depending on Sygnet's leverage.
In addition, to the extent amounts have been borrowed in respect of the
Tower Sale Leaseback, such amounts shall be repaid with the net proceeds
therefrom and the commitments under each of Term Loan A and Term Loan B will
decrease by $10.0 million.
We may, without premium or penalty, prepay advances bearing interest based
on the Base Rate at any time and may, without premium or penalty, prepay
advances bearing interest based on the LIBOR rate at the end of an applicable
interest period. Term Loan C may be redeemed in whole or in part at 102% of the
principal amount through December 31, 1999, 101% of the principal amount through
December 31, 2001 and thereafter at 100%.
The Dobson/Sygnet Credit Facilities contain a number of covenants including,
among others, covenants limiting the ability of Sygnet and each of its
subsidiaries to incur debt, make loans, create liens, make guarantees and
investments, change their business, engage in transactions with affiliates, sell
assets, enter into restrictive agreements, engage in sale leaseback transactions
or new business and engage in mergers and acquisitions. The Dobson/Sygnet Credit
Facilities contain other usual and customary negative and affirmative covenants,
including Year 2000 compliance.
The Dobson/Sygnet Credit Facilities restrict Sygnet from declaring and
paying distributions or making restrictive payments. However, Sygnet will be
permitted to pay dividends to pay
- scheduled interest on the Dobson/Sygnet Notes commencing after the first
six interest payments on the Dobson/Sygnet Notes, and
- regularly scheduled payments on up to $120,000,000 in liquidation
preference value of our preferred stock, commencing January 15, 2003,
in each case unless if at the time of such dividend or distribution an event of
default, other than an event of default resulting solely from the breach of a
representation or warranty, exists or would be caused by such
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dividend or distribution. However, with respect to any event of default other
than a payment default, a bankruptcy event with respect to Sygnet or us or any
of our respective restricted subsidiaries or the loss of a material license or
cellular system, Sygnet's subsidiary will not be prohibited from paying
dividends to Dobson/Sygnet to pay scheduled interest on the Dobson/Sygnet Notes
for more than 180 days.
Sygnet is required to comply with certain financial tests and maintain
certain financial ratios, including, among others, a requirement that
(1) Sygnet's ratio of total debt to operating cash flow may not exceed
- 7.60 to 1 until June 20, 1999
- 7.25 to 1 from July 1, 1999 to December 31, 1999
- 6.75 to 1 from January 1, 2000 to June 30, 2000
- 6.00 to 1 from July 1, 2000 to December 31, 2000
- 5.50 to 1 from January 1, 2001 to December 31, 2001
- 4.50 to 1 from January 1, 2002 to December 31, 2002
- 3.50 to 1 from January 1, 2003 and thereafter
(2) Sygnet's ratio of operating cash flow to its pro forma debt service must
equal or exceed 1.10 to 1
(3) Sygnet's ratio of operating cash flow to its cash interest expense for its
for most recently ended fiscal quarters must be more than
- 1.25 to 1 until December 31, 1999
- 1.50 to 1 from January 1, 2000 to December 31, 2000
- 1.75 to 1 from January 1, 2001 and thereafter
(4) Sygnet's fixed charge coverage ratio on the last day of each fiscal quarter
must be greater than 1.00 to 1
In addition, the Dobson/Sygnet Credit Facilities require both Sygnet and us
to maintain a ratio of debt to operating cash flow. We and Sygnet believe that
we have maintained all of the above required ratios.
Failure to satisfy any of the financial covenants will constitute an Event
of Default under the Dobson/ Sygnet Credit Facilities, permitting the lenders,
after notice, to terminate the commitment and/or accelerate payment of
outstanding indebtedness notwithstanding the ability of Sygnet to meet its debt
service obligations. The Dobson/Sygnet Credit Facilities include other customary
events of default including, without limitation,
- loss of franchise or any material license;
- breach of representations, warranties and covenants;
- insolvency or bankruptcy of Sygnet or any of its subsidiaries or of us or
any of our subsidiaries;
- cross default to other material indebtedness, leases, contracts of Sygnet,
its subsidiaries, or of us and our subsidiaries (excluding Logix);
- any material adverse change; dissolution or termination of Sygnet or any
of its subsidiaries or of us;
- if we fail to maintain direct voting and economic control of Sygnet and
its subsidiaries; and
- if less than two-thirds of our existing executive management team
continues to hold executive positions with us.
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Sygnet's obligations under the Dobson/Sygnet Credit Facilities are
guaranteed by its subsidiary. Borrowings under the Dobson/Sygnet Credit
Facilities are secured by a first perfected security interest in all assets of
Sygnet and its present and future subsidiaries including a pledge of all
intercompany notes.
TOWER CREDIT FACILITY
Dobson Tower obtained a $17.5 million term loan (the "Tower Credit
Facility"), which is secured by all assets of Dobson Tower. The Tower Credit
Facility matures on December 22, 1999 and bears interest at a fixed rate of 8.0%
per annum. The terms of the Tower Credit Facility require, among other things,
that Dobson Tower provide to the lender an executed contract with a third party
acceptable to the lenders providing for the sale of the towers by June 23, 1999.
THE DOC CREDIT FACILITY
Our DOC Credit Facility is a $250.0 million senior secured revolving credit
facility with NationsBank and certain other lenders. The following summary of
the material provisions of the DOC Credit Facility does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the DOC Credit Facility. Capitalized terms that are used but not defined in this
section have the meanings that are given such terms in the DOC loan agreement.
The DOC Credit Facility matures on June 30, 2006. Borrowings under the DOC
Credit Facility bear interest, payable at least quarterly, at DOC's option, at
an annual rate equal to either
(1) the greater of
- the federal funds rate plus 1/2% and
- the prime rate of NationsBank, plus in each case a percentage per annum
ranging from 0% to 1(1)%, or
(2) a LIBOR-based rate plus a percentage per annum ranging from 1% to
2 1/4%. The amount of additional interest applicable to either option is based
on Dobson's quarterly Total Leverage Ratio.
In the event DOC's Senior Leverage Ratio is greater than 5.0 to 1, the
additional interest applicable to either option will be increased by .125%. We
believe we have maintained the required Senior Leverage Ratio.
Commencing with the quarter ending June 30, 2000, the borrowing commitment
under the DOC Credit Facility will reduce quarterly in percentage increments of
3.33% for the three quarters ending December 31, 2000,
- 3.75% for the eight quarters ending December 31, 2002,
- 4.375% for the eight quarters ending December 31, 2004,
- 3.75% for the four quarters ending December 31, 2005, and
- 5% for the two quarters ending June 30, 2006.
A mandatory prepayment and reduction of the borrowing commitment will be
required at the time of, and in an amount equal to 100% of the net proceeds
from, certain sales of material assets of DOC and its Restricted Subsidiaries
and in connection with the incurrence of certain indebtedness by DOC. In
addition, if DOC's Senior Leverage Ratio is greater than 5.5 to 1, the proceeds
from any issuance of unsecured indebtedness by us must be used to repay
borrowings under the DOC Credit Facility and reduce the borrowing commitment
thereunder.
The DOC Credit Facility contains a number of covenants including, among
others, covenants limiting the ability of DOC and DOC's Restricted Subsidiaries
and us to incur debt, make loans or guarantees,
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create liens, pay dividends, make distributions or stock repurchases, make
investments, enter into sale and lease-back transactions, change their business,
sell assets, engage in mergers and acquisitions and enter into transactions with
affiliates. Acquisitions must be limited to the domestic cellular industry and
approval of the lenders is required for any acquisition in excess of $75.0
million, if our Total Leverage Ratio (including all of our Subsidiaries) is
greater than 8.5 to 1 (giving pro forma effect to the acquisition). The DOC
Credit Facility contains other customary affirmative covenants.
The DOC Credit Facility restricts DOC from declaring and paying dividends or
distributions, including dividends to pay cash dividends on the Senior Preferred
Stock and the Preferred Stock and to pay scheduled interest on the Senior Notes
and, if issued, the Exchange Debentures and the Senior Exchange Debentures.
However, DOC is permitted to pay dividends or distributions to us to pay cash
dividends on the Senior Preferred Stock (or interest on the Senior Exchange
Debentures and the Exchange Debentures, if issued) after January 15, 2003, and
scheduled interest on the Senior Notes commencing after the first four interest
payments on the Senior Notes, unless at the time of such dividend or
distribution an event of default (other than an event of default resulting
solely from the breach of a representation or warranty) exists or would be
caused by such dividend or distribution. However, with respect to any event of
default (other than a payment default (including by way of acceleration), a
bankruptcy event with respect to DOC or us, or the loss of a material license or
cellular system), DOC will not be prohibited from paying dividends to us to pay
scheduled interest on the Senior Notes or Senior Exchange Debentures if issued,
or dividends on the Senior Preferred Stock for more than 180 days. In addition,
DOC may pay dividends to us up to $7.5 million per year, not to exceed $25.0
million in the aggregate when DOC's Senior Leverage Ratio is less than 6.5 to 1
(giving pro forma effect to the payment). However, to the extent funds are
contributed to DOC in the form of equity or unsecured subordinated loans, the
amount of dividends DOC may pay to us may be increased by the amount so
contributed, but in no event not to exceed $25 million per year and $50 million
in the aggregate, without regard to DOC's Senior Leverage Ratio.
We are required to comply with certain financial tests and maintain certain
financial ratios, including, among others, a requirement that
(1) DOC's Senior Leverage Ratio not exceed
- 6.5 to 1 from July 1 to December 31, 1998,
- 6.25 to 1 from January 1 to June 30, 1999,
- 6.0 to 1 from July 1 to December 31, 1999,
- 5.5 to 1 from January 1 to June 30, 2000,
- 5.0 to 1 from July 1 to December 31, 2000, and
- 4.5 to 1 from January 1, 2001 and thereafter,
(2) the ratio of DOC's Operating Cash Flow to its Pro Forma Debt Service
exceed 1.15 to 1;
(3) the ratio of DOC's Operating Cash Flow to its Cash Interest Expense
(with an add-back for escrowed interest payments on the Senior Notes) for
the most recently ended four quarters exceed 2.0 to 1;
(4) DOC's Fixed Charge Coverage Ratio be greater than 1.0 to 1;
(5) the Company's Total Leverage Ratio not exceed
- 9.5 to 1 through June 30, 1998,
- 9.0 to 1 from July 1 to December 31, 1998,
- 8.5 to 1 from January 1 to June 30, 1999,
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- 8.0 to 1 from July 1 to December 31, 1999,
- 7.0 to 1 from January 1 to June 30, 2000,
- 6.0 to 1 from July 1 to December 31, 2000, and
- 5.0 to 1 from January 1, 2001 and thereafter; and
(6) Dobson's Consolidated Operating Cash Flow to its Consolidated Interest
Expense for the most recently ended four quarters exceed 1.25 to 1.
We believe we have complied with all required financial tests and we believe
that we have maintained all required financial ratios.
For purposes of the financial covenants, "Operating Cash Flow" for DOC is
- Operating Cash Flow of DOC and its Restricted Subsidiaries, including
certain cash flows of the "Cellular Operating Partnerships" which are
Oklahoma RSA 5 Limited Partnership, Oklahoma RSA 7 Limited Partnership,
Texas RSA No. 2 Limited Partnership, Gila River Cellular General
Partnership and any other entity in which DOC or one of its Restricted
Subsidiaries owns a partnership interest and serves as the managing
general partner, multiplied by
- DOC's ownership interest in the partnerships,
except if DOC provides financing to any of the Cellular Operating Partnerships
that are not 100% owned by DOC, 100% of the Operating Cash Flow of the
partnership will be included in the definition of DOC's Operating Cash Flow, and
for us is defined as our Operating Cash Flow together with that of our
Restricted Subsidiaries, in each case for the four most recently completed
quarters. "Operating Cash Flow" for any period is
- the sum of pre-tax income, without giving effect to extraordinary losses
or gains, interest, depreciation and amortization expenses and non-cash
charges, minus
- interest and dividend income, reductions in deferred taxes and other
non-cash components of income.
"Total Debt" of DOC and its Restricted Subsidiaries is the sum of all
obligations for borrowed money, all payments required under non-compete
agreements, capital lease obligations, amounts required under installment sale
purchases, all financial obligations of others guaranteed by DOC, and any
amounts for which DOC is contingently liable to provide as equity or debt
advances to other parties, but does not include intercompany subordinated debt
owed by DOC to us or to any of our subsidiaries not owned by DOC. "Total Debt"
of our Restricted Subsidiaries and us is the sum of
- all obligations for borrowed money (less the amount escrowed for interest
payments on the Senior Notes),
- all payments required under noncompete agreements,
- capital lease obligations,
- amounts required under installment sale purchases,
- all financial obligations of others guaranteed, and
- any amounts for which we and any of our Restricted Subsidiaries are
contingently liable to provide as equity or debt advances to other
parties.
At such time as the Senior Preferred Stock is exchanged for Senior Exchange
Debentures, the obligations under the Senior Exchange Debentures will be
included in the calculation of Total Debt.
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"Pro Forma Debt Service" is the sum of Pro Forma Interest Expense and
payments scheduled to be made on Total Debt for the succeeding twelve months.
"Pro Forma Interest Expense" is the result obtained by multiplying the
average debt outstanding during the period by the interest rate in effect at the
time of calculation.
"Fixed Charge Coverage Ratio" is defined as the ratio of
- the Operating Cash Flow of DOC for the most recently ended four quarters
to
- the sum of all payments of DOC's Total Debt required to be paid, cash
interest expense and capital expenditures of DOC, cash taxes, and
distributions and dividends paid by DOC, in each case for the most
recently ended four quarters.
DOC's "Senior Leverage Ratio" is defined as the ratio of Total Debt of DOC
and its Restricted Subsidiaries to Operating Cash Flow of DOC and its Restricted
Subsidiaries.
Our "Total Leverage Ratio" is the ratio of our Total Debt to our Operating
Cash Flow.
"Restricted Subsidiaries" include Dobson Cellular of Arizona, Inc., Dobson
Cellular of Enid, Inc., Dobson Cellular of Kansas/Missouri, Inc., Dobson
Cellular of Maryland, Inc., Dobson Cellular of Woodward, Inc. and Dobson
Cellular Systems, Inc. and its subsidiaries.
Failure to satisfy any of the financial covenants will constitute an Event
of Default under the DOC Credit Facility, permitting the lenders, after notice,
to terminate this commitment and/or accelerate payment of outstanding
indebtedness notwithstanding our ability to meet our debt service obligations.
The DOC Credit Facility also includes other customary events of default,
including, without limitation, a cross-default to other indebtedness, loss of
any material license, material adverse change, bankruptcy and change of control.
In addition, the definition of events of default includes the loss of Everett R.
Dobson as part of the senior management team.
We have guaranteed DOC's obligations under the DOC Credit Facility as have
DOC's Restricted Subsidiaries. Borrowings under the DOC Facility are secured by
all assets of DOC and its present and future subsidiaries, and by a pledge of
the stock of DOC and the stock of and partnership interests in its Restricted
Subsidiaries.
THE DCOC CREDIT FACILITY
The DCOC Credit Facility is a $200.0 million senior secured revolving credit
facility with NationsBank and certain other lenders, under which such lenders
provided funds to DCOC to finance the Texas 16 and California 4 Acquisitions and
have agreed to provide additional funds to finance other acquisitions, capital
expenditures, permitted investments and restricted payments and for general
corporate purposes of DCOC and its subsidiaries. The following summary of the
material provisions of the DCOC Credit Facility does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the DCOC
Credit Facility loan agreement. Capitalized terms that are used but not defined
in this section have the meanings that are given such terms in the DCOC Credit
Facility loan agreement.
The DCOC Credit Facility includes
- a $120 million, eight and one-half year reducing revolving credit
facility, and
- an $80 million 364-day revolving credit facility which, at DCOC's option,
may be converted into a term loan maturing no later than eight and
one-half years from the closing date of the New Credit Facilities or, with
the consent of the lenders, may be renewed for an additional 364-day
period.
In addition, the DCOC Credit Facility loan agreement contemplates an
additional $75 million revolving credit facility may be established in the
future, although the lenders will have no obligation to
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provide such additional financing. The uncommitted acquisition revolver facility
may not be established unless two-thirds of the commitment amount under the
committed facilities is outstanding.
The facilities comprising the DCOC Credit Facility will mature on June 30,
2006. Borrowings under the DCOC Credit Facility bear interest, payable at least
quarterly, at DCOC's option, at an annual rate equal to either
(1) the greater of
- the federal funds rate plus 1/2%, and
- the prime rate of NationsBank,
plus in each case a percentage per annum ranging from 1/8% to 1 3/8%, or
(2) a LIBOR-based rate plus a percentage per annum ranging from 1 1/8% to
2 3/8%.
The amount of additional interest applicable to either option is based on DCOC's
Leverage Ratio.
Commencing with the quarter ending June 30, 2000, we must reduce the
borrowing commitment under the DCOC Credit Facility in percentage increments of
- 3.33% for the three quarters ending December 31, 2000,
- 3.75% for the eight quarters ending December 31, 2002,
- 4.375% for the eight quarters ending December 31, 2004,
- 3.75% for the four quarters ending December 31, 2005 and
- 5% for the two quarters ending June 30, 2006.
A mandatory prepayment and reduction of the borrowing commitment will be
required at the time, and in an amount equal to 100% of the net proceeds from
certain sales of material assets of DCOC and its subsidiaries and the issuance
of certain indebtedness by DCOC.
The DCOC Credit Facility contains a number of covenants including, among
others, covenants limiting the ability of DCOC and its subsidiaries to incur
debt, make loans or guarantees, create liens, pay dividends, make distributions
or stock repurchases, make investments, enter into sale and lease-back
transactions, change their business, sell, exchange, lease or otherwise dispose
of assets, engage in mergers, make acquisitions and enter into transactions with
affiliates. Approval of the lenders is required for any acquisition in excess of
$75 million when our Total Leverage Ratio (including Restricted and Unrestricted
Subsidiaries) is greater than 8.5 to 1 (giving pro forma effect to the
acquisition). For 1998, DCOC's capital expenditures will be limited to 110% of
its capital expenditures budget for such period. The DCOC Credit Facility
contains other covenants customary for similar credit facilities.
The DCOC Credit Facility prohibits distributions or restricted payments,
except that, after giving pro forma effect to any such distribution or payment,
when DCOC's Leverage Ratio is less than 5.0 to 1, payments may be made with up
to 100% of Free Cash Flow and when DCOC's Leverage Ratio is greater than or
equal to 5.0 to 1, payments may be made with up to 50% of Free Cash Flow. In
addition, the DCOC Facility restricts DCOC from declaring and paying dividends
or distributions, including dividends to pay cash dividends on the Senior
Preferred Stock and the Preferred Stock and to pay scheduled interest on the
Senior Notes and, if issued, the Senior Exchange Debentures and the Exchange
Debentures. However, after January 15, 2003 DCOC will be permitted to pay
dividends or distributions to us to pay cash dividends on the Senior Preferred
Stock and the Preferred Stock and scheduled interest on the Senior Exchange
Debentures and the Exchange Debentures, if issued, unless at the time of such
dividend or distribution an event of default, other than an event of default
resulting solely from the breach of a representation or warranty, exists or
would be caused by such dividend or distribution. However, with respect to any
event of default, other than a payment default, a bankruptcy event with respect
to the
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Company or DCOC or the loss of a material license or cellular system, DCOC will
not be prohibited from paying dividends to us to pay dividends on the Senior
Preferred Stock and the Preferred Stock or scheduled interest on the Senior
Exchange Debentures and the Exchange Debentures, if issued, for more than 180
days.
DCOC is required to comply with certain financial tests and maintain certain
financial ratios, including, among others, a requirement that
(1) DCOC's Leverage Ratio not exceed
- 7.5 to 1 through September 30, 1998,
- 7.0 to 1 from October 1, 1998 to June 30, 1999,
- 6.5 to 1 from July 1 to December 31, 1999,
- 5.5 to 1 from January 1 to December 31, 2000, and
- 4.5 to 1 from January 1, 2001 and thereafter.
When Operating Cash Flow for the most recently ended four quarters exceeds $20.0
million, the applicable ratios range from 8.0 to 1 for the first period to 5.0
to 1 for the last period and when Operating Cash Flow for the most recently
ended four quarters exceeds $25 million, the applicable ratios range from 8.5 to
1 for the first period to 5.5 to 1 for the last period;
(2) the ratio of DCOC's Operating Cash Flow to its Pro Forma Debt Service
shall exceed 1.25 to 1;
(3) the ratio of DCOC's Operating Cash Flow to its Cash Interest Expense for
the most recently ended four quarters exceed 1.75 to 1 until December 31, 1998
and 2.0 to 1 thereafter; and
(4) the Fixed Charge Coverage Ratio be greater than 1.0 to 1.
We believe that DCOC has complied with all financial tests and has
maintained all required financial ratios.
For purposes of the financial covenants, "Operating Cash Flow" for DCOC
includes the Operating Cash Flow of any "Cellular Operating Partnership" which
includes any entity in which DCOC or one of its subsidiaries owns a partnership
interest or serves as the managing general partner multiplied by DCOC's
ownership interest in the partnership. If DCOC provides financing to any of the
Cellular Operating Partnerships that are not 100% owned by DCOC, 100% of the
Operating Cash Flow of the partnership will be included in DCOC's Operating Cash
Flow.
Our "Operating Cash Flow" includes the Operating Cash Flow of our Restricted
Subsidiaries and us.
"Operating Cash Flow" for any period is defined as
(1) the sum of pre-tax income, without giving effect to any extraordinary
losses or gains, interest, depreciation and amortization expenses and
non-cash charges, minus
(2) interest and dividend income, reductions in deferred taxes and other
non-cash components of income.
"Total Debt" of DCOC is the sum of
- all obligations of DCOC and its subsidiaries for borrowed money,
- all payments required under non-compete agreements, capital lease
obligations,
- amounts required under installment sale purchases,
- all financial obligations of others guaranteed by DCOC, and
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- any amounts for which DCOC is contingently liable to provide as equity or
debt advances to other parties.
"Total Debt" does not include intercompany subordinated debt owed by DCOC to
us.
"Total Debt" of our Restricted Subsidiaries and us is the sum of
- all obligations for borrowed money (less the amount escrowed for interest
payments on the Senior Notes),
- all payments required under noncompete agreements,
- capital lease obligations,
- amounts required under installment sale purchases,
- all financial obligations of others guaranteed, and,
- any amounts for which we and any of our Restricted Subsidiaries are
contingently liable to provide as equity or debt advances to other
parties.
At such time as the Senior Preferred Stock and the Preferred Stock are exchanged
for the Senior Exchange Debentures and the Exchange Debentures, the obligations
under the Exchange Debentures will be included in the calculation of Total Debt.
"Pro Forma Debt Service" is the sum of Pro Forma Interest Expense and
payments scheduled to be made on DCOC's Total Debt for the succeeding twelve
months.
"Pro Forma Interest Expense" is the result obtained by multiplying
- the sum of (a) DCOC's Total Debt at the beginning of the period plus (b)
such Total Debt minus payments scheduled to be made thereon during the
period, divided by two by
- the interest rate in effect at the time of calculation.
"Fixed Charge Coverage Ratio" is the ratio of
- DCOC's Operating Cash Flow for the most recently ended four quarters to
- the sum of all payments on DCOC's Total Debt required to be paid, its cash
interest expense, capital expenditures, and cash taxes, and distributions
and dividends paid by DCOC, in each case for the most recently ended four
quarters.
"Free Cash Flow" is the Operating Cash Flow for any fiscal year less
- cash taxes,
- required principal and interest payments on all debt for such fiscal year,
- capital expenditures, and
- $2.5 million.
DCOC's "Leverage Ratio" is the ratio of its Total Debt to its Operating Cash
Flow. Dobson's "Total Leverage Ratio" is defined as the ratio of its Total Debt
to its Operating Cash Flow.
Failure to satisfy any of the financial covenants will constitute an Event
of Default under the DCOC Credit Facility, permitting the lenders, after notice,
to terminate the commitment and/or accelerate payment of outstanding
indebtedness notwithstanding our ability to meet our debt service obligations.
The DCOC Credit Facility includes other customary events of default, including,
without limitation, a cross-default to other material indebtedness, loss of any
material license, material adverse change, bankruptcy,
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change of control and a change of management resulting in less than two-thirds
of existing management being in control of DCOC.
DCOC's obligations under the DCOC Credit Facility will be guaranteed by all
of DCOC's subsidiaries. Borrowings under the New Credit Facilities are secured
by all assets of DCOC and its present and future subsidiaries, and by a pledge
of the stock of and partnership interests in DCOC's subsidiaries.
THE SENIOR NOTES
GENERAL. We have outstanding $160.0 million in aggregate principal amount
of Senior Notes which mature in April 2007. The Senior Notes were issued under
the Senior Note Indenture with United States Trust Company of New York, as
Trustee. The Senior Notes bear interest at an annual rate of 11 3/4%, payable
semi-annually on each April 15 and October 15. Capitalized terms hereafter used
in this summary have the meanings set forth in the Senior Note Indenture.
RANKING. The Senior Notes are our unsubordinated indebtedness, ranking
equal in right of payment with all other unsubordinated indebtedness and senior
in right of payment to all of our existing and future subordinated indebtedness.
OPTIONAL REDEMPTION. We may, at our option, redeem all or any portion of
the Senior Notes at the redemption prices, expressed as percentages of the
principal amount of the Senior Notes set forth below, plus, in each case,
accrued interest thereon to the applicable redemption date, if redeemed during
the 12-month period beginning April 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 105.8750%
2003.............................................................................. 102.9375%
2004 and thereafter............................................................... 100.0000%
</TABLE>
CHANGE OF CONTROL. The Senior Note Indenture provides that, following the
occurrence of any Change of Control (as defined therein), we must offer to
purchase all outstanding Senior Notes at a purchase price equal to 101% of their
principal amount, plus accrued interest to the date of purchase.
RESTRICTIVE COVENANTS. The Senior Note Indenture contains certain
restrictive covenants which, among other things, limit our ability and that of
our Restricted Subsidiaries to incur additional indebtedness, create liens,
engage in sale-leaseback transactions, pay dividends or make distributions in
respect of their capital stock (including the Preferred Stock and the Senior
Preferred Stock), make investments or certain other restricted payments, sell
assets, issue or sell stock of Restricted Subsidiaries, enter into transactions
with stockholders or affiliates or effect a consolidation or merger. Logix, DCOC
and Dobson/ Sygnet, and their respective subsidiaries, are Unrestricted
Subsidiaries with respect to the Senior Notes.
THE DOBSON/SYGNET NOTES
GENERAL. Dobson/Sygnet has outstanding $200.0 million in aggregate
principal amount of Senior Notes which mature in December 2008. The
Dobson/Sygnet Notes were issued under the Dobson/Sygnet Indenture with United
States Trust Company of New York, as Trustee. The Dobson/Sygnet Notes bear
interest at an annual rate of 12 1/4%, payable semi-annual on each June 15 and
December 15. Capitalized terms hereafter used in this summary have the meanings
set forth in the Dobson/Sygnet Note Indenture.
RANKING. The Dobson/Sygnet Notes are Dobson/Sygnet's unsecured
unsubordinated indebtedness, ranking equal to Dobson/Sygnet's other unsecured
unsubordinated indebtedness and senior to all of its existing and future
subordinated indebtedness.
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OPTIONAL REDEMPTION. We may, at our option, redeem all or any portion of
the Dobson/Sygnet Notes at the redemption prices (expressed as percentages of
the principal amount of the Dobson/Sygnet Notes) set forth below, plus, in each
case, accrued interest thereon to the applicable redemption date, if redeemed
during the 12-month period beginning December 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
2003....................................................................................... 106.125%
2004....................................................................................... 103.063%
2005....................................................................................... 101.531%
2006 and thereafter........................................................................ 100.000%
</TABLE>
CHANGE OF CONTROL. The Dobson/Sygnet Note Indenture provides that,
following the occurrence of any Change of Control (as defined therein), we must
offer to purchase all outstanding Dobson/Sygnet Notes at a purchase price equal
to 101% of their principal amount, plus accrued interest to the date of
purchase.
RESTRICTIVE COVENANTS. The Dobson/Sygnet Note Indenture contains certain
restrictive covenants which, among other things, limit our ability and that of
our Restricted Subsidiaries to incur additional indebtedness, create liens, pay
dividends or make distributions in respect of their capital stock, make
investments or certain other restricted payments, sell assets, redeem capital
stock, issue or sell stock of Restricted Subsidiaries, enter into transactions
with stockholders or affiliates or effect a consolidation or merger.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
At March 15, 1999, our authorized capital stock consisted of 1,500,000
shares of Common Stock, par value $.001 per share ("Common Stock"), and
2,500,000 shares of preferred stock, par value $1.00 per share (the "Preferred
Stock"). We will increase our authorized preferred stock to 3,000,000 shares
prior to May 5, 1999.
Our authorized Common Stock includes
- 1,438,000 shares of Class A Common Stock,
- 31,000 shares of Class B Non-Voting Common Stock and
- 31,000 shares of Class C Common Stock.
Our authorized Preferred Stock includes
- 550,000 shares of Senior Preferred Stock,
- 184,000 shares of Preferred Stock,
- 450,000 shares of Class A 5% Non-Cumulative, Non-Voting, Non-Convertible
Preferred Stock ("Class A Preferred Stock"),
- 90,000 shares of Class D 15% Convertible Preferred Stock ("Class D
Preferred Stock"),
- 517,000 shares of Class E 15% Preferred Stock ("Class E Preferred Stock"),
- 205,000 shares of Class F Preferred Stock ("Class F Preferred Stock"),
- 62,000 shares of Class G Preferred Stock ("Class G Preferred Stock") and
- 62,000 shares of Class H Preferred Stock ("Class H Preferred Stock" and
together with the Class A Preferred Stock, the Class D Preferred Stock,
the Class E Preferred Stock, the Class F Preferred Stock and the Class G
Preferred Stock, the "Other Preferred Stock").
The following table reflects our issued and outstanding capital stock at
March 15, 1999:
<TABLE>
<CAPTION>
CLASS NO. SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Senior Preferred Stock........................................................... 197,309.0
Preferred Stock.................................................................. 65,152.0
Class A Preferred Stock.......................................................... 314,286.0
Class D Preferred Stock.......................................................... 75,093.7
Class F Preferred Stock.......................................................... 30,000.0
Class G Preferred Stock.......................................................... 37,853.0
Class A Common Stock............................................................. 491,954.0
</TABLE>
As part of the Sygnet acquisition, all outstanding shares of our Class B
Preferred Stock were converted into shares of Class A Common Stock and we
purchased all outstanding shares of our Class C Preferred Stock. We have
reserved 13,914 shares of Class A Common Stock for issuance upon exercise of
warrants granted to the purchasers of the Class F Preferred Stock. See
"--Warrants." We have reserved 30,166 shares of Class B Common Stock and 30,166
shares of Class C Common Stock for issuance upon exercise of options granted and
which may be granted under our Stock Option Plan. At March 31, 1999, we had
granted options under our Stock Option Plan to purchase 29,767 shares of Class B
Common Stock and 3,622 shares of Class C Common Stock.
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The following description of certain matters relating to our capital stock
is a summary and is qualified in its entirety by the provisions of our
Certificate of Incorporation ("Certificate of Incorporation") and Bylaws.
COMMON STOCK
The holders of our Class A Common Stock are entitled to one vote per share
on all matters submitted to a vote of stockholders and, except as otherwise
provided by law, will vote together with holders of our Class D Preferred Stock.
Holders of our Class B Common Stock have no voting rights except when a class
vote is required by law. Holders of our Class C Common Stock have no voting
rights except when a class vote is required by law. Holders of our Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor, subject to the payment of
preferential dividends with respect to any outstanding preferred stock and
subject to the terms of the DOC Facility, the Credit Facilities, the Senior Note
Indenture, the certificates of designation for the Senior Preferred Stock and
the Other Preferred Stock, the Certificate of Designation and, if the Exchange
Debentures or Senior Exchange Debentures are issued, the Exchange Debenture
Indenture and the Senior Exchange Debenture Indenture, as the case may be
(together, the "Financing Agreements"). The holders of our Common Stock do not
have cumulative voting rights or preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares.
SENIOR PREFERRED STOCK
The terms of the Senior Preferred Stock and the Senior Exchange Debentures
are substantially similar to the terms of the Preferred Stock and the Exchange
Debentures, respectively, offered hereby.
OTHER PREFERRED STOCK
The Other Preferred Stock ranks junior to the Senior Preferred Stock and the
Preferred Stock with respect to the payment of dividends and upon liquidation.
The Class D and Class E Preferred Stock rank junior to the Class F Preferred
Stock, equally with the Class A Preferred Stock and, except with respect to
liquidation, the Class G and Class H Preferred Stock, and senior to the Class G
and Class H Preferred Stock as to liquidation. The Class G and Class H Preferred
Stock rank junior to the Class A Preferred Stock and Class F Preferred Stock
and, as to liquidation, the Class D Preferred Stock and Class E Preferred Stock
and equally with the Class D Preferred Stock and Class E Preferred Stock, except
as to liquidation.
CLASS A PREFERRED STOCK
Our subsidiary, DOC, holds 314,286 shares of our Class A Preferred Stock. A
certificate of designation for the Class A Preferred Stock provides for the
following rights, preferences and powers:
VOTING RIGHTS. Except as otherwise required by law, the holders of shares
of Class A Preferred Stock have no voting rights.
DIVIDENDS. The holders of Class A Preferred Stock are entitled to receive
non-cumulative dividends at the annual rate of 5% of the $70 per share
liquidation value, if and when declared by the Board of Directors. The terms of
the Financing Agreements limit and, for the foreseeable future effectively
prohibit, the payment of cash dividends on the Class A Preferred Stock.
CONVERSION. The Class A Preferred Stock is not convertible.
REDEMPTION. At any time and from time to time, the Class A Preferred Stock
may be redeemed, in whole or in part, at the option of the Company at the
liquidation value thereof.
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CLASS B AND CLASS C PREFERRED STOCK
As part of the Sygnet acquisition, all of the outstanding shares of Class B
Preferred Stock were converted to Class A Common Stock and we purchased all of
the outstanding shares of Class C Preferred Stock. We have since retired our
Class B Preferred Stock and our Class C Preferred Stock.
CLASS D PREFERRED STOCK AND CLASS E PREFERRED STOCK
On December 23, 1998, Childs and the Dobson Partnership purchased 75,094
shares of Class D Preferred Stock from us 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 certain other of our shareholders, excluding the holders of the
Class F Preferred Stock (collectively, the "Shareholders"), DOC and us. The
Dobson Partnership purchased $4.0 million of Class D Preferred Stock and Childs
purchased substantially all of 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.
CLASS D PURCHASE AGREEMENT. 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 our issuance of equity securities
(including rights, options or warrants with respect to such securities and other
securities convertible into equity securities), restrict our ability and that of
our subsidiaries to pay dividends, purchase their 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 will be entitled to participate in the spin-off of Logix.
CLASS D PREFERRED STOCK CERTIFICATE OF DESIGNATION. The certificate of
designation for the Class D Preferred Stock (the "Class D Preferred Stock
Certificate of Designation") provides for the following rights, including voting
rights, preferences and powers:
VOTING RIGHTS. Except as otherwise provided by law, the shares of 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 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 our assets,
our merger or consolidation resulting in a change of control, or our
liquidation, dissolution or winding up,
- amend our Certificate of Incorporation or Bylaws to change the authorized
number of directors or
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- authorize 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.
DIVIDENDS. Cumulative dividends on each share of Class D Preferred Stock
accrue daily at the annual rate of 15% on the sum of the $1,131.92 per share
liquidation value. In addition, a holder of Class D Preferred Stock is entitled
to receive additional dividends thereon in the same amounts as such holder would
have received if such shares of Class D Preferred Stock had been fully converted
into Class A Common Stock. All accumulated and unpaid dividends on the Class D
Preferred Stock ("Class D Accrued Dividends") from the date of issuance,
compounded annually, are payable in cash on the liquidation, dissolution or
winding up of the Company, or any redemption of Class D Preferred Stock or the
exercise of any put or call rights in respect thereof. Upon conversion of Class
D Preferred Stock into shares of Class A Common Stock and Class E Preferred
Stock, holders of Class D Preferred Stock will receive Class D Accrued Dividends
in additional shares of Class E Preferred Stock.
The Financing Agreements limit and, if exchange debentures are issued for
the Senior Preferred Stock or the Preferred Stock, each exchange debenture
indenture will limit, and for the foreseeable future effectively prohibit, the
payment of cash dividends on the Class D Preferred Stock.
The Class D Preferred Stock Certificate of Designation prohibits the
declaration or payment of dividends on or redemption or purchase of any junior
securities by us, our subsidiaries and our affiliates.
On April 13, 1999, Childs agreed to sell 15,474 shares of Class D Preferred
Stock and certain shares of our common stock to AT&T Wireless. The transaction
is subject to compliance with the Hart-Scott-Rodino Act and other customary
closing conditions.
CONVERSION. At any time and from time to time, any holder of Class D
Preferred Stock may convert each share of Class D Preferred Stock held into one
share of Class A Common Stock, subject to adjustment to prevent dilution, and
one share of Class E Preferred Stock.
REDEMPTION. All of the Class D Preferred Stock must be redeemed for its
liquidation preference plus Class D Accrued Dividends, subject to the legal
availability of funds therefor, following the vote of the holders of a majority
of the outstanding shares of Class D Preferred Stock and Class E Preferred
Stock, voting together as a single class, at any time after December 23, 2010.
Our obligation to redeem the Class D Preferred Stock is subject to the terms of
the Financing Agreements.
CLASS E PREFERRED STOCK CERTIFICATE OF DESIGNATION. The certificate of
designation for the Class E Preferred Stock provides for the following rights,
preferences and powers:
VOTING RIGHTS. Except as otherwise required by law and as authorized to
vote with the holders of Class D Preferred Stock for redemption, the holders of
shares of Class E Preferred Stock have no voting rights.
DIVIDENDS. Cumulative dividends on each share of Class E Preferred Stock
accrue daily at the annual rate of 15% on the sum of the $1,131.92 per share
liquidation value. All accumulated and unpaid dividends on the Class E Preferred
Stock ("Class E Accrued Dividends") from the date of issuance, compounded
annually, are payable in cash only upon our liquidation, dissolution or winding
up or on redemption of or exercise of the put and call rights with respect to
the Class E Preferred Stock. The Financing Agreements limit, and, if exchange
debentures are issued for either the Senior Preferred Stock or the Preferred
Stock, each exchange debenture indenture will limit, and for the foreseeable
future effectively prohibit, the payment of cash dividends on the Class E
Preferred Stock.
CONVERSION. The Class E Preferred Stock is not convertible.
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REDEMPTION. We are obligated to redeem all of the Class D and Class E
Preferred Stock for its liquidation preference plus Class E Accrued Dividends,
subject to legal availability of funds therefor, following the vote of the
holders of a majority of the outstanding shares of Class D Preferred Stock and
the Class E Preferred Stock, voting together as a single class, at any time
after December 23, 2010, or, with respect to Class E Preferred Stock only, upon
completion of an initial public offering of our common stock resulting in gross
proceeds of at least $50.0 million. Our obligation to redeem our Class D and
Class E Preferred Stock is subject to the terms of the Financing Agreements.
PUT AND CALL OPTIONS. Upon the earliest to occur of December 23, 2005, a
"Change of Control," as defined below, or the consummation of an initial public
offering of our 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 us to purchase the 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 our voting stock controlled by Everett R.
Dobson and his affiliates being less than 50.1% and the sale of all or
substantially all our capital stock, business or assets, but does not include
the sale or redemption by the Dobson Partnership of up to $25.0 million of our
capital stock or our initial public offering of our common stock. To the extent
of cash available, we must pay cash to purchase the Class E Preferred Stock. To
the extent we do not have available cash, we are obligated to issue one or more
junior subordinated promissory notes ranking senior to all preferred stock
existing on the Closing Date other than Class F Preferred Stock and bearing
interest at an initial annual rate of 17%, payable quarterly, subject to the
terms of the Financing Agreements. If any quarterly interest payment is not
made, the annual rate increases by 0.5%, up to a maximum annual rate of 20%.
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 we 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, obligations under these notes will mature upon the last to
occur of
- termination of the Credit Facilities,
- termination of the Senior Note Indenture,
- the repurchase, payment or defeasance of the Senior Notes and
- the redemption of all outstanding Senior Preferred Stock and Preferred
Stock or the elimination of the financial covenants contained in the
certificates of designation for the Senior Preferred Stock and the
Preferred Stock.
In connection with our initial public offering of our common stock, we will
have the option to purchase all or any outstanding shares of Class E Preferred
Stock for the liquidation preference thereof, plus Class E Dividends, payable in
cash. Notwithstanding the foregoing, we may not pay the holders subordinated
notes in lieu of cash in the case of a Change of Control in which
- prior to an initial public offering, Everett R. Dobson and his affiliates
cease to control at least 50.1% of the Company's voting stock, or
- following an initial public offering, Everett R. Dobson and his affiliates
cease to control at least 35% of the Company's voting stock.
INVESTORS AGREEMENT. Under the Investors Agreement, Childs and the Dobson
Partnership shall 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 our 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 our securities held by it on
December 23, 1998, in addition to the director it may designate, Childs may also
designate an observer to
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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). AT&T Wireless
has executed an agreement to acquire $20 million of Class D Preferred Stock and
Class A Common Stock from Childs. Concurrent with the closing of AT&T Wireless'
stock acquisition, the Investors Agreement will be amended to include AT&T
Wireless as a party. AT&T Wireless will have substantially the same rights under
the Investors Agreement as Childs, including the ability to designate one
director and to jointly designate an additional director with Childs and the
Dobson Partnership. Childs will only have the right to jointly elect one
director with the Dobson Partnership.
The Shareholders will have preemptive rights with respect to new common
stock or securities convertible into common stock issued by us, 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 our shareholders or
in a public sale. The transfer restrictions in the Investors Agreement will
terminate upon the earliest of our initial public offering, a Change of Control
or December 23, 2003.
The Shareholders are obligated to sell their shares of our 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 our common stock, Class D Preferred Stock and Class E Preferred
Stock,
- is approved by our board of directors as fair to all stockholders, and
- is approved by our stockholders holding 50.1% of its outstanding common
stock, calculated on an "as-if-converted" basis.
Notwithstanding the foregoing, the Shareholders will not be 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 will not be obligated
to sell any shares of our 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 will have the right to participate pro rata in certain
sales of our outstanding common stock, Class D Preferred Stock and Class E
Preferred Stock by any other stockholder, except in the case of
- the Dobson Partnership's sale of our capital stock for $25.0 million or
less, together with accrued but unpaid dividends thereon,
- the sale of any capital stock issued by us in connection with the Sygnet
acquisition, or
- transfers made after an 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.
CLASS F PREFERRED STOCK
As part of the Sygnet Financing, certain former shareholders of Sygnet
purchased 30,000 shares of the Company's Class F Preferred Stock. The following
summary of the Class F Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to the certificate of designation.
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CLASS F PREFERRED STOCK CERTIFICATE OF DESIGNATION. The certificate of
designation for the Class F Preferred Stock (the "Class F Preferred Stock
Certificate of Designation") provides for the following rights, including voting
rights, preferences and powers:
VOTING RIGHTS. Except as otherwise provided by law, the shares of Class F
Preferred Stock have no voting rights except to elect one person to our Board of
Directors if a voting rights triggering event occurs with respect to the Class F
Preferred Stock.
DIVIDENDS. Dividends on the Class F Preferred Stock are payable in cash or,
at our option, in additional shares of Class F Preferred Stock. Cumulative
dividends on each share of Class F Preferred Stock accrue at the annual rate of
16% on the sum of the $1,000 per share liquidation value, and all accumulated
and unpaid dividends ("Class F Accrued Dividends") from the date of issuance,
compounded annually, are payable in cash out of funds legally available therefor
on January 15, April 15, July 15 and October 15, commencing January 15, 1999.
The Financing Agreements limit, and if the exchange debentures are issued
for the Senior Preferred Stock and if Exchange Debentures are issued for the
Preferred Stock, the respective exchange debenture indentures will limit, and
for the foreseeable future effectively prohibit, the payment of cash dividends
on the Class F Preferred Stock.
The Class F Preferred Stock Certificate of Designation prohibits the
declaration or payment of dividends on redemption or purchase of any junior
securities by us or by our subsidiaries and affiliates.
CONVERSION. The Class F Preferred Stock is not convertible.
REDEMPTION. The Class F Preferred Stock must be redeemed on December 31,
2010, subject to the legal availability of funds therefor, at 130% of its
liquidation preference, plus Class F Accrued Dividends. We expect to redeem all
of the outstanding shares of our Class F Preferred Stock with net proceeds from
the sale of our % Senior Exchangeable Preferred Stock due 2009.
At any time and from time to time after January 1, 1999, the Class F
Preferred Stock may be redeemed, in whole or in part, at our option, at a
redemption price expressed as a percentage of the liquidation preference of the
Class F Preferred Stock as set forth below, plus Class F Accrued Dividends, if
such redemption occurs during the 12-month period beginning January 1 of each of
the following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -------------
<S> <C>
1999.............................................................................. 100%
2000.............................................................................. 100%
2001.............................................................................. 105%
2002.............................................................................. 115%
2003 and thereafter............................................................... 130%
</TABLE>
We will redeem the Class F Preferred Stock with the proceeds of our private
offering of $170.0 million of another class of our preferred stock. Upon the
redemption of the Class F Preferred Stock, we expect to retire all of the
authorized Class F Preferred Stock.
CLASS G PREFERRED STOCK AND CLASS H PREFERRED STOCK
As part of the Sygnet acquisition, the Dobson Partnership acquired 37,853
shares of Class G Preferred Stock in exchange for shares of Class A Common
Stock. Each share of Class G Preferred Stock is initially convertible into one
share of Class H Preferred Stock and shares of Class A Common Stock. The
following summary of the Class G Preferred Stock and Class H Preferred Stock
does not purport to be complete and is qualified in its entirety by reference to
the applicable certificates of designation.
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CLASS G PREFERRED STOCK CERTIFICATE OF DESIGNATION. The certificate of
designation for the Class G Preferred Stock (the "Class G Preferred Stock
Certificate of Designation") provides for the following rights, including voting
rights, preferences and powers:
VOTING RIGHTS. Except as otherwise provided by law, the shares of Class G
Preferred Stock have no voting rights.
DIVIDENDS. Dividends on the Class G Preferred Stock are payable in cash or,
at the option of the Company, in additional shares of Class G Preferred Stock.
Cumulative dividends on each share of Class G Preferred Stock accrue at the
annual rate of 16% on the sum of the $660.40 per share liquidation value, and
all accumulated and unpaid dividends ("Class G Accrued Dividends") from the date
of issuance, compounded annually, are payable out of funds legally available
therefor in cash on the liquidation, dissolution or winding up of the Company or
on redemption.
The Financing Agreements limit, and if exchange debentures are issued for
the Senior Preferred Stock and the Preferred Stock, the respective exchange
debenture indentures will limit, and for the foreseeable future effectively
prohibit, the payment of cash dividends on the Class G Preferred Stock.
The Class G Preferred Stock Certificate of Designation prohibits the
declaration or payment of dividends on or redemption or purchase of any junior
securities by us, our subsidiaries and our affiliates.
CONVERSION. Each share of Class G Preferred Stock may be converted at any
time, or from time to time, after the Closing Date until the third anniversary
of the Closing Date. On the third anniversary of the Closing Date, any
outstanding shares of Class G Preferred Stock will automatically be converted.
Each share of Class G Preferred Stock is convertible into one share of Class H
Preferred Stock and shares of Class A Common Stock which, if all shares of Class
G Preferred Stock were fully converted, would represent approximately 1.87% of
our then outstanding common stock, on a fully diluted basis.
REDEMPTION. The Class G Preferred Stock must be redeemed for its
liquidation value, plus Class G Accrued Dividends, within 90 days following the
vote of its holders following our initial public offering of common stock
resulting in gross proceeds of at least $50.0 million, subject to the legal
availability of funds therefor and the terms of the Financing Agreements. We
expect to redeem all of the outstanding shares of our Class C Preferred Stock
with net proceeds from the sale of our 13% Senior Exchangeable Preferred Stock
due 2009.
We will redeem the Class G Preferred Stock with the proceeds of our private
offering of $170.0 million of another class of our preferred stock. Upon our
redemption of the Class G Preferred Stock, we expect to retire all of the
authorized Class G Preferred Stock.
CLASS H PREFERRED STOCK CERTIFICATE OF DESIGNATION. The certificate of
designation for the Class H Preferred Stock (the "Class H Preferred Stock
Certificate of Designation") provides for the following rights, including voting
rights, preferences and powers:
VOTING RIGHTS. Except as otherwise provided by law, the shares of Class H
Preferred Stock have no voting rights.
DIVIDENDS. Cumulative dividends on each share of the Class H Preferred
Stock accrue daily at the annual rate of 16% on the sum of $660.45 per share
liquidation value. All accumulated and unpaid dividends on the Class H Preferred
Stock (the "Class H Accrued Dividends") from the date of issuance, compounded
annually, are payable only upon our liquidation, dissolution or winding up or on
redemption. Dividends on the Class H Preferred Stock will cease to accrue, and
will not be payable, with respect to any period commencing on, and from and
after, the third anniversary of the issuance of the Class G Preferred Stock. The
Financing Agreements limit, and for the foreseeable future effectively prohibit,
the payment of cash dividends on the Class H Preferred Stock.
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The Class H Preferred Stock Certificate of Designation prohibits the
declaration or payment of dividends on or redemption or purchase of any junior
securities (by the Company, any subsidiary or other affiliate).
CONVERSION. The Class H Preferred Stock is not convertible.
REDEMPTION. The Class H Preferred Stock must be redeemed following the vote
of its holders at any time after December 31, 2010 or upon completion of an
initial public offering by the Company of its common stock resulting in gross
proceeds of at least $50.0 million, subject to the legal availability of funds
therefor and the terms of the Financing Agreements, at 130% of its liquidation
preference, plus Class H Accrued Dividends.
Upon our redemption of the Class G Preferred Stock, we expect to retire all
of the authorized Class H Preferred Stock, which would have been issued upon
conversion of the Class G Preferred Stock.
WARRANTS
The purchasers of the Class F Preferred Stock also received warrants to
purchase shares of the Company's Class A Common Stock. The warrants are
exercisable at any time and from time to time during a two year period
commencing one year after issuance into a number of shares of Class A Common
Stock which, if all warrants were exercised, would represent a maximum of 2.24%
of the Company's then outstanding common stock on a fully diluted basis. The
initial exercise price of the warrants is $1.00 per share of Class A Common
Stock.
SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2009
We expect to issue 170,000 shares of our 13% Senior Exchangeable Preferred
Stock due 2009 that will have an aggregate liquidation preference of $170.0
million. The terms of our Senior Exchangeable Preferred Stock due 2009 are
expected to be substantially similar to the terms of our Senior Preferred Stock
and Preferred Stock, as are the terms of the exchange debentures issuable, at
our option, in exchange for our Senior Exchangeable Preferred Stock due 2009.
The certificate of designation for the Senior Exchangeable Preferred Stock
due 2009 is expected to provide for the following rights, including voting
rights, preferences and powers:
RANKING. The Senior Exchangeable Preferred Stock due 2009 will rank senior
to the Other Preferred Stock, equal with the Senior Preferred Stock and
Preferred Stock, and junior to our capital stock we may issue in the future, the
terms of which expressly provide that such stock will rank senior to the Senior
Exchangeable Preferred Stock due 2009.
VOTING RIGHTS. The holder of Senior Exchangeable Preferred Stock due 2009
will have voting rights substantially similar to the voting rights provided to
the Senior Preferred Stock and Preferred Stock. See "Description of the
Preferred Stock--Voting Rights."
DIVIDENDS. The holders of Senior Exchangeable Preferred Stock due 2009 will
be entitled to receive cumulative dividends at the annual rate of 13% of the
$1,000 per share liquidation preference, as and when declared by the Board of
Directors. We may pay dividends in cash or in additional fully paid and
nonassessable shares of Senior Preferred Stock having a liquidation preference
equal to the amount of such dividends. After May 1, 2004, we must pay only cash
dividends. We may cash dividends on our Senior Exchangeable Preferred Stock due
2009 only if we contemporaneously declare and pay dividends on the Senior
Preferred Stock and Preferred stock.
REDEMPTION. We must redeem the Senior Exchangeable Preferred Stock due 2009
on May 1, 2009, subject to the legal availability of funds therefor, at 100% of
the liquidation preference, plus accrued and unpaid dividends.
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At any time and from time to time on or after May 1, 2004, we may redeem our
Senior Exchangeable Preferred Stock due 2009 may be redeemed, in whole or in
part, at our option, at a redemption price expressed as a percentage of the
liquidation preference of the Senior Exchangeable Preferred Stock due 2009 as
set forth below, plus accrued and unpaid dividends, if such redemption occurs
during the 12-month period beginning May 1 of each of the following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2004............................................................................. 106.500%
2005............................................................................. 104.333%
2006............................................................................. 102.167%
2007 and thereafter.............................................................. 100.000%
</TABLE>
Before May 1, 2002, we may redeem up to 35% of the aggregate liquidation
preference amount of the Senior Exchangeable Preferred Stock due 2009 at a
redemption rate equal to 113.00% of its liquidation preference amount, plus
accrued and unpaid dividends, with net proceeds from a sale of our common stock
if at least 65% of the aggregate liquidation preference amount of the Senior
Exchangeable Preferred Stock due 2009 originally issued remain outstanding.
OPTIONAL EXCHANGE. We way exchange the Senior Exchangeable Preferred Stock
due 2009 in whole, but not in part, into our exchange debentures. Our exchange
rights are substantially similar to our exchange rights with respect to the
Senior Preferred Stock and Preferred Stock. See "Description of the Preferred
Stock--Exchange."
CHANGE OF CONTROL. Upon a change of control, we will be required to make an
offer to purchase our outstanding Senior Exchangeable Preferred Stock due 2009
at a purchase price equal to 100% of its liquidation preference plus unpaid
dividends. Change of control means, with respect to the Senior Exchangeable
Preferred Stock due 2009, such time as:
- a shareholder becomes the beneficial owner of more than 35% of the total
voting power of our stock, on a fully diluted basis, and such ownership
represents a greater percentage of the total voting power of our voting
stock, on a fully diluted basis, than is held by Everett Dobson and his
affiliates on such date.
- individuals who on the issue date of such Senior Exchangeable Preferred
Stock due 2009 constituted the Board of Directors, together with any new
directors whose election by the Board of Directors or whose nomination for
election by our 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 issue 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.
RESTRICTED SUBSIDIARIES. All of our subsidiaries are restricted
subsidiaries under the Senior Exchangeable Preferred Stock due 2009, except for
Logix and Dobson Tower, and their subsidiaries, which have been designated as
unrestricted.
REGISTRATION REQUIREMENTS. We will be required to file and cause to become
effective a registration statement with respect to a registered offer to
exchange the Senior Exchangeable Preferred Stock due 2009 for an issue of our
Senior Exchangeable Preferred Stock due 2009 with identical terms. If we do not
complete the exchange offer within 180 days after its issue date, the dividend
rate on our Senior Exchangeable Preferred Stock due 2009 will be increased by
.5% per annum until we complete the offering. Under certain circumstances, we
may be required to effect a shelf registration statement with respect to the
resale of the Senior Exchangeable Preferred Stock due 2009.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the anticipated material U.S. federal income
tax consequences of the purchase, ownership and disposition of the Preferred
Stock and the Exchange Debentures. Except where we note otherwise, the following
discussion deals only with Preferred Stock and Exchange Debentures held as
capital assets by United States Holders and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, life insurance companies, persons holding Preferred Stock or
Exchange Debentures as a part of a hedging or conversion transaction or a
straddle or United States Holders whose "functional currency" is not the U.S.
dollar. Furthermore, the discussion below is based upon the provisions of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
including final Treasury regulations addressing debt instruments issued with OID
(the "OID Regulations"), rulings and judicial decisions under these regulations
to the date. We also note that such authorities may be repealed, revoked or
modified, possibly with retroactive effect, so as to result in U.S. federal
income tax consequences different from those discussed below. ALL PROSPECTIVE
PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED STOCK OR THE EXCHANGE DEBENTURES.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
We define the term "United States Holder" to mean a beneficial owner that is
a citizen or resident of the United States, a corporation, partnership (unless
Treasury regulations provide otherwise) or other entity that was created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate the income of which is subject to U.S. federal income
taxation regardless of its source or a trust if both
- a court within the United States is able to exercise primary supervision
over the administration of such trust, and
- one or more United States persons have the authority to control all
substantial decisions of such trust.
An individual may, subject to certain exceptions, be deemed to be a
resident, as opposed to a non-resident alien, of the United States by virtue of
being present in the United States on at least 31 days in the calendar year and
for an aggregate of at least 183 days during a three-year period ending in the
current calendar year. A "Non-United States Holder" is a holder that is not a
United States Holder.
DISTRIBUTIONS ON THE PREFERRED STOCK
Distributions of cash or of additional Preferred Stock on the Preferred
Stock will be treated as dividends to United States Holders to the extent of our
current and accumulated earnings and profits as determined under U.S. federal
income tax principles. The amount of our earnings and profits at any time will
depend upon our future actions and financial performance. The amount of a
distribution of additional Preferred Stock will equal the fair market value of
the Preferred Stock that we distribute on the date of the distribution. To the
extent that the amount of a distribution on the Preferred Stock exceeds our
current and accumulated earnings and profits, such distributions will be treated
as a nontaxable return of capital and will be applied against and reduce the
adjusted tax basis of the Preferred Stock in the hands of each United States
Holder, but not below zero, thus increasing the amount of any gain or reducing
the amount of any loss which would otherwise be recognized by such United States
Holder upon the sale or other taxable disposition of such Preferred Stock. The
amount of any distribution that exceeds the adjusted tax basis of the Preferred
Stock in the hands of the United States Holder will be treated as capital gain
and will be either long-term or short-term capital gain depending on the United
States Holder's holding period for the Preferred Stock. The initial tax basis of
additional Preferred Stock in the hands of a holder who received such additional
Preferred Stock as a distribution on Preferred Stock will equal the fair market
value of such additional Preferred Stock at the time of distribution.
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We presently do not have any current or accumulated earnings and profits as
determined under U.S. federal income tax principles and we are unlikely to have
current or accumulated earnings and profits in the foreseeable future. As a
result, until such time as we do have earnings and profits, distributions of
cash and additional Preferred Stock on the Preferred Stock will not be treated
as dividends, and instead will constitute a nontaxable return of capital that
reduces a holder's adjusted tax basis in the Preferred Stock. In the case of
distributions of additional Preferred Stock, such basis reduction should be
offset on an overall standpoint by a corresponding amount of tax basis for a
holder in the additional Preferred Stock. A United States Holder would recognize
gain to the extent that any distribution were to exceed current or accumulated
earnings and profits and the adjusted tax basis of the holder in the Preferred
Stock.
Under Section 243 of the Code, corporate United States Holders generally
will be able to deduct 70% of the amount of any distribution qualifying as a
dividend. There are, however, many exceptions and restrictions relating to the
availability of such dividends-received deduction. Section 246A of the Code
reduces the dividends-received deduction allowed to a corporate United States
Holder that has indebtedness "directly attributable" to its investment in
portfolio stock. Section 246(c) of the Code requires that in order to be
eligible for the dividends-received deduction, a corporate United States Holder
generally must hold the shares of Preferred Stock for a 46-day minimum holding
period or a 91-day period in certain circumstances. A taxpayer's holding period
for these purposes is suspended during any period in which a United States
Holder has certain options or contractual obligations with respect to
substantially identical stock or holds one or more other positions with respect
to substantially identical stock that diminishes the risk of loss from holding
the Preferred Stock. A recent legislative enactment modified the manner in which
the 46- or 91-day minimum holding period is determined, and requires that the
applicable holding period be determined with respect to each dividend payment
date on an "unhedged" basis.
Under Section 1059 of the Code, a corporate United States Holder is required
to reduce its tax basis (but not below zero) in the Preferred Stock by the
nontaxed portion of any "extraordinary dividend" if such stock has not been held
for more than two years before the earliest of the date such dividend is
declared, announced or agreed to. Generally, the nontaxed portion of an
extraordinary dividend is the amount excluded from income by operation of the
dividends-received deduction provisions of Section 243 of the Code. An
extraordinary dividend on the Preferred Stock generally would be a dividend that
- equals or exceeds 5% of the corporate United States Holder's adjusted tax
basis in the Preferred Stock, generally treating all dividends received by
the United States Holder and having ex-dividend dates within an 85 day
period as one dividend, or
- exceeds 20% of the corporate United States Holder's adjusted tax basis in
such Preferred Stock; generally treating all dividends received by the
United States Holder having ex-dividend dates within a 365-day period as
one dividend.
In determining whether a dividend paid on the Preferred Stock is an
extraordinary dividend, a corporate United States Holder may elect to substitute
the fair market value of the Preferred Stock for such United States Holder's tax
basis for purposes of applying these tests, provided such fair market value is
established to the satisfaction of the Secretary of Treasury as of the day
before the ex-dividend date. An extraordinary dividend also includes any amount
treated as a dividend in the case of a redemption that is either non-pro rata as
to all stockholders or in connection with our partial liquidation, regardless of
the stockholder's holding period and regardless of the size of the dividend. If
any part of the nontaxed portion of an extraordinary dividend is not applied to
reduce the corporate United States Holder's tax basis as a result of the
limitation on reducing such basis below zero, such part will be treated as gain
from the sale or exchange of the Preferred Stock, which must be recognized at
the time when the extraordinary dividend is paid. Special rules exist with
respect to "qualified preferred dividends." A qualified preferred dividend is
any fixed dividend payable with respect to any share of stock which
- provides for fixed preferred dividends payable not less frequently than
annually, and
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- is not in arrears as to dividends at the time the United States Holder
acquires such stock.
A qualified preferred dividend does not include any dividend payable with
respect to any share of stock if the actual rate of return of such stock exceeds
15%. Section 1059 does not apply to qualified preferred dividends if the
corporate United States Holder holds such stock for more than five years. If the
United States Holder disposes of such stock before it has been held for more
than five years, the amount subject to extraordinary dividend treatment with
respect to qualified preferred dividends is limited to the excess of the actual
rate of return over the stated rate of return. Actual or stated rates of return
are the actual or stated dividends expressed as a percentage of the lesser of
- the United States Holder's tax basis in such stock, or
- the liquidation preference of such stock. Corporate United States Holders
are urged to consult their tax advisors with respect to the possible
application of Section 1059 to their ownership and disposition of the
Preferred Stock.
The portion of the dividends received that a corporate United States Holder
deducts in computing taxable income may affect a corporate United States
Holder's liability for alternative minimum tax. This results from the fact that
corporate stockholders are required to increase alternative minimum taxable
income by 75% of the excess of current earnings (with certain adjustments) over
alternative minimum taxable income (determined without regard to earnings and
profit adjustments or the alternative tax net operating loss deduction).
Prospective corporate investors should be aware that distributions we pay in
respect of the Preferred Stock (whether payable in cash or additional shares of
Preferred Stock) will not be eligible for the dividends-received deduction under
Section 243 of the Code until such time as Dobson has current or accumulated
earnings and profits.
REDEMPTION PREMIUM
Under Section 305 of the Code and the applicable Treasury regulations, if
the redemption price of Preferred Stock exceeds its issue price, the difference
("redemption premium") may be taxable as a constructive distribution of
additional Preferred Stock to the United States Holder and treated as a dividend
to the extent of our current and accumulated earnings and profits and otherwise
subject to the treatment described above for distributions, over a certain
period. Because the Preferred Stock provides for our optional right of
redemption at prices in excess of the issue price, United States Holders could
be required to recognize such redemption premium under a constant interest rate
method similar to that described below for accruing OID (see "--Original Issue
Discount") if, based on all of the facts and circumstances, the optional
redemption is more likely than not to occur. If stock may be redeemed at more
than one time, the time and price at which such redemption is most likely to
occur must be determined based on all of the facts and circumstances. Applicable
Treasury regulations provide a "safe harbor" under which a right to redeem will
not be treated as more likely than not to occur if
- the issuer and the holder are not related within the meaning of the
Treasury regulations,
- there are no plans, arrangements or agreements that effectively require or
are intended to compel the issuer to redeem the stock (disregarding, for
this purpose, a separate mandatory redemption) and
- exercise of the right to redeem would not reduce the yield of the stock,
as determined under the Treasury regulations.
Further, the Treasury regulations provide that such redemption premium is
not taxable as a constructive distribution if it is solely in the nature of a
penalty for premature redemption. A redemption premium is solely in the nature
of a penalty for premature redemption if it is paid as a result of changes in
economic or market conditions over which neither the issuer nor the holder have
control. Regardless of whether the optional redemption is more likely than not
to occur or whether the redemption premium is solely in the
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nature of a penalty for premature redemption, constructive dividend treatment
will not result if the redemption premium does not exceed a de minimis amount.
Based on the Treasury regulations, we intend to take the position that the
existence of our optional redemption right does not result in a constructive
distribution to the United States Holders.
Further, because the Preferred Stock provides for an optional right of the
United States Holders to require us to acquire the Preferred Stock at a price
equal to 101% of the liquidation value upon a Change of Control, United States
Holders could be required to recognize such redemption premium under the
constant yield method discussed above unless, very generally, the likelihood of
redemption is remote. Here, too, regardless of whether the likelihood of
redemption is remote, constructive dividend treatment will not result if the
redemption premium does not exceed a de minimis amount of 1/4 of 1% of the
stated redemption price at maturity multiplied by the number of complete years
to maturity. We intend to take the position that the existence of United States
Holders' optional redemption right does not result in a constructive
distribution to the Holders.
Moreover, the Preferred Stock provides for a mandatory redemption at a
redemption price equal to the liquidation value of the Preferred Stock, plus
accrued and unpaid dividends. If at the time of issuance of Preferred Stock,
there is no intention for dividends to be paid currently, the IRS may treat the
payment of such dividends on redemption as disguised redemption premium subject
to the constant yield rules discussed above. Dividends on the Preferred Stock
are payable in cash or, on or prior to January 15, 2003, in additional shares of
Preferred Stock. We intend to pay all such dividends currently. Thus, while the
appropriate treatment of unpaid cumulative dividends has not yet been addressed
in Treasury regulations and no assurance can be given as to the outcome of such
guidance, we intend to take the position that the terms of the mandatory
redemption should not result in a constructive distribution to the United States
Holders.
Finally, in the event that additional Preferred Stock is distributed on the
Preferred Stock and such additional Preferred Stock has a fair market value at
the time of distribution that is less than its redemption price, such additional
Preferred Stock would have a redemption premium that may be taxable as a
constructive distribution of additional stock to a United States Holder, treated
as a dividend to the extent of our current and accumulated earnings and profits,
under the constant yield method over the term of such additional Preferred
Stock.
REDEMPTION AND EXCHANGE FOR EXCHANGE DEBENTURES
A redemption of shares of the Preferred Stock for cash or an exchange of the
Preferred Stock for Exchange Debentures will be a taxable transaction on which a
United States Holder generally will recognize capital gain or loss (except to
the extent of amounts received on the exchange that are attributable to declared
dividends, which will be treated in the same manner as distributions described
above) provided that the redemption
- results in complete termination of the holder's stock interest in us or
- results in a "meaningful reduction" in a United States Holder's stock
interest in us. Whether a redemption will result in a meaningful reduction
depends on the particular holder's facts and circumstances. In determining
whether a United States Holder's interest in us has been reduced or
terminated, the holder is deemed, under the constructive ownership rules
of Section 302(c) of the Code, to own any shares of our stock that are
owned, or deemed owned, by certain related persons and entities and any
shares that such holder, or related person or entity, has the right to
acquire by exercise of an option. If the redemption of the Preferred Stock
does not result in a complete termination or meaningful reduction, as
described above, the transaction will be treated as a distribution of cash
or Exchange Debentures, as the case may be. The amount of such
distribution will be measured by the amount of cash received by the United
States Holder or the "issue price," as defined below, of the Exchange
Debentures received by the United States Holder, and such
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distribution will be treated in the same manner as distributions described
above. However, corporate holders should be aware that to the extent such
distribution is treated as a dividend it may be an extraordinary dividend
under Section 1059 of the Code. If the redemption of the Preferred Stock
does result in a complete termination or meaningful reduction, the gain or
loss recognized on such exchange will generally be equal to the difference
between the amount realized by the United States Holder of the Preferred
Stock and such United States Holder's adjusted tax basis in the Preferred
Stock surrendered in the redemption.
In the case of a redemption for cash, the amount realized will be the cash
received on the redemption. In the case of an exchange of Preferred Stock for
Exchange Debentures, the amount realized on receipt of the Exchange Debentures
will be equal to the "issue price" of the Exchange Debentures. Thus, the amount
realized on the exchange will be equal to the issue price of the Exchange
Debentures plus any cash received on the exchange (other than cash received with
respect to declared dividends). If, as of the exchange date, either the Exchange
Debentures or the Preferred Stock are traded on an established securities market
on or at any time during the 60 day period ending 30 days after the exchange
date, then the issue price of the Exchange Debentures would equal the fair
market value of the property so traded. If neither the Preferred Stock nor the
Exchange Debentures are so traded, the issue price of the Exchange Debentures
would be the stated principal amount of the Exchange Debentures provided that
the yield on the Exchange Debentures is equal to or greater than the "applicable
federal rate" in effect at the time the Exchange Debenture is issued. If the
yield on the Exchange Debentures is less than such applicable federal rate, its
issue price under Section 1274 of the Code would be equal to the present value
as of the issue date of all payments to be made on the Exchange Debentures,
discounted at the applicable federal rate. It cannot be determined at the
present time whether the Preferred Stock or the Exchange Debentures will be, at
the relevant time, traded on an established securities market within the meaning
of the OID Regulations or whether the yield on the Exchange Debentures will
equal or exceed the applicable federal rate.
SALE OR OTHER DISPOSITION OF PREFERRED STOCK
A United States Holder's adjusted tax basis in the Preferred Stock will
equal the amount paid for such stock plus the fair market value of any
distributions of additional Preferred Stock and any amount included in gross
income as a constructive distribution of redemption premium, in each case under
Section 305 of the Code, as described in "--Distributions on the Preferred
Stock" and "--Redemption Premium," and reduced by the amount of any distribution
treated as a nontaxable return of capital that reduced the adjusted tax basis of
the Preferred Stock, as described in "--Distributions on the Preferred Stock."
In general, a United States Holder will recognize capital gain or loss upon the
sale or other taxable disposition of Preferred Stock based upon the difference
between the amount realized in such sale or other disposition, and the holder's
adjusted tax basis in the Preferred Stock. Such gain or loss will be either
long-term or short-term capital gain depending on the United States Holder's
holding period for the Preferred Stock at the time of redemption, sale, exchange
or retirement of the Preferred Stock. In the case of an individual United States
Holder, any such capital gain will be taxable at various preferential rates
depending on the extent to which such United States Holder's holding period for
the Preferred Stock exceeds one year. The deduction of capital losses is subject
to certain limitations. Prospective investors should consult their own tax
advisors in this regard.
Depending upon a United States Holder's particular circumstances, the tax
consequences of holding Exchange Debentures may be less advantageous than the
tax consequences of holding Preferred Stock because, for example, payments of
interest on the Exchange Debentures will not be eligible for any
dividends-received deduction that may be available to corporate United States
Holders, subject to our having earnings and profits, and because, as discussed
below, the Exchange Debentures will be issued with OID.
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PAYMENTS OF INTEREST AND OID ON THE EXCHANGE DEBENTURES
The tax treatment of the Exchange Debentures will turn on whether or not
they are issued with OID. Exchange Debentures issued on or before January 15,
2003 likely will be treated as having been issued with OID. Exchange Debentures
issued after January 15, 2003 will not be issued with OID unless, generally,
their stated redemption price at maturity, as defined below, exceeds their issue
price, as defined above.
Because we have the option through January 15, 2003 to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures, Exchange
Debentures (including Exchange Debentures issued in exchange for Preferred
Stock) issued prior to that date likely will be treated as issued with OID.
Accordingly, the stated interest on an Exchange Debenture would not be treated
as interest for U.S. federal income tax purposes, but instead will be subject to
the OID rules described below. In the case of Exchange Debentures that are not
issued with OID, payments of stated interest generally will be includible in a
United States Holder's income as ordinary income under the holder's regular
method of accounting.
ORIGINAL ISSUE DISCOUNT
The Exchange Debentures, if issued in exchange for Preferred Stock, may be
issued with OID, as further discussed below. Holders of such Exchange Debentures
should be aware that they generally must include OID in gross income for U.S.
federal income tax purposes on an annual basis under a constant yield accrual
method. As a result, Holders will include OID in income in advance of the
receipt of cash attributable to that income. However, United States Holders of
Exchange Debentures issued with OID generally will not be required to include
separately in income cash payments received on such Exchange Debentures, even if
denominated as interest, to the extent such payments do not constitute qualified
stated interest (as defined below). The Exchange Debentures issued with OID will
be referred to as "OID Debentures." We will report to United States Holders of
any Exchange Debentures which are issued with OID, on a timely basis the
reportable amount of OID and interest income based on its understanding of
applicable law.
The amount of OID, if any, on a debt instrument is the excess of its "stated
redemption price at maturity" over its "issue price" subject to a statutorily
defined de minimis exception. The issue price of a debt instrument issued for
cash is equal to the first price, excluding sales to bond houses and brokers, at
which a substantial amount of such debt instruments were sold. The "stated
redemption price at maturity" of a debt instrument is the sum of its principal
amount plus all other payments required thereunder, other than payments of
"qualified stated interest" (defined generally as stated interest that is
unconditionally payable in cash or in property (other than the debt instruments
of the issuer), at least annually at a single fixed rate that appropriately
takes into account the length of intervals between payments).
Because we have the option through January 15, 2003 to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures, with respect to
any Exchange Debentures issued on or prior to that date, none of the stated
interest would be treated as qualified stated interest unless under special
rules for interest holidays the amount of OID is treated as de minimis. Any
Exchange Debentures so issued would be treated as having been issued with OID
equal to the excess of their stated redemption price at maturity, which will be
equal to the sum of the principal amount plus all payments of stated interest,
over their issue price, which will be as described under "--Redemption and
Exchange for Exchange Debentures" above. Any additional Exchange Debentures
issued in lieu of cash would not be treated as debt instruments separate from
the Exchange Debentures upon which they were issued, but instead are aggregated
with such Exchange Debentures for OID purposes.
The right to issue additional Exchange Debentures in lieu of paying cash
interest through January 15, 2003 is treated for purposes of the OID provisions
of the Code as an option to defer the interest payments on the Exchange
Debentures. The OID regulations provide that in the case of a debt instrument
that provides the issuer with an unconditional option or options exercisable
during the term of the debt instrument that, if exercised, require payments to
be made on the debt instrument under an alternative
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payment schedule, the yield and maturity of such debt instrument for purposes of
calculating OID are determined by assuming the issuer exercises or does not
exercise the option in a manner that minimizes the yield on the debt instrument.
If the issue price of the Exchange Debentures is equal to their principal
amount, the yield to maturity of the Exchange Debentures, if the option to pay
interest with additional Exchange Debentures is exercised, will be no less than
the yield to maturity would be if the option is not exercised. Accordingly, for
purposes of calculating OID, it would be assumed that we will not exercise the
option because exercise of the option will not minimize the yield. If the option
were in fact subsequently exercised and additional Exchange Debentures were
issued by us in lieu of cash, such additional Exchange Debentures would be
aggregated with the Exchange Debentures upon which they were issued, and OID
would be recalculated for the remainder of the term of the Exchange Debentures
based upon a stated redemption price at maturity which includes the amount of
all payments due under the additional Exchange Debentures. As a result of such
exercise, United States Holders of Exchange Debentures would include OID in
income in advance of the receipt of cash, regardless of such United States
Holders' regular methods of accounting.
If the issue price of the Exchange Debentures is less than their principal
amount, the yield to maturity of the Exchange Debentures, if the option to pay
interest with additional Exchange Debentures is exercised, will be less than the
yield to maturity if the option is not exercised. Accordingly, for purposes of
calculating OID, it would be assumed that we will exercise the option because to
do so will minimize the yield. If we subsequently makes a cash payment instead
of exercising its option to issue an additional Exchange Debenture, the cash
payment made will be treated as a prepayment of the Exchange Debentures,
partially retiring such Exchange Debentures on a pro rata basis on the date of
such payment. Such retirement would be a taxable exchange to the Holder of the
Exchange Debenture.
If the Exchange Debentures are issued after January 15, 2003, we would not
have the option to pay interest with additional Exchange Debentures. In such
event,
- all interest payments on any Exchange Debenture issued will be qualified
stated interest,
- the stated redemption price at maturity of any Exchange Debenture will be
equal to its principal amount, and
- any Exchange Debenture will therefore be issued with OID only to the
extent its principal amount exceeds its issue price by more than a de
minimis amount.
The amount of OID includible in income by the initial United States Holder
of an OID Debenture is the sum of the "daily portions" of OID with respect to
the OID Debenture for each day during the taxable year or portion of the taxable
year in which such United States Holder held such OID Debenture ("accrued OID").
The daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the OID allocable to that accrual period. The
"accrual period" for an OID Debenture may be of any length and may vary in
length over the term of the OID Debenture, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs on the first day or the final day of an accrual period. The amount of OID
allocable to any accrual period is an amount equal to the excess, if any, of
- the product of the OID Debenture's adjusted issue price at the beginning
of such accrual period and its yield to maturity (determined on the basis
of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period, over
- the sum of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. The
calculation of OID for an initial short accrual period may be determined using
any reasonable method. The "adjusted issue price" of an OID Debenture at the
beginning of any accrual
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period is equal to its issue price increased by the accrued OID for each prior
accrual period (determined without regard to the amortization of any acquisition
or bond premium, as described below) and reduced by any payment made on such OID
Debenture, other than qualified stated interest, on or before the first day of
the accrual period.
Exchange Debentures may be redeemed prior to their stated maturity at our
option. For purposes of computing the yield of such instrument, we will be
deemed to exercise or not exercise its option to redeem the OID Debentures in a
manner that minimizes the yield on the OID Debentures. It is not anticipated
that our ability to redeem prior to stated maturity would affect the yield of
such instrument.
In the event of a change of control, we will be required to offer to
repurchase all of the Exchange Debentures. The right of holders to require
repurchase upon a change of control will not affect the yield or maturity date
of the Exchange Debentures unless, based on all the facts and circumstances as
of the issue date, it is more likely than not that such an event giving rise to
the repurchase will occur. We do not intend to treat the change of control
provisions of the Exchange Debentures as affecting the computation of the yield
to maturity of any Exchange Debentures.
United States Holders may elect to treat all interest on any Exchange
Debenture as OID and calculate the amount to be included in gross income under
the constant yield method described above. For the purposes of this election,
interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount and unstated interest, as adjusted
by any amortizable bond premium or acquisition premium. The election is to be
made for the taxable year in which the United States Holder acquired the
Exchange Debenture, and may not be revoked without the consent of the U.S.
Internal Revenue Service. United States Holders should consult with their own
tax advisors about this election.
MARKET DISCOUNT ON RESALE OF EXCHANGE DEBENTURES
If a United States Holder acquires an Exchange Debenture, other than an OID
Debenture, for an amount less than its stated redemption price at maturity or,
in the case of an OID Debenture, for an amount that is less than its adjusted
issue price, the amount of the difference will be treated as "market discount"
for U.S. federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a United States
Holder will be required to treat any principal payment on an Exchange Debenture,
or any gain on the sale, exchange, retirement or other disposition of an
Exchange Debenture as ordinary income to the extent of the market discount which
has not previously been included in income and is treated as having accrued on
such Exchange Debenture at the time of such payment or disposition. In addition,
the United States Holder may be required to defer, until the maturity of the
Exchange Debenture or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such Exchange Debenture.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Exchange Debenture,
unless the United States Holder elects to accrue on a constant interest method.
A United States Holder of an Exchange Debenture may elect to include market
discount in income currently as it accrues (on either a ratable or constant
interest method), in which case the rule described above regarding deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations acquired
on or after the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases an Exchange Debenture for an amount
that is greater than its adjusted issue price but equal to or less than the sum
of all amounts payable on the Exchange Debenture
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after the purchase date, other than qualified stated interest, will be
considered to have purchased such Exchange Debenture at an "acquisition
premium." Under the acquisition premium rules, the amount of OID, if any, which
such United States Holder must include in its gross income with respect to such
Exchange Debenture for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
If immediately after the time the Preferred Stock is exchanged for Exchange
Debentures or immediately after the time a subsequent United States Holder
acquires Exchange Debentures, the United States Holder's tax basis in any such
Exchange Debenture exceeds the sum of all amounts payable on the Exchange
Debenture after the exchange date or purchase date, other than qualified stated
interest, such excess may constitute "premium" and such United States Holder
will not be required to include any OID in income. A United States Holder
generally may elect to amortize bond premium over the remaining term of the
Exchange Debenture on a constant yield method. The amount amortized in any year
will be treated as a reduction of the United States Holder's interest income
from the Exchange Debenture. Bond premium on an Exchange Debenture held by a
United States Holder that does not make such an election will decrease the gain
or increase the loss otherwise recognized on disposition of the Exchange
Debenture. The election to amortize bond premium on a constant yield method once
made applies to all debt obligations held or subsequently acquired by the
electing United States Holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the Internal Revenue Service.
REDEMPTION, SALE OR EXCHANGE OF EXCHANGE DEBENTURES
The adjusted tax basis of a United States Holder who receives Exchange
Debentures in exchange for Preferred Stock will, in general, be equal to the
issue price of such Exchange Debentures, increased by OID and market discount
previously included in income by the United States Holder and reduced by any
amortized premium and any cash payments on the Exchange Debentures other than
qualified stated interest. Upon the redemption, sale, exchange or retirement of
an Exchange Debenture, a United States Holder will recognize gain or loss equal
to the difference between the amount realized upon the redemption, sale,
exchange or retirement (less any accrued qualified stated interest, not
previously taken into account, which will be taxable as such) and the adjusted
tax basis of the Exchange Debenture. Such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if at the time of redemption,
sale, exchange or retirement the Exchange Debenture has been held for more than
one year. In the case of an individual United States Holder, any such capital
gain will be taxable at various preferential rates depending on the extent to
which such United States Holder's holding period for the Exchange Debenture
exceeds one year. The deduction of capital losses is subject to certain
limitations. Prospective investors should consult their own tax advisors in this
regard.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
If the yield-to-maturity on OID Debentures equals or exceeds the sum of
- the "applicable federal rate" (as determined under Section 1274(d) of the
Code) in effect for the month in which the OID Debentures are issued (the
"AFR") and
- 5% and the OID on such OID Debentures is "significant",
the OID Debentures will be considered "applicable high yield discount
obligations" ("AHYDOs") under Section 163(i) of the Code. OID is significant if
the aggregate amount includible in gross income for periods before the close of
any accrual period ending more than five years after the issue date exceeds the
sum of the aggregate amount of interest to be paid before the close of such
accrual period plus the product of the issue price and the yield to maturity. If
the OID Debentures are AHYDOs, Dobson will not be allowed to take a deduction
for OID accrued on the OID Debentures for U.S. federal income tax purposes
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until such time as we actually pay such OID in cash or in other property, other
than our stock or debt or of a person deemed to be related to us under Section
453(f)(1) of the Code.
Moreover, if the yield-to-maturity on the OID Debenture exceeds the sum of
- the AFR and
- 6%, such excess being referred to hereinafter as the "Disqualified Yield",
the deduction for OID accrued on the OID Debentures will be permanently
disallowed, regardless of whether we actually pay such OID in cash or in
other property, for U.S. federal income tax purposes to the extent such
OID is attributable to the Disqualified Yield on the OID Debentures
("Dividend-Equivalent Interest"). For purposes of the dividends received
deduction, such Dividend-Equivalent Interest will be treated as a dividend
to the extent it is deemed to have been paid out of Dobson's current or
accumulated earnings and profits.
Because the amount of OID, if any, attributable to the Exchange Debentures
will be determined at the time such Exchange Debentures are issued, and the AFR
at such time is not predictable, it is impossible to determine at the present
time whether an OID Debenture will be treated as an AHYDO.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, principal, interest, OID, and premium and to the proceeds
of sales of Exchange Debentures and Preferred Stock made to United States
Holders other than certain exempt recipients (such as corporations). A 31%
backup withholding tax will apply to such payments if the United States Holder
fails to provide a taxpayer identification number or certification of foreign or
other exempt status or fails to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such United States Holder's U.S. federal income tax
liability provided the required information is timely furnished to the IRS.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
DISTRIBUTIONS ON THE PREFERRED STOCK
Distributions received by a Non-United States Holder in respect of the
Preferred Stock, whether in cash or additional shares of Preferred Stock, to the
extent considered dividends for U.S. federal income tax purposes, generally will
be subject to U.S. federal withholding tax at a 30% rate, or a lower rate
prescribed by an applicable income tax treaty, unless such distributions are
effectively connected with a trade or business carried on by the Non-United
States Holder within the United States and, if an income tax treaty applies, are
attributable to a permanent establishment maintained by the Non-United States
Holder within the United States. For purposes of obtaining a reduced rate of
withholding under an income tax treaty, a Non-United States Holder will be
required to provide certain information concerning such holder's country of
residence and entitlement to income tax treaty benefits. A Non-United States
Holder that is eligible for a reduced rate of U.S. federal withholding tax
pursuant to an income tax treaty may obtain a refund of any excess amounts
currently withheld by timely filing an appropriate claim for refund.
Dividends effectively connected with a U.S. trade or business and, if a
treaty applies, attributable to a U.S. permanent establishment generally will
not be subject to the 30% U.S. withholding tax provided that the Non-United
States Holder provides appropriate certifications (currently IRS Form W-8) to us
or our paying agent. Such effectively connected income instead will be subject
to U.S. federal income tax on a net income basis in the same manner as if the
Non-United States Holder were a resident of the United States. In addition, if
such holder is a foreign corporation, such effectively connected income may be
subject to a
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branch profits tax equal to 30% (or such lower rate as specified by an
applicable income tax treaty) of its effectively connected earnings and profits
for the taxable year, subject to certain adjustments.
Constructive distributions on the Preferred Stock may be subject to the 30%
U.S. withholding tax in the year in which the distributions are deemed to have
occurred. Prospective investors are urged to consult their own tax advisors with
respect to the application of the withholding tax rules to constructive
distributions on the Preferred Stock. See "--Tax Consequences to United States
Holders--Redemption Premium."
PAYMENTS OF INTEREST AND OID ON THE EXCHANGE DEBENTURES
A Non-United States Holder generally will not be subject to the 30% U.S.
federal withholding tax with respect to the payment of interest (including OID)
on an Exchange Debenture owned by a Non-United States Holder (the "Portfolio
Interest Exception"), provided that such Non-United States Holder
- does not actually or constructively own 10% or more of the total combined
voting power of all of our classes of stock entitled to vote,
- is not a controlled foreign corporation that is related, directly or
indirectly, to us through stock ownership,
- is not a bank receiving OID or interest pursuant to a loan agreement
entered into in the ordinary course of its trade or business, and
- satisfies certain certification requirements (described generally below)
designed to enable us or other withholding agent to verify that a holder
is in fact a Non-United States Holder.
To satisfy the certification requirement referred to above, the beneficial
owner of such Exchange Debenture or a financial institution that holds
customers' securities in the ordinary course of its trade or business must
provide us or our paying agent with a statement to the effect that the
beneficial owner is not a United States Holder. These requirements generally
will be met if
- the beneficial owner provides his name, address and certain other
information, and certifies under penalties of perjury that he is not a
United States Holder (which certification may be made on an IRS Form W-8)
or
- a financial institution that holds customers' securities in the ordinary
course of its trade or business certifies under penalties of perjury that
such statement has been received by it and furnishes Dobson or its paying
agent with a copy thereof.
If a Non-United States Holder is engaged in a trade or business within the
United States, and interest (including OID) on an Exchange Debenture is
effectively connected with the conduct of such trade or business and, if a
treaty applies, is attributable to a permanent establishment maintained by such
Non-United States Holder in the United States, such holder will be subject to
U.S. federal income tax on such payment on a net income basis in the same manner
as if it were a United States Holder. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30%, or such
lower rate as specified by an applicable income tax treaty, of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments.
A Non-United States Holder that is not eligible for the Portfolio Interest
Exception instead may be eligible to secure a reduced rate of withholding under
a valid income tax treaty entered into between the United States and such
Non-United States Holder's country of residence. Such a Non-United States Holder
generally will be required to provide certain certifications to us or our paying
agent in order to claim entitlement to the benefits of the applicable income tax
treaty.
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SALE OR DISPOSITION OF THE PREFERRED STOCK OR THE EXCHANGE DEBENTURES
Subject to the discussion below in "--Consequences to Non-United States
Holders--FIRPTA Treatment," any gain or income realized upon the sale, exchange,
retirement or other disposition of the Preferred Stock or the Exchange
Debentures generally will not be subject to U.S. federal income tax unless
- such gain or income is effectively connected with a trade or business in
the United States of the Non-United States Holder and, if a treaty
applies, attributable to a U.S. permanent establishment maintained by the
Non-United States Holder, or
- in the case of an individual who is a Non-United States Holder, such
individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met.
FIRPTA TREATMENT
At present, we believe that we are not a U.S. real property holding company
within the meaning of Section 897(c)(2) of the Code, and that it does not expect
to become a U.S. real property holding company in the forseeable future. No
assurance can be given, however, that the IRS will not reach a different
conclusion or that our expectation for the future will not change. If we are
found to be a U.S. real property holding company, then a Non-United States
Holder of Preferred Stock may be subject to U.S. federal income tax in respect
of gain realized on the sale or other disposition of the Preferred Stock
(including an exchange for Exchange Debentures or a redemption) as if the gain
represented income effectively connected with a U.S. trade or business. A
Non-United States Holder will not be subject to such tax, however, if the
Preferred Stock is regularly traded on an established securities market at the
time of a sale or other disposition, and the holder has not owned more than 5%
of the Preferred Stock at any time during the five-year period, or shorter
holding period for the Preferred Stock, ending on the sale or disposition date.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, interest, OID and premium and to the proceeds of sales of
Exchange Debentures and Preferred Stock made to Non-United States Holders, other
than certain exempt recipients. In addition, a backup withholding tax of 31% may
apply to such payments unless the Non-United States Holder provides appropriate
certification of foreign status. Prospective Non-United States Holders should
consult their own tax advisors regarding the application of the new Treasury
regulations to an investment in the Preferred Stock and Exchange Debentures.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES THAT WOULD RESULT FROM THEIR PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED STOCK AND THE EXCHANGE DEBENTURES, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the old shares. We do not intend to apply for the listing of the
Preferred Stock on a national securities exchange or for their quotation through
The Nasdaq Stock Market. The Preferred Stock is eligible for trading in the
PORTAL market. We have been advised by the Initial Purchaser that the Initial
Purchaser currently intends to make a market in the Preferred Stock; however,
the Initial Purchaser is not obligated to do so and any market making may be
discontinued by the Initial Purchaser at any time. In addition, such market
making activity may be limited during the exchange offer. Therefore, there can
be no assurance that an active market for the old shares or the new shares will
develop. If a trading market does not develop or is not maintained, holders of
Preferred Stock may experience difficulty in reselling Preferred Stock. If a
trading market develops for the Preferred Stock, future trading prices of such
securities will depend on many factors, including, among other things,
prevailing interest rates, our results of operations and the market for similar
securities. Depending on such factors, such securities may trade at a discount
from their offering price.
BROKER-DEALERS WHO DID NOT ACQUIRE OLD SHARES AS A RESULT OF MARKET MAKING
ACTIVITIES OR TRADING ACTIVITIES MAY NOT PARTICIPATE IN THE EXCHANGE OFFER.
With respect to resale of new shares, based on an interpretation by the
staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder (other than a person that is our affiliate within the
meaning of Rule 405 under the Securities Act or a "broker" or "dealer"
registered under the Exchange Act) who exchanges old shares for new shares in
the ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the new shares, will be allowed to resell
the new shares to the public without further registration under the Securities
Act and without delivering to the purchasers of the new shares a prospectus that
satisfies the requirements of Section 10 thereof. However, if any holder
acquires new shares in the exchange offer for the purpose of distributing or
participating in a distribution of the new shares, such holder cannot rely on
the position of the staff of the SEC enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988) or similar no-action letters or any similar
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the no-action letters mentioned above and the
registration rights agreement, each holder accepting the exchange offer is
required to represent to us in the letter of transmittal that
- the new shares are to be acquired by the holder in the ordinary course of
business
- the holder is not engaging and does not intend to engage in the
distribution of the new shares, and
- the holder acknowledges that, if such holder participates in the exchange
offer for the purpose of distributing the new shares, such holder must
comply with the registration and prospectus delivery requirements of the
Securities Act and cannot rely on the above no-action letters.
Any broker or dealer registered under the Exchange Act (each a
"Broker-Dealer") who holds old shares that were acquired for its own account as
a result of market-making activities or other trading activities (other than old
shares acquired directly from us or our affiliate) may exchange such old shares
for new shares pursuant to the exchange offer; however, such Broker-Dealer may
be deemed an underwriter within the meaning of the Securities Act and,
therefore, must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales of the new shares received by it in the
exchange offer, which prospectus delivery requirement may be satisfied by the
delivery by such Broker-Dealer of this prospectus. We have agreed to cause the
exchange offer Registration Statement, of which this prospectus is a part, to
remain continuously effective for a period of 180 days, if required, from the
exchange date, and to make this prospectus, as amended or supplemented,
available to any such Broker-Dealer for use in
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connection with resales. Any Broker-Dealer participating in the exchange offer
will be required to acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of new shares
received by it in the exchange offer. The delivery by a Broker-Dealer of a
prospectus in connection with resales of new shares shall not be deemed to be an
admission by such Broker-Dealer that it is an underwriter within the meaning of
the Securities Act. We will not receive any proceeds from any sale of new shares
by a Broker-Dealer.
New shares received by Broker-Dealers for their own account pursuant to the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new shares or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Broker-Dealer and/or the
purchasers of any such new shares.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Preferred Stock
are being passed upon for Dobson Communications Corporation by McAfee & Taft A
Professional Corporation, Oklahoma City, Oklahoma.
EXPERTS
Arthur Andersen LLP, independent public accountants, have audited the
following financial statements included in this prospectus and elsewhere in the
registration statement as indicated in their reports with respect thereto as of
the dates indicated:
- The consolidated balance sheets of Dobson Communications Corporation and
subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998.
- The balance sheets of Gila River Cellular General Partnership as of
December 31, 1995 and 1996, and the related statements of operations,
changes in partners' capital and cash flows for each of the three years in
the period ended December 31, 1996.
We have included the above financial statements in reliance upon Arthur
Andersen LLP's authority as experts in giving such reports.
Ernst & Young LLP, independent auditors, have audited the following
financial statements included in this prospectus and elsewhere in the
registration statement as set forth in their reports also included herein. The
financial statements are included herein in reliance on their reports, given on
their authority as experts in accounting and auditing.
- The combined statements of assets and liabilities of The Cellular
Telephone Business of Selected Systems of Horizon Cellular Telephone
Company, L.P. as of December 31, 1995 and 1996, and the related combined
statements of operations and net assets and of cash flows for each of the
three years in the period ended December 31, 1994, 1995 and 1996.
- The consolidated financial statements of Sygnet Wireless, Inc. for the
years ended December 31, 1996 and 1997, and for the period from January 1,
1998 through December 23, 1998.
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Holliday, Lemons, Thomas & Cox, P.C. (now Holliday, Lemons & Cox, P.C.),
independent public accountants, has audited the following financial statements
appearing in this prospectus and elsewhere in the Registration Statement, as
indicated in their report appearing herein with respect thereto:
- The balance sheets of Cellular 2000 (A Partnership) as of December 31,
1996 and 1997, and the related statements of income, changes in partners'
equity and cash flows for the years ended December 31, 1996 and 1997.
We have included the above financial statements in reliance of the report of
Holliday, Lemons, Thomas & Cox, P.C., given upon its authority as experts in
accounting and auditing.
189
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CERTAIN TERMS
1997 ACQUISITIONS--The West Maryland Acquisition and the Arizona 5
Acquisition.
ACQUISITIONS--The 1997 Acquisitions, the California 4 Acquisition and the
Sygnet acquisition.
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.
AT&T--AT&T Corp.
AT&T WIRELESS--AT&T Wireless Services, Inc. and its affiliates.
ATTI--Associated Telecommunications and Technologies, Inc., an affiliate of
Dobson Communications Corporation.
BAM--Bell Atlantic Mobile.
BELL ATLANTIC--Bell Atlantic Corporation.
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.
CHILDS--J.W. Childs Equity Partnership II, L.P. and a group of partnerships,
trusts and individuals who became shareholders of Dobson Communications
Corporation on December 23, 1998 by the Investors Agreement executed on their
behalf by J.W. Childs Equity Partners, L.P., a Delaware limited partnership.
CHURN--The number of cellular subscriber cancellations per month as a
percentage of the weighted average 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, an FCC term referring to cellular or
PCS services.
CMT--CMT Partners, a partnership between AT&T Wireless and AirTouch.
CREDIT FACILITIES--The DOC Credit Facility, the DCOC Credit Facility and the
New Credit Facilities.
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
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partnership, and members of his family and trusts established for certain of his
family members are limited partners.
DOBSON 11 3/4% SENIOR NOTES DUE 2007--The 11 3/4% Senior Notes due 2007
issued by Dobson Communications Corporation.
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 12 1/4% NOTES DUE 2008 OR DOBSON/SYGNET NOTES--The 12 1/4%
Senior Notes due 2008 to be issued by Dobson/Sygnet.
DOBSON/SYGNET OPERATING--Dobson/Sygnet Operating Company, a wholly owned
subsidiary of Dobson/ Sygnet.
DOBSON TOWER--Dobson Tower Company, a wholly owned subsidiary of Dobson
Communications Corporation.
DOC--Dobson Operating 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.
DTC--Depository Trust Company.
EAST MARYLAND ACQUISITION; 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.
ERICSSON--Telefonaktiebolaget LM Ericsson and its affiliates.
EXCHANGE DEBENTURES--The 12 1/4% Senior Subordinated Debentures due 2008
which may be issued by us.
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.
FINANCING AGREEMENTS--The Senior Note Indenture; the certificates of
designation governing Senior Preferred Stock and the Preferred Stock; and the
documents and instruments governing and evidencing the Credit Facilities.
GTE--GTE Corporation and its affiliates.
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.
INVESTORS AGREEMENT--that certain agreement dated December 23, 1998 among
Childs, the Dobson Partnership and us.
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ITDS--International Telecommunications Data Service.
LOGIX--Logix Communications Enterprises, Inc., a wholly owned subsidiary of
Dobson Communications Corporation.
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.
NORTHERN TELECOM--Northern Telecom, Inc.
OHIO 2 ACQUISITION; OHIO 2--Our acquisition on September 2, 1998 of the FCC
license for, and certain assets related to, Ohio 2 RSA ("Ohio 2").
OKLAHOMA TELECOM ACT--Oklahoma Telecommunications Act of 1997.
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").
POPS--The estimated population of an MSA or RSA, as derived from the KAGAN
CELLULAR TELEPHONE ATLAS for 1998.
REGISTRATION RIGHTS AGREEMENT--The Registration Rights Agreement dated
December 23, 1998 between NationsBanc Montgomery Securities LLC and Dobson
Communications Corporation.
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.
SBC--SBC Communications, Inc.
SENIOR NOTES--Our outstanding 11 3/4% Senior Notes due 2007 issued by us on
February 28, 1997.
SENIOR NOTE INDENTURE--The indenture dated as of February 28, 1997 between
Dobson Communications Corporation and United States Trust Company of New York,
governing the Senior Notes.
SENIOR PREFERRED STOCK--Our outstanding 12 1/4% Senior Exchangeable
Preferred Stock and additional shares issued to pay dividends thereon.
SPRINT--Sprint Corporation and affiliated companies.
SWBM--Southwestern Bell Mobile Systems, Inc.
SWBT--Southwestern Bell Telephone Company.
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.
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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 New Credit Facilities, the repayment of Sygnet's credit facility, and
the purchase of Sygnet Notes in the Sygnet Tender Offer.
SYSTEM--An FCC-licensed cellular telephone system.
TELECOMMUNICATIONS ACT--The Telecommunications Act of 1996.
TDMA--A digital technology that uses time division multiple access.
TOWER SALE LEASEBACK--Sygnet's December 23, 1998 sale of substantially all
of its owned cellular towers for $25.0 million to Dobson Tower, which leased the
towers back to Sygnet.
TRANSACTIONS--The 1997 Transactions and the 1998 Transactions.
U.S. CELLULAR--United States Cellular Corporation.
US WEST--US WEST, Inc. and its affiliated companies.
VANGUARD--Vanguard Cellular Systems, Inc.
WESTERN WIRELESS--Western Wireless Corporation.
WORLDCOM--MCI WorldCom, Inc.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Report of independent public accountants....................................................................... F-2
Consolidated balance sheets as of December 31, 1997 and 1998................................................... F-3
Consolidated statements of operations for the years ended December 31, 1996, 1997
and 1998..................................................................................................... F-5
Consolidated statements of stockholders' equity for the years ended December 31, 1996, 1997 and 1998........... F-7
Consolidated statements of cash flows for the years ended December 31, 1996, 1997 and 1998..................... F-8
Notes to consolidated financial statements..................................................................... F-10
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF HORIZON CELLULAR TELEPHONE COMPANY, L.P.
Report of independent auditors................................................................................. F-29
Combined statements of assets and liabilities as of December 31, 1995 and 1996................................. F-30
Combined statements of operations and net assets for the years ended December 31, 1994, 1995 and 1996.......... F-31
Combined statements of cash flows for the years ended December 31, 1994, 1995 and 1996......................... F-32
Notes to combined financial statements......................................................................... F-33
GILA RIVER CELLULAR GENERAL PARTNERSHIP
Report of independent public accountants....................................................................... F-38
Balance sheets as of December 31, 1995 and 1996................................................................ F-39
Statements of operations for the years ended December 31, 1994, 1995 and 1996.................................. F-40
Statements of changes in partners' capital for the years ended December 31, 1994, 1995 and 1996................ F-41
Statements of cash flows for the years ended December 31, 1994, 1995 and 1996.................................. F-42
Notes to financial statements.................................................................................. F-43
Balance sheet as of September 30, 1997 (unaudited)............................................................. F-46
Statements of operations for the nine months ended September 30, 1996 and 1997 (unaudited)..................... F-47
Statements of changes in partners' capital for the year ended December 31, 1996 and the nine months ended
September 30, 1997 (unaudited)............................................................................... F-48
Statements of cash flows for the nine months ended September 30, 1996 and 1997 (unaudited)..................... F-49
Notes to financial statements (unaudited)...................................................................... F-50
CELLULAR 2000 (A PARTNERSHIP)
Report of independent auditors................................................................................. F-51
Balance sheets as of December 31, 1996 and 1997................................................................ F-52
Statements of income for the years ended December 31, 1996 and 1997............................................ F-53
Statements of changes in partners' equity for the years ended December 31, 1996 and 1997....................... F-54
Statements of cash flows for the years ended December 31, 1996 and 1997........................................ F-55
Notes to financial statements.................................................................................. F-56
Balance sheets as of December 31, 1997 and March 31, 1998 (unaudited).......................................... F-64
Statements of income for the three months ended March 31, 1997 and 1998 (unaudited)............................ F-65
Statement of changes in partners' equity for the three months ended March 31, 1997 and 1998.................... F-66
Statements of cash flows for the three months ended March 31, 1997 and 1998 (unaudited)........................ F-67
Notes to financial statements (unaudited)...................................................................... F-68
SYGNET WIRELESS, INC.
Report of independent auditors................................................................................. F-75
Consolidated statements of operations for the years ended December 31, 1996 and 1997 and for the period from
January 1, 1998 to December 23, 1998......................................................................... F-76
Consolidated statements of shareholders' equity (deficit) for the years ended December 31, 1996 and 1997 and
for the period from January 1, 1998 to December 23, 1998..................................................... F-77
Consolidated statements of cash flows for the years ended December 31, 1996 and 1997 and for the period from
January 1, 1998 to December 23, 1998......................................................................... F-78
Notes to consolidated financial statements..................................................................... F-79
</TABLE>
F-1
<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, 1997 and 1998, 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, 1997 and
1998, 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.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 18, 1999
F-2
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,752,399 $ 22,323,734
Accounts receivable--
Due from customers, net of allowance for doubtful accounts of $632,661 and
$2,043,200 in 1997 and 1998, respectively................................ 14,003,688 43,299,568
Affiliates................................................................. 633,146 --
Restricted cash and investments.............................................. 17,561,231 30,074,946
Inventory.................................................................... 1,229,420 5,158,512
Prepaid expenses and other................................................... 2,384,683 2,026,538
Deferred income taxes........................................................ 214,000 1,404,000
-------------- ----------------
Total current assets....................................................... 38,778,567 104,287,298
-------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, net............................................. 52,373,866 173,054,329
-------------- ----------------
OTHER ASSETS:
Receivables--Affiliates...................................................... 529,107 227,990
Notes receivable--Affiliates................................................. 5,852,282 7,047,272
Restricted investments....................................................... 9,216,202 45,505,020
Cellular license acquisition costs, net of accumulated amortization of
$13,814,229 and $43,879,184 in 1997 and 1998, respectively................. 206,694,474 1,250,790,448
Deferred financing costs, net of accumulated amortization of $2,628,777 and
$2,511,661 in 1997 and 1998, respectively.................................. 9,884,308 66,640,301
Other intangibles, net of accumulated amortization of $851,107 and $2,071,047
in 1997 and 1998, respectively............................................. 9,328,031 52,795,841
Investments in unconsolidated subsidiaries and other......................... 6,911,002 3,078,134
Net assets of discontinued operations........................................ 20,077,167 --
-------------- ----------------
Total other assets......................................................... 268,492,573 1,426,085,006
-------------- ----------------
Total assets............................................................... $ 359,645,006 $ 1,703,426,633
-------------- ----------------
-------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable............................................................. $ 11,708,420 $ 47,536,672
Accrued expenses............................................................. 7,641,021 14,222,306
Notes payable................................................................ -- 17,500,000
Deferred revenue and customer deposits....................................... 1,979,508 5,738,381
Current portion of long-term debt............................................ -- 198,871
Accrued dividends payable.................................................... 1,595,238 5,603,856
-------------- ----------------
Total current liabilities.................................................. 22,924,187 90,800,086
-------------- ----------------
Net liabilities of discontinued operations..................................... -- 7,033,166
Payables--affiliates........................................................... 8,206,935 5,011,438
Long-term debt, net of current portion......................................... 335,570,059 1,103,857,333
Deferred Tax Liabilities....................................................... 1,039,000 245,630,000
Minority Interests............................................................. 16,954,165 26,557,203
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...................................................... 100,000 314,286
Class A common stock, $.001 par value, 1,438,000 shares authorized and
473,152 issued in 1997 and 573,152 issued in 1998.......................... 473 573
Paid-in capital.............................................................. 5,980,964 18,298,072
Retained deficit............................................................. (42,754,106) (119,269,863)
-------------- ----------------
(36,672,669) (100,656,932)
-------------- ----------------
Less--
Stock held in treasury (81,198 shares of Class A common stock and 314,296
shares of Class A preferred stock), at cost................................ -- (56,125,661)
-------------- ----------------
Total stockholders' deficit................................................ (36,672,669) (156,782,593)
-------------- ----------------
Total liabilities and stockholders' deficit................................ $ 359,645,006 $ 1,703,426,633
-------------- ----------------
-------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
OPERATING REVENUE:
Service revenue................................................. $ 17,593,317 $ 38,410,263 $ 69,402,405
Roaming revenue................................................. 7,852,532 26,262,370 66,479,068
Equipment sales................................................. 661,632 1,455,088 4,129,633
Other........................................................... 831,802 586,206 24,283
------------- -------------- --------------
Total operating revenue....................................... 26,939,283 66,713,927 140,035,389
------------- -------------- --------------
OPERATING EXPENSES:
Cost of service................................................. 6,118,734 16,430,603 33,267,093
Cost of equipment............................................... 2,571,531 4,045,500 8,359,739
Marketing and selling........................................... 4,462,227 10,669,485 22,392,927
General and administrative...................................... 3,901,631 11,555,355 26,051,564
Depreciation and amortization................................... 5,241,446 16,797,780 47,109,937
------------- -------------- --------------
Total operating expenses...................................... 22,295,569 59,498,723 137,181,260
------------- -------------- --------------
OPERATING INCOME.................................................. 4,643,714 7,215,204 2,854,129
------------- -------------- --------------
INTEREST EXPENSE.................................................. (4,283,482) (27,639,739) (38,978,898)
OTHER INCOME (EXPENSE), net....................................... (1,502,776) 2,776,730 3,858,290
------------- -------------- --------------
LOSS BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES, INCOME
TAXES AND EXTRAORDINARY ITEMS................................... (1,142,544) (17,647,805) (32,266,479)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES...................... (675,098) (1,693,372) (2,487,441)
------------- -------------- --------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.................. (1,817,642) (19,341,177) (34,753,920)
INCOME TAX BENEFIT................................................ 593,307 3,624,610 11,469,000
------------- -------------- --------------
LOSS FROM CONTINUING OPERATIONS................................... (1,224,335) (15,716,567) (23,284,920)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of income tax
expense (benefit) of $182,512 in 1996, $470,170 in 1997 and
$(13,352,877) in 1998 (Note 3).................................. 331,058 332,141 (27,110,387)
------------- -------------- --------------
LOSS BEFORE EXTRAORDINARY ITEMS................................... (893,277) (15,384,426) (50,395,307)
</TABLE>
F-5
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
EXTRAORDINARY EXPENSE, net of income tax benefit of $323,205 in
1996, $827,210 in 1997 and $1,149,000 in 1998 (Note 6).......... $ (527,334) $ (1,349,659) $ (2,165,439)
------------- -------------- --------------
NET LOSS.......................................................... (1,420,611) (16,734,085) (52,560,746)
DIVIDENDS ON PREFERRED STOCK...................................... (849,137) (2,603,362) (23,955,011)
------------- -------------- --------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS........................ $ (2,269,748) $ (19,337,447) $ (76,515,757)
------------- -------------- --------------
------------- -------------- --------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON SHARE:
Before discontinued operations and extraordinary expense........ (4.38) (38.72) (99.75)
Discontinued operations......................................... .70 .70 (57.25)
Extraordinary expense........................................... (1.12) (2.85) (4.57)
------------- -------------- --------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE........................................................... $ (4.80) $ (40.87) $ (161.57)
------------- -------------- --------------
------------- -------------- --------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 473,152 473,152 473,564
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<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 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ------------
DECEMBER 31, 1997............ 100,000 100,000 473,152 473 -- -- -- -- 5,980,964
Net loss................... -- -- -- -- -- -- -- -- --
Conversion of Class B
Preferred Stock.......... -- -- 100,000 100 -- -- -- -- 12,531,394
Purchase of treasury stock,
at cost.................. -- -- -- -- -- -- -- -- --
Issuance of preferred
stock.................... 214,286 214,286 -- -- -- -- -- -- (214,286)
Preferred stock dividend... -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ------------
DECEMBER 31, 1998............ 314,286 $ 314,286 573,152 $ 573 -- $ -- -- $ -- $ 18,298,072
--------- --------- --------- --------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- --------- --------- --------- ------------
<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) --
Issuance of preferred
stock.................... -- --
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.
F-7
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations.......................... $ (1,751,669) $ (17,066,226) $ (25,450,359)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization.............................. 5,241,446 16,797,780 47,109,937
Deferred income taxes and investment tax credits, net...... (97,287) (4,108,699) (14,677,558)
Loss on disposition of assets, net......................... 1,799,570 205,694 158,067
Extraordinary loss on financing cost....................... 850,539 2,176,867 3,314,439
Minority interests in income of subsidiaries............... 675,098 1,693,372 2,487,441
Equity in income of unconsolidated partnerships............ (125,000) (140,227) (283,798)
Changes in current assets and liabilities--
Accounts receivable........................................ (1,089,370) (7,279,109) (8,358,070)
Inventory.................................................. (546,907) (143,890) (860,921)
Income taxes receivable.................................... (1,133,063) 288,063 845,000
Prepaid expenses and other................................. 26,518 (1,422,629) 418,482
Accounts payable........................................... 1,310,062 8,656,849 30,206,977
Accrued expenses........................................... (50,933) 6,459,876 (7,888,703)
Deferred revenue and customer deposits..................... 129,699 789,889 1,003,412
--------------- --------------- --------------
Net cash provided by operating activities................ 5,238,703 6,907,610 28,024,346
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (13,535,759) (17,773,118) (55,288,571)
Purchase of cellular license and properties.................. (30,000,000) (190,719,765) (945,420,000)
Proceeds from sale of property, plant and equipment.......... 377,178 332,331 12,600
Proceeds from sale of investment in unconsolidated
subsidiary................................................. 967,000 -- --
(Increase) decrease in deposits.............................. (1,350,000) 1,583,706 (149,379)
Decrease in receivable--affiliate............................ 953,736 (2,537,600) 301,117
Decrease in payable--affiliate............................... -- -- (3,195,497)
Increase in notes receivable................................. (1,004,435) (2,585,517) (1,194,990)
Deferred costs............................................... 124,739 -- --
Investment in unconsolidated subsidiaries and other, net..... (426,811) (5,940,344) 5,871,788
--------------- --------------- --------------
Net cash used in investing activities.................... (43,894,352) (217,640,307) (999,062,932)
--------------- --------------- --------------
</TABLE>
F-8
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................................. $ -- $ -- $ 17,500,000
Proceeds from long-term debt................................. 63,738,694 343,500,000 940,000,000
Repayments of long-term debt................................. (24,318,859) (87,171,765) (171,513,855)
Dividend distributions--
Preferred stock.............................................. (176,748) (117,186) --
Common stock................................................... (549,564) (7,633,620) --
Distributions to partners.................................... (145,005) (458,378) (911,223)
Issuance of preferred stock.................................. 10,000,000 -- 340,000,000
Purchase of treasury stock................................... (5,913,000) -- (31,125,661)
Minority investment in Dobson Tower Company.................. -- -- 7,718,750
Purchase of restricted investments........................... -- (38,389,299) (67,733,293)
Maturities of restricted investments......................... -- 10,836,243 17,483,654
Deferred financing costs..................................... (3,731,741) (9,725,288) (62,038,663)
Amortization of deferred financing costs and bond premium.... -- 1,663,818 1,230,212
--------------- --------------- --------------
Net cash provided by financing activities................ 38,903,777 212,504,525 990,609,921
--------------- --------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................... 248,128 1,771,828 19,571,335
CASH AND CASH EQUIVALENTS, beginning of year................... 732,443 980,571 2,752,399
--------------- --------------- --------------
CASH AND CASH EQUIVALENTS, end of year......................... $ 980,571 $ 2,752,399 $ 22,323,734
--------------- --------------- --------------
--------------- --------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest (net of amounts capitalized)...................... $ 5,055,749 $ 19,858,250 $ 39,113,948
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...................................................... $ -- $ 1,623,329 $ 16,320,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<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
F-10
<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, including
intangible assets. 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. The fair value of intangible assets will be determined
based
F-11
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
on the discounted cash flows of the market or markets to which the intangible
assets relate. No such losses have been identified by the Company.
The ongoing value and remaining useful lives of intangible and other
long-term assets are subject to periodic evaluation and the Company currently
expects the carrying amounts to be fully recoverable. When events and
circumstances indicate that intangible and other long-term assets might be
impaired, an undiscounted cash flow methodology would be used to determine
whether an impairment loss would be recognized.
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 $1,596,794, $10,528,125 and $30,064,955 was recorded in 1996, 1997
and 1998, 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 $401,871, $1,074,845 and $1,965,461 was recorded in 1996, 1997 and
1998, 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 $0, $851,107 and
$1,219,940 was recorded in 1996, 1997 and 1998, 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.
F-12
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
The Company records service revenues over the period they are earned. The
cost of providing service is recognized as incurred. Airtime and toll revenue is
billed in arrears. The Company accrued estimated unbilled revenues for services
provided of approximately $1,209,000 and $3,445,000 as of December 31, 1997 and
1998, 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.
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
56% of the Company's cellular roaming revenue was earned from two cellular
carriers during the year ended December 31, 1996. Approximately 45% and 59% of
the Company's cellular roaming revenue was earned from three cellular carriers
during the years ended December 31, 1997 and 1998, respectively.
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 $5.4 million relating to its interest rate hedge valuation
at December 31, 1998. The Company has not determined the timing or method of
adoption of SFAS 133.
F-13
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS
The Company intends to distribute the stock of Logix to certain of the
Company's shareholders in a tax-free spin-off. The timing of the spin-off is
subject to receipt of a favorable tax ruling or favorable tax opinion acceptable
to the Company and its shareholders. The wireline segment, or Logix and its
subsidiaries, operates as an integrated communications provider under the
LOGIXSM brand name in Oklahoma and Texas, owns local telephone exchanges in
Oklahoma and operates regional fiber optic transmission networks in Oklahoma,
Texas and Colorado. Pursuant to Accounting Principles Board Opinion ("APB") No.
30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring
Events and Transactions," the consolidated financial statements have been
restated for all periods presented to reflect the wireline operations, assets
and liabilities as discontinued operations. The assets and liabilities of such
operations have been classified as "Net assets (liabilities) of discontinued
operations" on the consolidated balance sheets and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
($ IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................ $ 254 $ 31,675
Restricted investments--current.................................. -- 37,572
Other current assets............................................. 2,758 36,747
Property, plant and equipment, net............................... 35,976 89,508
Restricted investments--non-current.............................. -- 61,988
Goodwill......................................................... -- 126,244
Other assets..................................................... 12,965 21,769
------------ ------------
Total assets................................................... 51,953 405,503
Current liabilities.............................................. 2,544 36,299
Long-term debt, net of current portion........................... 27,498 376,149
Other liabilities................................................ 1,834 88
------------ ------------
Total liabilities.............................................. 31,876 412,536
------------ ------------
Net assets (liabilities) of discontinued operations.............. $ 20,077 $ (7,033)
------------ ------------
------------ ------------
</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,
--------------------------------
1996 1997 1998
--------- --------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................................................ $ 17,908 $ 20,177 $ 67,703
Income (loss) before income taxes........................... 514 886 (40,196)
Income tax benefit (provision).............................. (183) (337) 12,924
Extraordinary item, net..................................... -- (217) --
Cumulative effect of change inaccounting principle, net..... -- -- (699)
Income from discontinued operations......................... 331 332 (27,110)
</TABLE>
F-14
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 any
capitalized interest. For the years ended December 31, 1996, 1997 and 1998, no
interest was capitalized. 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.
Listed below are the major classes of property, plant and equipment and
their estimated useful lives, in years, as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
USEFUL LIFE 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Cellular systems and equipment........................ 2-10 $ 42,279,323 $ 143,501,214
Buildings and improvements............................ 5-40 10,387,759 25,089,448
Vehicles, aircraft and other work equipment........... 3-10 1,895,477 4,402,975
Furniture and office equipment........................ 5-10 3,716,401 14,461,676
Plant under construction.............................. 4,456,878 15,232,700
Land.................................................. 217,892 1,915,733
------------- --------------
Property, plant and equipment....................... 62,953,730 204,603,746
Accumulated depreciation.............................. 10,579,864 31,549,417
------------- --------------
Property, plant and equipment, net.................. $ 52,373,866 $ 173,054,329
------------- --------------
------------- --------------
</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.
F-15
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT:
The Company's long-term debt as of December 31, 1997 and 1998, consisted of
the following:
<TABLE>
<CAPTION>
1997 1998
-------------- ----------------
<S> <C> <C>
Revolving credit facilities................................ $ 171,513,855 $ 740,000,000
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............................................. 335,570,059 1,104,056,204
Less--Current maturities................................... -- 198,871
-------------- ----------------
Total long-term debt................................... $ 335,570,059 $ 1,103,857,333
-------------- ----------------
-------------- ----------------
</TABLE>
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 B") 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.
F-16
<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 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>
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
F-17
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
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 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.
F-18
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
OTHER NOTES PAYABLE
Other notes payable represents the amount financed with the United States
Government for nine PCS licenses as discussed in Note 6.
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 $322,850 and $269,101 was recorded in 1997
and 1998, 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.
F-19
<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 450,000 314,286 $ 1.00 5% Non-cumulative $ 70 --
Class B Preferred Stock -- -- $ 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 405,000 -- $ 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 397,000 -- $ 1.00 -- -- --
----------- -----------
2,500,000 713,199
<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.
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 and one of its
subsidiaries 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, 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
F-20
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' DEFICIT: (CONTINUED)
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.
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
F-21
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS: (CONTINUED)
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.
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet acquired
Sygnet Wireless, Inc. for $337.5 million in cash and preferred stock and
assumption of approximately $309 million of debt, which
F-22
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS: (CONTINUED)
was immediately refinanced (See Note 6). 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 1997 and 1998, 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>
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Operating revenue................................................... $ 211,300 $ 254,447
Loss before discontinued operations and extraordinary items......... (83,000) (81,977)
Net loss............................................................ (117,181) (124,130)
Net loss applicable to common stockholders.......................... (142,022) (148,978)
Basic net loss applicable to common stockholders per common share... $ (300.16) $ (314.59)
</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
$109,000, $179,000 and $274,000 during the years ended December 31, 1997, 1997
and 1998, 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.
F-23
<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-$150 -- --
----------- ------------ ----- ------------
</TABLE>
The following schedule shows the Company's net loss and net loss per share
for the last three years, had compensation expense been determined consistent
with the Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. The pro forma information presented
F-24
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
below is based on several assumptions and should not be viewed as indicative of
the Company in future periods.
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) 1996 1997 1998
- -------------------------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported................................................................... $ (2,270) $ (19,337) $ (76,516)
Pro forma..................................................................... $ (2,309) $ (19,540) $ (76,943)
Basic net loss applicable to common stockholders per common share:
As reported................................................................... $ (4.80) $ (40.87) $ (161.57)
Pro forma..................................................................... $ (4.88) $ (41.30) $ (162.48)
</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 1996, 1997 and 1998, respectively:
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------- -----------
(AMOUNTS EXPRESSED IN PERCENTAGES) 1996 1997 1998 1998
- ----------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Interest rate.............................................. 6.98% 6.60% 5.60% 5.80%
Dividend yield............................................. -- -- -- --
Expected volatility........................................ 39.88% 40.27% 39.79% 40.20%
</TABLE>
The weighted average fair value of options granted using the Black-Scholes
option pricing model for Class B in 1996, 1997 and 1998 was $64.84, $71.42 and
$205.88, 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, 1996, 1997 and
1998, were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Federal income taxes--
Current......................................... $ (452,000) $ -- $ --
Deferred........................................ (83,000) (3,243,000) (10,883,000)
State income taxes (current and deferred)......... (58,000) (382,000) (586,000)
----------- ------------- --------------
Total income tax benefit...................... $ (593,000) $ (3,625,000) $ (11,469,000)
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
F-25
<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, 1996, 1997
and 1998, differ from amounts computed at the statutory rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Income taxes at statutory rate (34%).............. $ (618,000) $ (6,576,000) $ (11,816,000)
State income taxes, net of Federal income tax
effect.......................................... (73,000) (774,000) (1,390,000)
Losses for which no benefit is recognized......... -- 3,747,000 1,608,000
Other, net........................................ 98,000 (22,000) 129,000
----------- ------------- --------------
$ (593,000) $ (3,625,000) $ (11,469,000)
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 1997 and 1998, were as follows:
<TABLE>
<CAPTION>
1997 1998
------------- ---------------
<S> <C> <C>
Current deferred income taxes:
Allowance for doubtful accounts receivable................. $ 152,000 $ 812,000
Accrued liabilities........................................ 45,000 592,000
Deferred expenses.......................................... 17,000 --
------------- ---------------
Net current deferred income tax asset.................... 214,000 1,404,000
------------- ---------------
Noncurrent deferred income taxes:
Fixed assets............................................... (1,566,000) (2,440,000)
Cellular license costs and other intangibles............... (9,859,000) (291,375,000)
Tax credits and carryforwards.............................. 10,386,000 48,185,000
------------- ---------------
Net noncurrent deferred income tax asset (liability)..... (1,039,000) (245,630,000)
------------- ---------------
Total deferred income taxes.............................. $ (825,000) $ (244,226,000)
------------- ---------------
------------- ---------------
</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. The Company's NOL carryforwards begin to expire in 2012.
12. RELATED PARTY TRANSACTIONS:
At December 31, 1997 and 1998, the Company had notes and interest receivable
of $5,852,282 and $7,047,272 due from related parties, including $295,612 and
$290,150 at December 31, 1997 and 1998, 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.
F-26
<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>
1997 1998
------------ -------------
<S> <C> <C>
Interest......................................................... $ 6,006,257 $ 5,846,071
Sygnet acquisition costs (see Note 9)............................ -- 5,439,095
Vacation, wages and other........................................ 1,839,144 2,937,140
------------ -------------
Total accrued expenses......................................... $ 7,845,401 $ 14,222,306
------------ -------------
------------ -------------
</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 $226,000, $866,000
and $3,034,000 for the years ended December 31, 1996, 1997 and 1998,
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.
F-27
<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>
1997 1998
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revolving credit
facilities............... $ 171,513,855 $ 171,513,855 $ 740,000,000 $ 740,000,000
Dobson/Sygnet Senior
Notes.................... -- -- 200,000,000 205,000,000
DCC Senior Notes........... 160,000,000 169,200,000 160,000,000 163,200,000
Other notes payable........ 4,056,204 4,200,695 4,056,204 4,057,164
Interest rate hedge........ -- (2,644,414) -- (5,407,420)
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Horizon, G.P., Inc.
We have audited the accompanying combined statements of assets and
liabilities of The Cellular Telephone Business of Selected Systems of Horizon
Cellular Telephone Company, L.P. as of December 31, 1995 and 1996, and the
related combined statements of operations and net assets and of cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of Horizon Cellular Telephone Company, L.P.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of The Cellular Telephone
Business of Selected Systems of Horizon Cellular Telephone Company, L.P. at
December 31, 1995 and 1996, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
January 27, 1997
F-29
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash............................................................................. $ 355,069 $ 435,407
Accounts receivable, net of allowance for doubtful accounts of $82,160 and
$100,790....................................................................... 1,709,143 2,240,468
Inventory........................................................................ 130,730 219,079
Prepaid expenses................................................................. 77,731 29,991
------------- -------------
Total current assets............................................................... 2,272,673 2,924,945
Property and equipment:
Cellular system.................................................................. 8,669,758 10,810,808
Other............................................................................ 959,727 1,287,823
------------- -------------
9,629,485 12,098,631
Accumulated depreciation......................................................... (3,080,449) (4,491,663)
------------- -------------
6,549,036 7,606,968
Licenses, net of accumulated amortization of $3,099,061 and $4,020,825............. 32,763,313 31,841,549
Other assets, net of accumulated amortization of $18,483 and $22,838............... 94,275 99,200
------------- -------------
Total assets....................................................................... $ 41,679,297 $ 42,472,662
------------- -------------
------------- -------------
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable................................................................. $ 354,798 $ 702,859
Accrued expenses................................................................. 669,390 968,815
Deferred revenue................................................................. 403,994 566,521
------------- -------------
Total current liabilities.......................................................... 1,428,182 2,238,195
Advances from affiliates........................................................... 14,862,381 13,399,571
Net assets......................................................................... 25,388,734 26,834,896
------------- -------------
Total liabilities and net assets................................................... $ 41,679,297 $ 42,472,662
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-30
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
COMBINED STATEMENTS OF OPERATIONS AND NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Cellular service.................................................. $ 5,863,828 $ 7,801,918 $ 10,867,791
Roaming revenues.................................................. 2,765,685 3,496,366 4,264,112
Cellular equipment sales.......................................... 524,892 402,430 388,505
------------- ------------- -------------
Total revenues...................................................... 9,154,405 11,700,714 15,520,408
Operating expenses:
Cellular service.................................................. 2,918,043 3,569,152 4,532,595
Cellular equipment................................................ 1,100,160 1,182,309 1,133,171
General and administrative........................................ 1,528,970 1,471,078 1,869,299
LPAR compensation................................................. -- -- 275,000
Marketing and selling............................................. 1,272,265 1,944,731 2,478,918
Depreciation and amortization..................................... 1,959,106 2,170,963 2,331,184
------------- ------------- -------------
8,778,544 10,338,233 12,620,167
------------- ------------- -------------
Income from operations.............................................. 375,861 1,362,481 2,900,241
Interest expense.................................................... 1,358,153 1,568,883 1,454,079
------------- ------------- -------------
Net (loss) income................................................... (982,292) (206,402) 1,446,162
Net assets at beginning of year..................................... 21,926,001 25,314,904 25,388,734
Partners' contributions............................................. 4,371,195 280,232 --
------------- ------------- -------------
Net assets at end of year........................................... $ 25,314,904 $ 25,388,734 $ 26,834,896
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-31
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................................... $ (982,292) $ (206,402) $ 1,446,162
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization...................................... 1,959,106 2,170,963 2,331,184
Provision for bad debts............................................ 433,490 3,075 169,582
LPAR compensation.................................................. -- -- 275,000
Accrued interest expense--affiliate................................ 1,358,153 1,568,883 1,454,079
Changes in operating assets and liabilities:
Accounts receivable.............................................. (1,194,015) (280,891) (700,907)
Inventory........................................................ (72,670) 42,003 (88,349)
Prepaid expenses................................................. (4,768) (61,027) 47,740
Accounts payable and accrued expenses............................ 691,454 (239,835) 372,486
Deferred revenue................................................. 95,128 205,588 162,527
------------- ------------- -------------
Net cash provided by operating activities............................ 2,283,586 3,202,357 5,469,504
INVESTING ACTIVITIES
Purchases of property and equipment.................................. (1,942,166) (1,418,979) (2,462,997)
License and system acquisitions...................................... (4,205,125) -- --
Other................................................................ 27,925 (12,161) (9,280)
------------- ------------- -------------
Net cash used in investing activities................................ (6,119,366) (1,431,140) (2,472,277)
FINANCING ACTIVITIES.................................................
Advances to affiliates, net of $166,069 and $280,232 noncash
contributions in 1994 and 1995, respectively........................ (139,739) (2,038,131) (2,916,889)
Partners' contributions.............................................. 4,205,125 -- --
------------- ------------- -------------
Net cash provided by (used in) financing activities.................. 4,065,386 (2,038,131) (2,916,889)
------------- ------------- -------------
Net increase (decrease) in cash...................................... 229,606 (266,914) 80,338
Cash at beginning of year............................................ 392,377 621,983 355,069
------------- ------------- -------------
Cash at end of year.................................................. $ 621,983 $ 355,069 $ 435,407
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying audited combined financial statements of The Cellular
Telephone Business of Selected Systems of Horizon Cellular Telephone Company,
L.P. (HCTC) reflect the combined assets and liabilities, combined results of
operations, and combined cash flows of the cellular telephone business of
Horizon Cellular Telephone Company of Frederick ("Frederick"), Horizon Cellular
Telephone Company of Bedford ("Bedford"), Horizon Cellular Telephone Company of
Hagerstown, L.P. ("Hagerstown"), and the Cumberland Cellular Partnership
("Cumberland") (collectively referred to as "the Selected Systems," "the
Systems," or "the Company") as of December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996. The accompanying
financial statements are presented on HCTC's historical cost basis and are
intended to reflect only the assets, liabilities, operations, and cash flows
relating to the cellular telephone business of the named legal entities, which
are majority-owned subsidiary partnerships of HCTC, and do not represent the
financial statements of the named legal entities. The combined financial
statements include only the operating results since the Systems were acquired by
HCTC.
The Company owns, designs, develops, and operates cellular communications
systems. With the exception of Cumberland, KCCGP, L.P. (KCCGP) is the managing
and sole general partner of the subsidiary partnerships that own directly the
aforesaid cellular telephone businesses at December 31, 1996. With respect to
Cumberland, KCCGP is the managing and sole general partner of Horizon Cellular
Telephone Company of Cumberland, L.P., a 90.55% general partner in Cumberland.
KCCGP performs certain administrative functions for the Systems and,
accordingly, certain expenses of KCCGP (see Note 5) have been allocated to the
Systems on a basis which, in the opinion of management, is reasonable. However,
such expenditures are not necessarily indicative of, and it is not practicable
for management to estimate, the nature and level of expenses which might have
been incurred had the Systems been operating as separate independent companies.
2. ACQUISITIONS
In April 1994, HCTC simultaneously closed on various purchase, sale and
exchange agreements which ultimately resulted in HCTC (i) acquiring a majority
interest (90.55%) in the non-wireline FCC Operating License of the Cumberland
MSA, (ii) acquiring the non-wireline FCC Operating License of the Hagerstown MSA
together with certain operating assets, in exchange for substantially all of the
assets of the eastern portion of Bedford, and (iii) making a net payment of $4.2
million in cash. Simultaneously, HCTC contributed the Operating License to
Cumberland and contributed the Operating License to Hagerstown in exchange for a
99.0% interest in Hagerstown and KCCGP obtained a 1.0% interest in Hagerstown.
Effective January 1, 1995, the operations of Frederick and Bedford were
merged into Hagerstown. As part of the market consolidation, the general partner
interests were reorganized. KCCGP acquired an additional .9% interest in
Frederick (resulting in a 1% general partner ownership), reducing HCTC's Limited
Partnership interest to 99%. The additional partner contribution was based on
the estimated fair market value of the Frederick System.
All of the Company's acquisitions were accounted for under the purchase
method of accounting; accordingly, assets acquired and liabilities assumed have
been recorded at their estimated fair market values at the dates of acquisition
and their results of operations are included in the accompanying combined
statements of operations since the date of acquisition. The accompanying
financial statements
F-33
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. ACQUISITIONS (CONTINUED)
exclude the results of operations of the eastern portion of Bedford. The excess
of purchase price over the fair market value of identifiable net tangible assets
acquired has been allocated to customer lists and licenses. Pro forma results of
operations for 1994, assuming the acquisitions of Hagerstown and Cumberland
occurred on January 1, 1994, would not differ materially from reported results.
3. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are carried at the lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives (three to twelve years) using the straight-line method.
Depreciation expense amounted to approximately $1,143,000 in 1994,
$1,237,000 in 1995, and $1,405,000 in 1996.
LICENSES
Licenses primarily represent the acquisition costs of the Operating
Licenses. Such costs are being amortized over a period of 40 years using the
straight-line method.
The Systems periodically review the carrying value of their licenses to
determine whether such amounts are recoverable based on undiscounted future cash
flows and whether a reduction to fair value is necessary. There have been no
such reductions through December 31, 1996.
ADVANCES FROM AFFILIATES
Advances from affiliates primarily represent cash advances from HCTC and
KCCGP which provided funds for investing and operating activities, and have no
specific repayment terms. Interest expense is charged monthly at a rate of
11 3/8% of the ending balances payable to HCTC.
REVENUE AND EXPENSE RECOGNITION
Cellular airtime revenue and access charges are recognized as service is
provided. Cellular airtime is billed in arrears and access charges are billed in
advance. Subscriber acquisition costs (mainly commissions and loss on equipment
sales) are expensed when incurred. Accounts receivable consist mainly of amounts
due from subscribers and other cellular companies whose subscribers use the
Systems' cellular service.
F-34
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. ACCOUNTING POLICIES (CONTINUED)
Approximately 40% of the 1996 roaming revenues were generated from
subscribers of a cellular company serving an adjacent market when such
subscribers place or receive calls on the Company's system.
ADVERTISING EXPENSES
Advertising expenses are charged to operations as incurred and amounted to
approximately $256,100 in 1994, $394,400 in 1995, and $512,000 in 1996.
ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Property, sales, and excise taxes..................................... $ 128,400 $ 112,800
Interconnection and other billing costs............................... 68,400 63,500
Salaries and bonuses.................................................. 118,900 139,100
LPAR compensation..................................................... -- 275,000
Other................................................................. 353,700 378,400
---------- ----------
$ 669,400 $ 968,800
---------- ----------
---------- ----------
</TABLE>
INCOME TAXES
The legal entities under which the Systems operate are partnerships
organized under the laws of Delaware. Accordingly, federal and state income
taxes are not paid at the partnership level but by the ultimate partners. The
tax basis of the Systems' assets amounted to approximately $28.8 million and $30
million at December 31, 1995 and 1996, respectively.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The impact of adopting this Statement in 1996 was not material
to the financial statements.
SFAS No. 123, "Accounting for Stock-Based Compensation," is effective for
fiscal years beginning after December 15, 1995. SFAS 123 provides companies with
a choice to follow the provisions of SFAS 123 in determining stock-based
compensation expense or to continue with the provisions of APB 25, "Accounting
for Stock Issued to Employees." Although the Selected Systems expect to continue
to follow APB 25, Statement 123 would have no effect on the combined financial
statements for the periods indicated (see Note 6).
F-35
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. COMMITMENTS AND CONTINGENCIES
The Systems lease office space, office equipment, and cellular sites and
facilities under operating leases with initial terms ranging from 1 to 20 years.
Most cellular sites contain renewal options ranging up to 25 years.
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following amounts as of December 31,
1996:
<TABLE>
<CAPTION>
CELLULAR
SITES OTHER
---------- ------------
<S> <C> <C>
1997................................................................ $ 87,000 $ 353,000
1998................................................................ 89,000 289,000
1999................................................................ 65,000 244,000
2000................................................................ 61,000 197,000
2001................................................................ 41,000 --
Thereafter.......................................................... 281,000 --
---------- ------------
Total minimum lease payments........................................ $ 624,000 $ 1,083,000
---------- ------------
---------- ------------
</TABLE>
Rental expense amounted to approximately $251,100 in 1994, $336,500 in 1995,
and $389,800 in 1996.
5. RELATED PARTY TRANSACTIONS
KCCGP provides various administrative services to the Systems, including
accounting, engineering, and marketing and advertising services, in addition to
funding working capital requirements and capital expenditures as necessary.
These expenses are charged, first on the basis of direct usage when
identifiable, with the remainder allocated equally among its operating systems.
Allocated expenses amounted to $107,000 for the year ended December 31, 1994,
and $50,000 for each of the years ended December 31, 1995 and 1996.
6. BENEFIT PLANS
HCTC has granted certain officers of the Selected Systems limited
partnership appreciation rights in HCTC pursuant to a Limited Partnership Unit
Appreciation Rights Plan ("LPAR Plan"), as amended, that was adopted September
1, 1994 to be effective January 1, 1993. Upon the occurrence of certain events
as specified therein ("Termination Events"), participants are entitled to share
in the amounts, if any, of distributions to HCTC's partners after all capital
contributions made by HCTC's partners have been repaid, together with a fixed
return on such contributions. Such rights vest over a period of five years;
however, vesting is automatically accelerated upon the occurrence of a
Termination Event. LPAR Plan compensation expense of $275,000 has been
recognized and included in accrued expenses as of December 31, 1996, which is
the LPAR Plan amount attributable to participants who are employees of the
Selected Systems.
Effective July 1, 1994, KCCGP established an employee savings plan (the
"Plan") that qualifies as a deferred salary arrangement under Section 401(k) of
the Internal Revenue Code. Under the Plan, which covers employees of the
Selected Systems who have met certain eligibility requirements, participating
employees may defer up to 15% of their pretax earnings, up to the Internal
Revenue Service annual
F-36
<PAGE>
THE CELLULAR TELEPHONE BUSINESS OF SELECTED SYSTEMS OF
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. BENEFIT PLANS (CONTINUED)
contribution limit ($9,500 for calendar year 1996). The Company matches up to
50% of the employee's contributions, up to a maximum of 3% of the employee's
earnings. Employees who participate in the LPAR Plan are excluded from matching
contributions. Matching Plan contributions, which vest equally over five years,
amounted to approximately $7,600 in 1994, $10,100 in 1995, and $17,600 in 1996.
7. SUBSEQUENT EVENTS
On November 19, 1996, the Company entered into a definitive agreement to
sell the FCC Operating Licenses of the Selected Systems, together with certain
operating assets and liabilities, to Dobson Cellular of Maryland, Inc. for
approximately $75 million, subject to adjustment. The combined financial
statements do not reflect either the estimated gain, or any expenses incurred or
expected to be incurred related to the sale of the systems. The sale is expected
to close in February of 1997, and is subject to certain regulatory and other
approvals.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Gila River Cellular General Partnership:
We have audited the accompanying balance sheets of Gila River Cellular
General Partnership (an Arizona general partnership) as of December 31, 1996 and
1995, and the related statements of operations, changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gila River Cellular General
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 10, 1997
F-38
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2)............................................... $ -- $ 1,569,595
Accounts receivable, net of allowance of $58,696, and $159,707 respectively...... 503,165 849,026
Inventories (Note 2)............................................................. 32,551 27,645
Prepaid expenses................................................................. 555 107
------------- -------------
Total current assets........................................................... 536,271 2,446,373
------------- -------------
Property and Equipment (Notes 2 and 5):
Cellular systems................................................................. 10,218,397 10,363,236
Furniture and equipment.......................................................... 5,354 5,354
Construction in progress......................................................... 178,687 466,707
------------- -------------
10,402,438 10,835,297
Less accumulated depreciation and amortization................................... (1,361,443) (2,605,661)
------------- -------------
9,040,995 8,229,636
------------- -------------
Total assets................................................................... $ 9,577,266 $ 10,676,009
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................................. $ 170,867 $ 614,134
Accrued liabilities.............................................................. 762,799 415,006
Advance billings and deposits (Note 2)........................................... 80,964 97,915
Due to general partner (Notes 2 and 4)........................................... 2,111,267 --
------------- -------------
Total current liabilities...................................................... 3,125,897 1,127,055
Long-term liabilities.............................................................. 8,002 8,002
Commitments (Note 3)............................................................... -- --
Partners' capital.................................................................. 6,443,367 9,540,952
------------- -------------
Total liabilities and partners' capital........................................ $ 9,577,266 $ 10,676,009
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues (Note 2)
Cellular service...................................................... $ 906,882 $ 1,286,901 $ 2,151,888
Cellular equipment.................................................... 258,582 226,193 275,346
Roaming and other..................................................... 2,437,233 4,230,127 5,583,073
------------ ------------ ------------
Total revenues...................................................... 3,602,697 5,743,221 8,010,307
------------ ------------ ------------
Operating Expenses (Notes 2 and 4):
Cost of cellular service.............................................. 373,159 531,380 993,086
Cost of cellular equipment............................................ 269,986 264,037 350,028
Selling............................................................... 419,683 708,545 1,080,862
General and administrative............................................ 596,117 911,065 1,208,123
Depreciation and amortization......................................... 320,727 926,995 1,244,204
------------ ------------ ------------
Total operating expenses............................................ 1,979,672 3,342,022 4,876,303
------------ ------------ ------------
Operating income........................................................ 1,623,025 2,401,199 3,134,004
Other (expense) income (Note 2)......................................... 24,251 (50,024) (36,419)
------------ ------------ ------------
Net income........................................................ $ 1,647,276 $ 2,351,175 $ 3,097,585
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BEGINNING BALANCE TRANSFER OF BALANCE ADJUSTED BALANCE
OWNERSHIP DEC. 31, INTEREST DEC. 31, OWNERSHIP DEC. 31,
INTEREST 1993 NET INCOME (NOTE 1) 1994 INTEREST NET INCOME 1995
----------- --------- ----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
General Partners:
Gila River
Telecommunications,
Inc.................. 40.00% $ 977,966 $ 658,910 $ 79,799 $1,716,675 41.9500% $ 986,318 $2,702,993
Tohono O'odham Utility
Authority............ 23.00% 562,331 378,874 (30,590) 910,615 22.2525% 523,195 1,433,810
Aztel, Inc............. 23.00% 562,331 378,874 (30,590) 910,615 22.2525% 523,195 1,433,810
U S WEST NewVector
Group, Inc........... 14.00% 342,288 230,618 (18,619) 554,287 13.5450% 318,467 872,754
----------- --------- ----------- ----------- --------- ----------- ----------- ---------
100.00% $2,444,916 $1,647,276 $ -- $4,092,192 100.0000% $2,351,175 $6,443,367
----------- --------- ----------- ----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- --------- ----------- ----------- ---------
<CAPTION>
BALANCE
DEC. 31,
NET INCOME 1996
----------- ---------
<S> <C> <C>
General Partners:
Gila River
Telecommunications,
Inc.................. $1,299,437 $4,002,430
Tohono O'odham Utility
Authority............ 689,290 2,123,100
Aztel, Inc............. 689,290 2,123,100
U S WEST NewVector
Group, Inc........... 419,568 1,292,322
----------- ---------
$3,097,585 $9,540,952
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 1,647,276 $ 2,351,175 $ 3,097,585
------------- ------------- -------------
Adjustments to net income:
Depreciation and amortization...................................... 320,727 926,995 1,244,204
Changes in current assets and current liabilities:
Accounts receivable, net......................................... (139,488) (143,655) (345,861)
Inventories...................................................... (9,171) (3,259) 4,906
Accounts payable................................................. 62,289 10,260 35,995
Accrued liabilities.............................................. 99,636 663,163 (347,793)
Advance billings and deposits.................................... 22,220 33,632 16,951
Prepaid expenses................................................. (306) (249) 448
Other............................................................ (20,389) -- --
------------- ------------- -------------
Total adjustments................................................ 335,518 1,486,887 608,850
------------- ------------- -------------
Cash provided by operations...................................... 1,982,794 3,838,062 3,706,435
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment................................. (1,381,306) (7,090,057) (25,573)
Cash received on disposition of property and equipment............. -- 525,000 --
------------- ------------- -------------
Cash used for investing activities............................... (1,381,306) (6,565,057) (25,573)
------------- ------------- -------------
FINANCING ACTIVITIES:
(Payments to) advances from general partner........................ -- 2,111,267 (2,111,267)
------------- ------------- -------------
Cash (used for) provided by financing activities................. -- 2,111,267 (2,111,267)
------------- ------------- -------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease).......................................... 601,488 (615,728) 1,569,595
Beginning balance................................................ 14,240 615,728 --
------------- ------------- -------------
Ending balance................................................... $ 615,728 $ -- $ 1,569,595
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION
Gila River Cellular General Partnership (an Arizona general partnership) was
formed on September 1, 1990, to fund, establish and provide cellular
telecommunication services to customers within the geographical area between the
cities of Phoenix and Tucson, Arizona known as the Gila Rural Service Area
("RSA") Number 5 (corridor). Gila River Telecommunications, Inc., Tohono O'odham
Utility Authority (a subsidiary organization of the Tohono O'odham Nation), and
Aztel, Inc. participate as general partners. U S WEST NewVector Group, Inc.
participates as the managing general partner.
Effective December 31, 1994, the partners of Gila River Cellular General
Partnership entered into a definitive agreement to amend the Partnership
Agreement to incorporate the geographical service area of Arizona RSA Number 5
(non-corridor) served by a separate partnership of Gila River
Telecommunications, Inc., Tohono O'odham Utility Authority and Aztel, Inc. As a
result of this transaction, the ownership interest of the general partners of
Gila River Cellular General Partnership has been revised as reflected in the
accompanying financial statements.
In late 1996, Dobson Communications Corporation ("Dobson") and the general
partners signed a letter of intent wherein Dobson agreed to purchase the
interests of the general partners. Upon completion of the transaction, which is
expected to occur in the first half of 1997, Dobson and the Gila River Indian
Community will have a 100% interest in Arizona RSA Number 5. At Dobson's option,
during the sales transition and post-transition periods, Dobson may purchase
services from the managing general partner similar to those discussed in Note 4.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include amounts which are readily convertible into
cash and which are not subject to significant risk from fluctuations in interest
rates.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventories consist of cellular mobile telephone
equipment that is purchased by the Partnership primarily for sale to customers.
PROPERTY, EQUIPMENT AND DEPRECIATION
The Partnership's investment in property and equipment is stated at cost
less accumulated depreciation. Interest incurred during construction is
capitalized and amortized over the life of the underlying asset. Interest of
$2,404, $163,427 and $9,216 was capitalized during the year ended December 31,
1994, 1995 and 1996, respectively. The cost of these assets includes purchased
materials, contracted services, internal labor and applicable overhead.
F-43
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Depreciation is calculated on a straight-line basis over the following
estimated economic life of the assets:
<TABLE>
<S> <C>
3 to 20
Cellular systems.............................. years
Furniture and equipment....................... 3 to 5 years
</TABLE>
INCOME TAXES
Under provisions of the Internal Revenue Code, the partners include their
respective share of Partnership income or loss in their individual tax returns.
Accordingly, no provision for income taxes has been made in the accompanying
financial statements.
MANAGING GENERAL PARTNER FINANCING
The managing general partner advances funds to the Partnership as necessary
to finance operations and network construction. Interest is charged to the
Partnership on these advances at a rate equivalent with U S WEST NewVector
Group, Inc.'s borrowing rate which averaged 7.5% for the years ended December
31, 1994 and 1995 and 8.1% for the year ended December 31, 1996, respectively.
Interest expense incurred and paid, net of amounts capitalized for the years
ended December 31, 1994, 1995 and 1996 was $0, $50,024 $50,098, respectively.
REVENUES
The Partnership earns cellular service revenue by providing access to the
cellular network (access revenue) and for use of the network (airtime revenue).
Access revenue is billed one month in advance. Airtime and access revenues are
recognized when the service is provided.
ADVERTISING COSTS
Costs incurred for advertising are expensed as incurred.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain reclassifications have been made to the prior year's financial
statements in order to present them on a basis consistent with that of the
current year.
F-44
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
3. COMMITMENTS:
OPERATING LEASES
Future minimum rental payments required under operating leases for real
estate that have initial or remaining noncancelable lease terms ending after
December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 91,086
1998.............................................. 80,038
1999.............................................. 67,769
2000.............................................. 19,090
2001.............................................. 180
---------
Total............................................. $ 258,163
---------
---------
</TABLE>
Leases for real estate provide for renewal at various intervals with
provision for increased rents at each renewal.Rental expense for the years ended
December 31, 1994, 1995 and 1996 was $51,809, $103,604 and $91,663,
respectively.
4. RELATED PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the managing general partner
provides many services to the Partnership as well as to other cellular
partnerships. These include legal, financial, engineering, operations, marketing
and accounting services. Costs for performing these services are charged to the
Partnership primarily on the basis of the managing general partner's time and
effort incurred on behalf of the Partnership for each activity. The Partnership
incurred costs from the managing general partner for the years ended December
31, 1994, 1995 and 1996 of $529,924, $848,279 and $986,301, respectively.
The Partnership purchases telecommunication services from an affiliate of
the managing general partner. Purchases for the years ended December 31, 1996
were $289,404.
The managing general partner provides switching services to the Partnership.
The Partnership was charged $58,266, $97,220 and $196,202 for the years ended
December 31, 1994, 1995 and 1996, respectively.
The Partnership utilizes digital transmission facilities from a U S WEST
NewVector Group, Inc. managed partnership. The Partnership was charged $0, $0
and $4,380 for these services during the year ended December 31, 1994, 1995 and
1996, respectively.
5. UPGRADE OF CELLULAR SYSTEM
During 1993, the Partnership decided to replace substantially all of its
cellular network equipment consisting primarily of cell site electronics. The
Partnership recorded a reserve of $460,000 in connection with this transaction
in order to reduce the cellular equipment to its net realizable value. During
the fourth quarter of 1995, assets with a book value of $1,132,394 and
accumulated depreciation of $200,153 were replaced in connection with the
upgrade. As part of this transaction, the Partnership's displaced cellular
equipment was transferred to the managing general partner at its fair market
value of $525,000.
F-45
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................................ $ 1,773,244
Accounts receivable, net of allowance of $164,039................................................ 949,650
Prepaid expenses................................................................................. 768
-------------
Total current assets......................................................................... 2,723,662
-------------
Property and Equipment
Cellular systems................................................................................. 10,482,892
Furniture and equipment.......................................................................... 7,420
Construction in progress......................................................................... 285,880
-------------
10,776,192
Less accumulated depreciation.................................................................... (3,374,726)
-------------
7,401,466
-------------
Total Assets................................................................................. $ 10,125,128
-------------
-------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................................................. $ 239,846
Accrued liabilities.............................................................................. 725,517
Advance billings and deposits.................................................................... 100,214
-------------
Total current liabilities.................................................................... 1,065,577
Long-term liabilities............................................................................ 8,002
Commitments
Partners' capital................................................................................ 9,051,549
-------------
Total liabilities and partners' capital...................................................... $ 10,125,128
-------------
-------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-46
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996
------------ 1997
------------
(UNAUDITED)
<S> <C> <C>
Revenues
Cellular service.................................................................... $ 1,550,972 $ 1,906,980
Cellular equipment.................................................................. 197,669 382,956
Roaming and other................................................................... 4,082,018 5,347,644
------------ ------------
Total revenues.................................................................... 5,830,659 7,637,580
------------ ------------
Operating Expenses
Cost of cellular service............................................................ 649,269 902,609
Cost of cellular equipment.......................................................... 246,925 401,466
Selling............................................................................. 778,398 627,374
General and administrative.......................................................... 971,937 965,002
Depreciation and amortization....................................................... 791,961 903,908
------------ ------------
Total operating expenses.......................................................... 3,438,490 3,800,359
------------ ------------
Operating income...................................................................... 2,392,169 3,837,221
Other income (expense)................................................................ (50,098) 149,583
------------ ------------
Net income.................................................................... $ 2,342,071 $ 3,986,804
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
BALANCE BALANCE DISTRIBUTION BALANCE
OWNERSHIP DEC. 31, DEC. 31, TO GENERAL SEPT. 30,
INTEREST 1995 NET INCOME 1996 NET INCOME PARTNERS 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
General Partners:
Gila River Telecommunications,
Inc......................... 41.9500% 2,702,993 1,299,437 4,002,430 1,672,464 (1,877,769) 3,797,125
Tohono O'odham Utility
Authority................... 22.2525% 1,433,810 689,290 2,123,100 887,164 (996,068) 2,014,196
Aztel, Inc.................... 22.2525% 1,433,810 689,290 2,123,100 887,164 (996,068) 2,014,196
U S WEST NewVector Group,
Inc......................... 13.5450% 872,754 419,568 1,292,322 540,012 (606,302) 1,226,032
----------- ----------- ----------- ----------- ----------- ----------- -----------
100.0000% $ 6,443,367 $ 3,097,585 $ 9,540,952 $3,986,804 $(4,476,207) $9,051,549
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996
------------- 1997
-------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................................ $ 2,342,071 $ 3,986,804
------------- -------------
Adjustments to net income:
Depreciation...................................................................... 791,961 903,908
Changes in current assets and current liabilities:
Accounts receivable, net........................................................ (147,386) (100,624)
Inventories..................................................................... 17,406 27,645
Accounts payable................................................................ 25,773 (374,288)
Accrued liabilities............................................................. (299,017) 705,919
Advance billings and deposits................................................... 18,244 2,299
Prepaid expenses................................................................ (235) (661)
------------- -------------
Total adjustments............................................................... $ 406,746 $ 1,164,198
------------- -------------
Cash provided by operating activities........................................... 2,748,817 5,151,002
------------- -------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................................... (274,363) (927,322)
------------- -------------
Cash used for investing activities.............................................. (274,363) (927,322)
------------- -------------
FINANCING ACTIVITIES:
Cash distributions to general partners............................................ (2,155,613) (4,476,207)
Cash received from managing partner............................................... -- 456,176
------------- -------------
Cash used for financing activities.............................................. (2,155,613) (4,020,031)
------------- -------------
CASH AND CASH EQUIVALENTS:
Net increase...................................................................... 318,841 203,649
Beginning balance................................................................. -- 1,569,595
------------- -------------
Ending balance.................................................................... $ 318,841 $ 1,773,244
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
GILA RIVER CELLULAR GENERAL PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
BASIS OF PRESENTATION
The unaudited condensed financial statements include all normal adjustments
which, in the opinion of management, are necessary to present fairly the
condensed financial position at September 30, 1997, and the results of
operations and cash flows for the nine months ended September 30, 1997 and 1996.
These unaudited condensed financial statements should be read in conjunction
with the December 31, 1996 financial statements and related notes.
RECENT TRANSACTION
Effective October 1, 1997, the Gila River Cellular General Partnership (the
"Partnership") completed the transaction wherein Dobson Communications
Corporation ("DCC") agreed to purchase the interests of the general partners. As
a result of this transaction, Dobson and the Gila River Indian Community own a
100% interest in Arizona 5 RSA. See Note 1 and Note 4 of the December 31, 1996
financial statements for more information related to this transaction.
F-50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Cellular 2000 (A Partnership)
We have audited the accompanying balance sheet of Cellular 2000 (A
Partnership) as of December 31, 1996 and 1997 and the related statements of
income, changes in partners' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cellular 2000 (A
Partnership) as of December 31, 1996 and 1997 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
HOLLIDAY, LEMONS, THOMAS & COX, P.C.
Texarkana, Texas
February 13, 1998
F-51
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 1,142,409 $ 1,079,070
Accounts receivable............................................................... 1,495,970 1,231,461
Accounts receivable--related parties.............................................. 1,201,698 1,396,810
Inventory......................................................................... 147,551 160,677
Prepaid and other current assets.................................................. 283,112 370,334
------------- -------------
Total current assets.......................................................... 4,270,740 4,238,352
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and towers.............................................................. 5,729,609 7,234,628
Cellular and switching equipment.................................................. 10,899,265 15,059,156
Autos and trucks.................................................................. 108,233 126,140
Office equipment and furniture.................................................... 405,133 413,672
Leasehold improvements............................................................ 110,976 333,675
Construction in progress.......................................................... 241,827 2,730,032
------------- -------------
Total property, plant and equipment........................................... 17,495,043 25,897,303
Less accumulated depreciation..................................................... 4,695,405 6,563,647
------------- -------------
Net property, plant and equipment................................................. 12,799,638 19,333,656
------------- -------------
OTHER ASSETS:
Start up costs 56,827
Loan costs........................................................................ 246,801 268,084
Licensing costs................................................................... 26,015 54,169
------------- -------------
Total other assets............................................................ 329,643 322,253
------------- -------------
TOTAL ASSETS.................................................................. $ 17,400,021 $ 23,894,261
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft.................................................................... $ -- $ 536,924
Notes payable..................................................................... 1,200,000 --
Notes payable--related party...................................................... -- 1,253,381
Accounts payable.................................................................. 714,601 723,491
Accounts payable--related parties................................................. 325,552 305,437
Obligation for equipment.......................................................... -- 1,621,169
Accrued management termination fee................................................ 1,500,000 --
Accrued expenses.................................................................. 62,332 143,022
Unearned revenue.................................................................. 246,738 297,792
Federal and state taxes payable................................................... 324,520 819,903
Customer deposits................................................................. 22,000 17,600
------------- -------------
Total current liabilities..................................................... 4,395,743 5,718,719
------------- -------------
LONG-TERM LIABILITIES:
Notes payable, less current portion............................................... 8,900,000 12,800,000
Obligation for equipment.......................................................... 1,497,616 --
------------- -------------
Total long term liabilities................................................... 10,397,616 12,800,000
------------- -------------
Total liabilities............................................................. 14,793,359 18,518,719
PARTNERS' EQUITY.................................................................... 2,606,662 5,375,542
------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY........................................ $ 17,400,021 $ 23,894,261
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
REVENUES:
Cellular service................................................................. $ 8,580,109 $ 8,539,822
Cellular roaming................................................................. 10,856,424 10,654,382
Equipment sales.................................................................. 224,504 351,256
Other income..................................................................... 66,089 175,437
------------- -------------
Total revenues................................................................... 19,727,126 19,720,897
------------- -------------
COSTS AND EXPENSES:
Cost of services................................................................. 6,103,477 5,914,442
Cost of equipment sales.......................................................... 728,357 1,154,816
Marketing and selling expenses................................................... 1,314,631 1,104,764
General and administrative expenses.............................................. 1,966,416 2,237,552
Legal and professional fees...................................................... 440,181 460,320
Depreciation..................................................................... 1,501,755 1,883,951
Amortization..................................................................... 188,892 127,390
------------- -------------
Total costs and expenses......................................................... 12,243,709 12,883,235
------------- -------------
Net income from operations......................................................... 7,483,417 6,837,662
------------- -------------
OTHER INCOME (EXPENSE):
Interest income.................................................................. 31,260 16,440
Interest expense................................................................. (822,573) (830,901)
Loss on disposition of fixed assets.............................................. -- (44,199)
Miscellaneous income............................................................. 2,265 9,444
Management termination fee....................................................... (3,000,000) --
------------- -------------
Total other income (expense)..................................................... (3,789,048) (849,216)
------------- -------------
Net income......................................................................... $ 3,694,369 $ 5,988,446
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Partners' equity, beginning of period................................................. $ 3,682,068 $ 2,606,662
Net income............................................................................ 3,694,369 5,988,446
Distributions......................................................................... 4,769,775 3,219,566
------------ ------------
Partners' equity, end of period....................................................... $ 2,606,662 $ 5,375,542
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $ 3,694,369 $ 5,988,446
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 1,690,647 2,011,341
Loss on disposition of fixed assets............................................... -- 44,199
(Increase) decrease in assets:
Accounts receivable............................................................. (526,635) 69,397
Inventory....................................................................... 26,786 (13,126)
Prepaid and other current assets................................................ (178,022) (87,222)
Loan costs...................................................................... -- (80,000)
Licensing costs................................................................. -- (40,000)
Increase (decrease) in liabilities:
Accounts payable................................................................ 67,338 (11,225)
Accrued management termination fee.............................................. 500,000 (1,500,000)
Accrued liabilities............................................................. (14,072) 80,690
Unearned revenue................................................................ 51,630 51,054
Federal and state taxes payable................................................. 19,139 495,383
Customer deposits............................................................... (6,300) (4,400)
------------- -------------
Net cash provided by operating activities......................................... 5,324,880 7,004,537
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets................................................ -- 1,976
Capital expenditures for property, plant and equipment............................ (2,214,973) (7,087,210)
------------- -------------
Net cash used for investing activities............................................ (2,214,973) (7,085,234)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable....................................................... (1,150,000) (300,000)
Proceeds from notes payable....................................................... 2,000,000 3,000,000
Distributions..................................................................... (4,769,775) (3,219,566)
------------- -------------
Net cash provided (used) by financing activities.................................. (3,919,775) (519,566)
------------- -------------
Net increase (decrease) in cash and cash equivalents.............................. (809,868) (600,263)
Cash and cash equivalents at beginning of period.................................... 1,952,277 1,142,409
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 1,142,409 $ 542,146
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Partnership is the owner of a license issued by the Federal
Communications Commission (FCC) to provide non-wireline cellular
telecommunications service to the California 4 Rural Service Area. California 4
Rural Service Area includes Merced, Madera and San Benito counties in central
California. The Partnership has a large customer base within this area that
includes individuals, businesses and governments. The Partnership is not
dependent on any single or major group of customers for its sales. Approximately
54% of Partnership revenue is derived from providing cellular service to
customers of other cellular companies 'roaming' through the Company's service
area. Approximately 43% of revenue is derived from providing cellular service to
its own subscriber customers. As more fully described in Note 9 to the financial
statements, in late 1997 the partner which owns the controlling interest in the
Partnership and Dobson Cellular of California, Inc. (Dobson) signed an agreement
in which the Partner agreed to sell their interest in the Partnership and to
transfer the FCC license of the Partnership to Dobson.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid unrestricted cash instruments with
original maturities of three months or less. The Partnership places its
temporary cash investments with high credit quality financial institutions. At
times such investments may be in excess of the FDIC insurance limit. The
Partnership has not experienced any losses in such accounts.
REVENUE RECOGNITION
Cellular air time is recorded as revenue as earned. Subscriber acquisition
costs (mainly commissions and loss on equipment sales) are expensed when
incurred. Sales of equipment are recorded at the point of sale. Cellular access
charges generally are billed in advance and recognized as revenue when the
services are provided.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
under the specific identification method.
F-56
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives of the
assets:
<TABLE>
<S> <C>
15-20
Buildings and towers............................................ years
Cellular and switching equipment................................ 10 years
Autos and trucks................................................ 5 years
Furniture, fixtures and office equipment........................ 5-7 years
Leasehold Improvements.......................................... 5 years
</TABLE>
Expenditures for repairs and maintenance are charged to operating expense as
incurred. Betterments, replacement equipment and additions are capitalized.
CONSTRUCTION IN PROGRESS
The Partnership's cellular communications system expenditures are recorded
as construction in progress until the system or assets are placed in service.
When the assets are placed in service, they are transferred to the appropriate
property and equipment category and depreciated. All direct, administrative and
interest costs related to the construction are capitalized to construction in
progress during the construction period.
START UP COSTS
Start up costs are administrative costs incurred related to the construction
of the cellular mobile communications system. Such amounts are being amortized
over five years beginning June 1, 1992. Accumulated amortization of start up
costs at December 31, 1996 and 1997 was $625,105 and $681,933, respectively. At
December 31, 1997 the start up costs were fully amortized.
LOAN COSTS
Costs associated with the financing of the Partnership's debt have been
capitalized and are amortized on a straight line basis over the life of the
note. Additional costs incurred with the loan in June 1997 have been capitalized
and amortized over the remaining life of the loan. Accumulated amortization of
loan costs at December 31, 1996 and 1997 was $114,387 and $173,103,
respectively.
LICENSING COSTS
Licensing costs primarily represent costs incurred to acquire the Federal
Communications Commission License. Amortization of these costs began in May,
1992, using the straight-line method over a period of 40 years. In March 1997,
the Partnership entered into an agreement to use licensed software to process
billing information for its cellular communications system. In consideration of
this agreement, the Partnership paid a one-time license fee which is being
amortized using the straight-line method over a three-year period. Accumulated
amortization of licensing costs at December 31, 1997 and 1996 was $15,213 and
$3,367, respectively.
F-57
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Partnership's legal form of organization is that of a partnership. A
partnership as such is not taxed under the Internal Revenue Code, rather the
income or loss of the partnership is required to be reported by each respective
partner on their appropriate tax return.
ADVERTISING EXPENSES
Advertising costs are expensed as incurred and amounted to approximately
$122,808 in 1996 and $183,690 in 1997. The expenses are included as marketing
and selling expenses in the statement of income.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Partnership to
concentrations of credit risk, as defined by FASB Statement No. 105 consist
primarily of trade accounts receivable and cash equivalents.
At December 31, 1997 approximately 54% of trade accounts receivable were
attributable to cellular companies which subscribe to the clearinghouse network.
Of this amount, approximately 72% of these receivables were from AT&T Wireless
Services of California, Inc. (AWS-CA) companies and approximately 19% of these
receivables were from Bay Area Cellular Telephone Company, of which the parent
company of AWS-CA owns an interest. Concentrations of credit risk from these
receivables is limited due to the large number of subscribers, none of which
individually comprise a significant amount of the accounts receivable balance at
December 31, 1997. The Partnership establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. Receivables are not collateralized. The
Partnership is directly affected by the well being of the California economic
climate and the effects of any changes in the cellular telecommunications act.
However, management does not believe significant credit risk exists at December
31, 1997.
RECLASSIFICATIONS
Certain accounts relating to the prior year have been reclassified to
conform to the current year presentation. The reclassifications have no effect
on previously reported net earnings.
NOTE 2--SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash and cash equivalents at December 31, 1996 and 1997 for the statement of
cash flows consist of:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Cash and money market funds...................................... $ 1,142,409 $ 1,079,070
Cash overdrafts.................................................. -- (536,924)
------------ -------------
Total............................................................ $ 1,142,409 $ 542,146
------------ -------------
------------ -------------
</TABLE>
At December 31, 1997, the balance sheet presentation of cash and cash
equivalents omits the cash overdrafts.
F-58
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 2--SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
In 1997, noncash investing and financing activities include purchases of
property, plant and equipment and obligation for equipment of $123,553 and
increases to construction in progress and notes payable-related party of
$1,253,381.
For the years ended December 31, 1996 and 1997, interest paid amounted to
$826,780 and $830,901, respectively, net of capitalized interest.
NOTE 3--NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Commercial promissory note due December 31, 1997.
Collateralized by subordinated security interest in property
and assets purchased under contract with AWS and outcollect
revenues..................................................... -- $ 1,253,381
8.09375% Variable rate term loan due September 30, 2001.
Collateralized by all property and assets of the
partnership.................................................. $ 7,600,000 --
8.09375% Variable rate revolving note due September 30, 2001.
Collateralized by all property and assets of the
partnership.................................................. 2,500,000 --
8.16797% Variable rate term loan due December 31, 2003.
Collateralized by all property and assets of the
partnership.................................................. -- 12,800,000
------------- -------------
Total.......................................................... $ 10,100,000 $ 14,053,381
Less current maturities........................................ 1,200,000 1,253,381
------------- -------------
Total long term portion of notes payable....................... $ 8,900,000 $ 12,800,000
------------- -------------
------------- -------------
</TABLE>
On December 31, 1996, the Partnership entered into an agreement which allows
the Partnership to request AT&T Wireless Services, Inc. (AWS) to place orders
for certain equipment, software, materials and services (hereinafter equipment)
intended to be used by the Partnership in the ordinary course of business for
the operation, modification, improvement or expansion of its system. Although it
is under no obligation to do so, if AWS chooses to honor in its sole discretion
any such request from the Partnership, such orders for equipment will be charged
on AWS' account and the dollar amount of such charges shall be deemed for all
purposes as loans or advances from AWS to the Partnership. The unpaid balance of
all loans or advances shall not exceed $750,000. The payment of the loans and
advances is secured by the equipment purchased and all of the Partnership's
outcollect revenues, as they are commonly defined in the cellular telephone
industry. The purchasing agreement contains a provision which allows AWS to
offset roaming revenues owed to the Partnership against amounts owed under this
purchasing agreement if the Partnership defaults in its obligation. Interest is
payable at one and one-half percent per month on the outstanding balance after
specified time intervals have elapsed. No interest cost was incurred on this
loan during 1997.
F-59
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 3--NOTES PAYABLE (CONTINUED)
On October 14, 1994, the Partnership arranged financing with a financial
institution for a $10,000,000 term loan and a $2,500,000 revolving credit loan.
On September 29, 1996, the Partnership increased the commitment on the revolving
credit loan to $4,500,000. The increased financing was obtained to satisfy a
portion of the termination fee due on the settlement of the management agreement
with RCM. On June 11, 1997, the term loan and the revolving credit loan were
combined and the total commitment on the loan was increased to $16,000,000. The
increased financing was obtained to upgrade equipment and increase the capacity
of the cellular communications system. The credit agreement associated with the
loan contains, among other covenants, provisions which limit capital
expenditures. For the year ended December 31, 1997, capital expenditures cannot
exceed $7,100,000. As of December 31, 1997, the Partnership was not in
compliance with the capital expenditures covenant. This noncompliance would, by
the terms of the loan agreement, constitute an event of default. The agreement
provides that in an event of default the bank may by notice in writing declare
all amounts owing with respect to these agreements immediately due and payable.
Due to the pending sale as discussed in Note 9, management does not expect to
receive such notice. The credit agreement also contains provisions which limit
distributions to partners to no more than $500,000 during any fiscal quarter
except distributions to the partners to pay Federal and State income taxes on
the taxable income allocated by the Borrowers to its partners. Distributions
totaling $3,219,566 and $4,769,775 were made in 1997 and 1996, respectively.
At December 31, 1997, these borrowings bear interest at 2.25% above the
LIBOR rate established for the period. Total interest incurred during the years
ended December 31, 1997 and 1996 was $933,766 and $784,477, respectively. Of
this, $117,216 was capitalized in 1997 as construction costs. No interest
capitalization was required during 1996.
Annual maturities of noncurrent notes payable are as follows:
<TABLE>
<S> <C>
1999........................................................... $ -0-
2000........................................................... 2,400,000
2001........................................................... 3,200,000
2002........................................................... 3,200,000
2003........................................................... 4,000,000
----------
Total.................................................... $12,800,000
----------
----------
</TABLE>
F-60
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 4--RELATED PARTY TRANSACTIONS
McCaw Communications of the Pacific Inc. and RSA 339, Inc. are subsidiaries
of AT&T Wireless Services, Inc. (AWS), and own minority interests in the
Partnership. AWS owns an interest in Bay Area Cellular Telephone Company.
Norfolk County Internet is owned by Thomas Morse, a member of the Executive
Committee of the Partnership. Cellular 2000 Telephone Co. owns the controlling
interest in the Partnership.
<TABLE>
<CAPTION>
AMOUNT OF
TRANSACTION
TYPE OF ------------------------
RELATED PARTY TRANSACTION 1996 1997
- --------------------------------------------------------------- ---------------------- ---------- ------------
<S> <C> <C> <C>
AT&T Wireless Services......................................... Accounts receivable $ 887,000 $ 1,057,000
of California, Inc. (including systems owned Accounts payable 268,000 243,000
or controlled by AWS) Notes payable -- 1,253,000
Bay Area Cellular Telephone.................................... Accounts receivable 315,000 281,000
Company Accounts payable 58,000 51,000
Norfolk County Internet........................................ Accounts receivable -- 56,000
Cellular 2000 Telephone Co..................................... Accounts receivable -- 3,000
</TABLE>
NOTE 5--OBLIGATION FOR EQUIPMENT
In 1995, the Partnership negotiated a contract with Ericsson Inc. for an
upgrade to the switch. The contract price for this upgrade totaled $1,782,525.
The upgrade was completed and became fully operational in January 1996. By the
terms of the contract, payment of $284,909 was made during 1995 leaving a
balance due Ericsson, Inc. of $1,497,616. The original contract for the
equipment has been adjusted to include sales tax of $123,553 for a total balance
due to Ericsson, Inc. of $1,621,169. This obligation will become due in full if
one of the following conditions are met: when the system reaches 25,000
subscribers; or if the switch is moved from its present location; or if the
switch is taken out of service; or prior to or as an item of closing of the sale
of the system to another business entity. Due to the pending sale of the system
as discussed in Note 9, management expects the obligation for the upgrade to the
switch to become due in full during 1998, therefore this obligation is
classified as a current liability at December 31, 1997 on the balance sheet.
NOTE 6--ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Accounts receivable--roamer....................................... $ 314,304 $ 114,270
Accounts receivable--subscriber................................... 1,233,315 1,216,190
Accounts receivable--other........................................ 168,351 27,001
Less allowance for doubtful accounts.............................. (220,000) (126,000)
------------ ------------
Total........................................................... $ 1,495,970 $ 1,231,461
------------ ------------
------------ ------------
</TABLE>
F-61
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 7--RETIREMENT PLAN
The Partnership maintains a 401(k) profit sharing plan for its employees.
After meeting eligibility requirements on age and months of service, all
employees are covered. Contributions to the plan consist of the salary reduction
each eligible employee has elected to defer. Additional contributions to the
plan are at the discretion of management. Contributions for the years ended
December 31, 1996 and 1997 were $10,800 and $20,545, respectively.
NOTE 8--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Partnership is committed under operating leases principally for
facilities, cell sites and office space with remaining terms from one to nine
years with options for additional periods. Certain leases provide for payment by
the lessee of taxes, maintenance and insurance.
The statement of income includes rental expense for operating leases of
approximately $428,000 for the year ended December 31, 1997 and $326,000 for the
year ended December 31, 1996. The partnership's future minimum lease commitments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
REAL ESTATE EQUIPMENT
YEAR LEASES RENTALS
- ------------------------------------------------ ------------ -----------
<S> <C> <C>
12-31-98........................................ $ 399,870 $ 3,807
12-31-99........................................ 346,501 1,586
12-31-00........................................ 326,523 --
12-31-01........................................ 226,151 --
12-31-02........................................ 133,049 --
Thereafter...................................... 432,377 --
------------ -----------
Total......................................... $ 1,864,471 $ 5,393
------------ -----------
------------ -----------
</TABLE>
The Partnership had a management agreement with Rural Cellular Management
(RCM) which terminated on September 1, 1995. Prior to termination, the monthly
management fee was based upon the most current population of the Rural Service
Area (RSA) multiplied by $.1042. In 1996, the Partnership paid $45,350 to RCM
which represented a correction in the calculation of the prior year's management
fee paid. On August 24, 1996, the Partnership and RCM agreed upon a termination
fee of $4,000,000 in settlement of the management agreement. As of December 31,
1996, the partnership had paid $2,500,000 to RCM. The balance of the termination
fee, $1,500,000, was paid during the year ended December 31, 1997.
NOTE 9--SUBSEQUENT EVENT
On November 17, 1997, the shareholders of Cellular 2000 Telephone Co.
entered into a definitive agreement to sell their stock in Cellular 2000
Telephone Co. and to transfer the Federal Communications Commission (FCC)
Operating Licenses to Dobson Cellular of California, Inc. (Dobson). Cellular
2000 Telephone Co. owns 75.018 percent of the outstanding partnership interests
of Cellular 2000 (A Partnership), and thereby owns a controlling interest in the
Partnership. The financial statements do not reflect any expenses incurred or
expected to be incurred related to the sale. The FCC has consented to the
F-62
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 9--SUBSEQUENT EVENT (CONTINUED)
transfer of control of the Partnership's FCC licenses to Dobson and has granted
authorization to Dobson to operate the cellular telephone system. The sale is
expected to close in April, 1998.
On March 19, 1998, RSA 339, Inc. entered into a definitive agreement to sell
their minority interest in the Partnership to Dobson. RSA 339, Inc. owns the
remaining 24.982 percent of the outstanding partnership interests of the
Partnership. The sale is also expected to close in April, 1998.
F-63
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1997 AND MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 1,079,070 $ 130,801
Accounts receivable.............................................................. 1,231,461 1,443,923
Accounts receivable--related parties............................................. 1,396,810 1,115,548
Inventory........................................................................ 160,677 112,859
Prepaid and other current assets................................................. 370,334 221,161
------------- -------------
Total current assets............................................................. 4,238,352 3,024,292
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and towers............................................................. 7,234,628 7,247,880
Cellular and switching equipment................................................. 15,059,156 16,719,661
Autos and trucks................................................................. 126,140 126,140
Office equipment and furniture................................................... 413,672 415,852
Leasehold improvements........................................................... 333,675 333,675
Construction in progress......................................................... 2,730,032 1,360,988
------------- -------------
Total property, plant and equipment.............................................. 25,897,303 26,204,196
Less accumulated depreciation.................................................... 6,563,647 7,137,194
------------- -------------
Net property, plant and equipment................................................ 19,333,656 19,067,002
------------- -------------
OTHER ASSETS:
Loan costs....................................................................... 268,084 252,281
Licensing costs.................................................................. 54,169 50,652
------------- -------------
Total other assets............................................................... 322,253 302,933
------------- -------------
TOTAL ASSETS....................................................................... $ 23,894,261 $ 22,394,227
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft................................................................... $ 536,924 $
Notes payable--related party..................................................... 1,253,381 203,793
Accounts payable................................................................. 723,491 640,282
Accounts payable--related parties................................................ 305,437 264,034
Obligation for equipment......................................................... 1,621,169 1,621,169
Accrued expenses................................................................. 143,022 171,362
Unearned revenue................................................................. 297,792 310,083
Federal and state taxes payable.................................................. 819,903 735,034
Customer deposits................................................................ 17,600 21,300
------------- -------------
Total current liabilities........................................................ 5,718,719 3,967,057
------------- -------------
LONG-TERM LIABILITIES:
Notes payable, less current portion.............................................. 12,800,000 12,800,000
------------- -------------
Total long term liabilities...................................................... 12,800,000 12,800,000
------------- -------------
Total liabilities................................................................ 18,518,719 16,767,057
PARTNERS' EQUITY................................................................... 5,375,542 5,627,170
------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY............................................. $ 23,894,261 $ 22,394,227
------------- -------------
------------- -------------
</TABLE>
See accompanying notes and accountants' report.
F-64
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Cellular service.................................................................... $ 1,959,180 $ 2,398,814
Cellular roaming.................................................................... 2,061,429 2,336,412
Equipment sales..................................................................... 67,339 273,614
Other income........................................................................ 47,934 74,541
------------ ------------
Total revenues...................................................................... 4,135,882 5,083,381
------------ ------------
COSTS AND EXPENSES:
Cost of services.................................................................... 1,361,129 1,451,133
Cost of equipment sales............................................................. 215,516 433,286
Marketing and selling expenses...................................................... 284,870 235,264
General and administrative expenses................................................. 512,199 773,488
Legal and professional fees......................................................... 161,089 204,062
Depreciation........................................................................ 403,913 573,547
Amortization........................................................................ 47,831 19,321
------------ ------------
Total costs and expenses............................................................ 2,986,547 3,690,101
------------ ------------
Net income from operations............................................................ 1,149,335 1,393,280
------------ ------------
OTHER INCOME (EXPENSE):
Interest income..................................................................... 6,238 7,031
Interest expense.................................................................... (176,495) (240,041)
Loss on disposition of fixed assets................................................. (43,723)
Miscellaneous income................................................................ 40 91,358
------------ ------------
Total other income (expense)........................................................ (213,940) (141,652)
------------ ------------
Net income............................................................................ $ 935,395 $ 1,251,628
------------ ------------
------------ ------------
</TABLE>
See accompanying notes and accountants' report.
F-65
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Partners' equity, beginning of period................................................. $ 2,606,661 $ 5,375,542
Net income............................................................................ 935,395 1,251,628
Distributions......................................................................... 500,000 1,000,000
------------ ------------
Partners' equity, end of period....................................................... $ 3,042,056 $ 5,627,170
------------ ------------
------------ ------------
</TABLE>
See accompanying notes and accountants' report.
F-66
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $ 935,395 $ 1,251,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................... 451,744 592,868
Loss on disposition of fixed assets............................................. 43,723
(Increase) decrease in assets:
Accounts receivable........................................................... 447,986 68,800
Inventory..................................................................... 11,323 47,818
Prepaid and other current assets.............................................. 94,940 149,173
Licensing costs............................................................... (40,000)
Increase (decrease) in liabilities:
Accounts payable.............................................................. 113,353 (124,612)
Accrued expenses.............................................................. (3,510) 28,340
Unearned revenue.............................................................. 100,335 12,291
Federal and state taxes payable............................................... 34,259 (84,869)
Customer deposits............................................................. (1,967) 3,700
------------- -------------
Net cash provided by operating activities..................................... 2,187,581 1,945,137
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets................................................ 1,900
Capital expenditures for property, plant and equipment............................ (2,558,154) (306,894)
------------- -------------
Net cash used for investing activities............................................ (2,556,254) (306,894)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable....................................................... (300,000) (1,049,588)
Distributions..................................................................... (500,000) (1,000,000)
------------- -------------
Net cash provided (used) by financing activities.................................. (800,000) (2,049,588)
------------- -------------
Net increase (decrease) in cash and cash equivalents.............................. (1,168,673) (411,345)
Cash and cash equivalents at beginning of period.................................... 1,142,409 542,146
------------- -------------
Cash and cash equivalents at end of period.......................................... $ (26,264) $ 130,801
------------- -------------
------------- -------------
</TABLE>
See accompanying notes and accountants' report.
F-67
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Partnership is the owner of a license issued by the Federal
Communications Commission (FCC) to provide non-wireline cellular
telecommunications service to the California 4 Rural Service Area. California 4
Rural Service Area includes Merced, Madera and San Benito counties in central
California. The Partnership has a large customer base within this area that
includes individuals, businesses and governments. The Partnership is not
dependent on any single or major group of customers for its sales. Approximately
54% of Partnership revenue is derived from providing cellular service to
customers of other cellular companies 'roaming' through the Company's service
area. Approximately 43% of revenue is derived from providing cellular service to
its own subscriber customers. As more fully described in Note 9 to the financial
statements, in late 1997 the partner which owns the controlling interest in the
Partnership and Dobson Cellular of California, Inc. (Dobson) signed an agreement
in which the Partner agreed to sell their interest in the Partnership and to
transfer the FCC license of the Partnership to Dobson.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid unrestricted cash instruments with
original maturities of three months or less. The Partnership places its
temporary cash investments with high credit quality financial institutions. At
times such investments may be in excess of the FDIC insurance limit. The
Partnership has not experienced any losses in such accounts.
REVENUE RECOGNITION
Cellular air time is recorded as revenue as earned. Subscriber acquisition
costs (mainly commissions and loss on equipment sales) are expensed when
incurred. Sales of equipment are recorded at the point of sale. Cellular access
charges generally are billed in advance and recognized as revenue when the
services are provided.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
under the specific identification method.
F-68
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives of the
assets:
<TABLE>
<S> <C>
15-20
Buildings and towers............................................ years
Cellular and switching equipment................................ 10 years
Autos and trucks................................................ 5 years
Furniture, fixtures and office equipment........................ 5-7 years
Leasehold Improvements.......................................... 5 years
</TABLE>
Expenditures for repairs and maintenance are charged to operating expense as
incurred. Betterments, replacement equipment and additions are capitalized.
CONSTRUCTION IN PROGRESS
The Partnership's cellular communications system expenditures are recorded
as construction in progress until the system or assets are placed in service.
When the assets are placed in service, they are transferred to the appropriate
property and equipment category and depreciated. All direct, administrative and
interest costs related to the construction are capitalized to construction in
progress during the construction period.
START UP COSTS
Start up costs are administrative costs incurred related to the construction
of the cellular mobile communications system. Such amounts are being amortized
over five years beginning June 1, 1992. Accumulated amortization of start up
costs at December 31, 1997 and March 31, 1998 was $681,933 and $681,933,
respectively. At December 31, 1997 the start up costs were fully amortized.
LOAN COSTS
Costs associated with the financing of the Partnership's debt have been
capitalized and are amortized on a straight line basis over the life of the
note. Additional costs incurred with the loan in June 1997 have been capitalized
and amortized over the remaining life of the loan. Accumulated amortization of
loan costs at December 31, 1997 and March 31, 1998 was $173,103 and $188,907,
respectively.
LICENSING COSTS
Licensing costs primarily represent costs incurred to acquire the Federal
Communications Commission License. Amortization of these costs began in May,
1992, using the straight-line method over a period of 40 years. In March, 1997,
the Partnership entered into an agreement to use licensed software to process
billing information for its cellular communications system. In consideration of
this agreement, the Partnership paid a one-time license fee which is being
amortized using the straight-line method over a three-year period. Accumulated
amortization of licensing costs at December 31, 1997 and March 31, 1998 was
$15,213 and $18,730, respectively.
F-69
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Partnership's legal form of organization is that of a partnership. A
partnership as such is not taxed under the Internal Revenue Code, rather the
income or loss of the partnership is required to be reported by each respective
partner on their appropriate tax return.
ADVERTISING EXPENSES
Advertising costs are expensed as incurred and amounted to approximately
$42,535 and $85,778 for the three months ended March 31, 1997 and 1998,
respectively. The expenses are included as marketing and selling expenses in the
statement of income.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Partnership to
concentrations of credit risk, as defined by FASB Statement No. 105 consist
primarily of trade accounts receivable and cash equivalents.
At March 31, 1998, approximately 48% of trade accounts receivable were
attributable to cellular companies which subscribe to the clearinghouse network.
Of this amount, approximately 72% of these receivables were from AT&T Wireless
Services of California, Inc. (AWS-CA) companies and approximately 19% of these
receivables were from Bay Area Cellular Telephone Company, of which the parent
company of AWS-CA owns an interest. Concentrations of credit risk from these
receivables is limited due to the large number of subscribers, none of which
individually comprise a significant amount of the accounts receivable balance at
March 31, 1998. The Partnership establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. Receivables are not collateralized. The
Partnership is directly affected by the well being of the California economic
climate and the effects of any changes in the cellular telecommunications act.
However, management does not believe significant credit risk exists at March 31,
1998.
RECLASSIFICATIONS
Certain accounts relating to the prior year have been reclassified to
conform to the current year presentation. The reclassifications have no effect
on previously reported net earnings.
NOTE 2--SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash and cash equivalents at March 31, 1997 and 1998 for the statement of
cash flows consist of:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Cash and money market funds.......................................... $ 151,576 $ 130,801
Cash overdrafts...................................................... (177,840)
----------- ----------
Total................................................................ $ (26,264) $ 130,801
----------- ----------
----------- ----------
</TABLE>
For the three months ended March 31, 1997 and 1998, interest paid amounted
to $176,495 and $144,204, respectively, net of capitalized interest.
F-70
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 3--NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
Commercial promissory note due April 1, 1998. Collateralized by
subordinated security interest in property and assets
purchased under contract with AWS and outcollect revenues.... $ 1,253,381 $ 203,793
8.16797% Variable rate term loan due December 31, 2003.
Collateralized by all property and assets of the
partnership.................................................. 12,800,000 12,800,000
------------- -------------
Total.......................................................... $ 14,053,381 $ 13,003,793
Less current maturities........................................ 1,253,381 203,793
------------- -------------
Total long term portion of notes payable....................... $ 12,800,000 $ 12,800,000
------------- -------------
------------- -------------
</TABLE>
On December 31, 1996, the Partnership entered into an agreement which allows
the Partnership to request AT&T Wireless Services, Inc. (AWS) to place orders
for certain equipment, software, materials and services (hereinafter equipment)
intended to be used by the Partnership in the ordinary course of business for
the operation, modification, improvement or expansion of its system. Although it
is under no obligation to do so, if AWS chooses to honor in its sole discretion
any such request from the Partnership, such orders for equipment will be charged
on AWS' account and the dollar amount of such charges shall be deemed for all
purposes as loans or advances from AWS to the Partnership. The unpaid balance of
all loans or advances shall not exceed $750,000. The payment of the loans and
advances is secured by the equipment purchased and all of the Partnership's
outcollect revenues, as they are commonly defined in the cellular telephone
industry. The purchasing agreement contains a provision which allows AWS to
offset roaming revenues owed to the Partnership against amounts owed under this
purchasing agreement if the Partnership defaults in its obligation. Interest is
payable at one and one-half percent per month on the outstanding balance after
specified time intervals have elapsed. No interest cost was incurred on this
loan during 1998.
On October 14, 1994, the Partnership arranged financing with a financial
institution for a $10,000,000 term loan and a $2,500,000 revolving credit loan.
On September 29, 1996, the Partnership increased the commitment on the revolving
credit loan to $4,500,000. The increased financing was obtained to satisfy a
portion of the termination fee due on the settlement of the management agreement
with RCM. On June 11, 1997, the term loan and the revolving credit loan were
combined and the total commitment on the loan was increased to $16,000,000. The
increased financing was obtained to upgrade equipment and increase the capacity
of the cellular communications system. The credit agreement associated with the
loan contains, among other covenants, provisions which limit capital
expenditures. For the year ended December 31, 1997, capital expenditures cannot
exceed $7,100,000. As of December 31, 1997, the Partnership was not in
compliance with the capital expenditures covenant. This noncompliance would, by
the terms of the loan agreement, constitute an event of default. The agreement
provides that in an event of default the bank may by notice in writing declare
all amounts owing with respect to these agreements immediately due and payable.
Due to the pending sale as discussed in Note 9, management does not expect to
receive such
F-71
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 3--NOTES PAYABLE (CONTINUED)
notice. The credit agreement also contains provisions which limit distributions
to partners to no more than $500,000 during any fiscal quarter except
distributions to the partners to pay Federal and State income taxes on the
taxable income allocated by the Borrowers to its partners. Distributions
totaling $3,219,566 and $1,000,000 were made during the period ended December
31, 1997 and March 31, 1998, respectively.
At March 31, 1998, these borrowings bear interest at 2.25% above the LIBOR
rate established for the period. Total interest incurred during the three month
period ended March 31, 1997 and 1998 was $204,367 and $168,442, respectively. Of
this, $30,316 and $24,238 were capitalized in 1997 and 1998, respectively, as
construction costs.
Annual maturities of noncurrent notes payable are as follows:
<TABLE>
<S> <C>
1999........................................................... $ -0-
2000........................................................... 2,400,000
2001........................................................... 3,200,000
2002........................................................... 3,200,000
2003........................................................... 4,000,000
----------
Total.......................................................... $12,800,000
----------
----------
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS
McCaw Communications of the Pacific, Inc. and RSA 339, Inc. are subsidiaries
of AT&T Wireless Services, Inc. (AWS), and own minority interests in the
Partnership. AWS owns an interest in Bay Area Cellular Telephone Company.
Cellular 2000 Telephone Co. owns the controlling interest in the Partnership.
<TABLE>
<CAPTION>
AMOUNT OF TRANSACTION
---------------------------------
RELATED PARTY TYPE OF TRANSACTION DECEMBER 31, 1997 MARCH 31, 1998
- -------------------------------------- -------------------------------------- ----------------- --------------
<S> <C> <C> <C>
AT&T Wireless Services of California, Accounts receivable $ 1,057,000 $ 876,372
Inc. (including systems owned or Accounts payable 243,000 216,088
controlled by AWS) Notes payable 1,253,000 203,793
Bay Area Cellular Telephone Company Accounts receivable 281,000 239,176
Accounts payable 51,000 47,946
Norfolk County Internet Accounts receivable 56,000
Cellular 2000 Telephone Co. Accounts receivable 3,000
</TABLE>
NOTE 5--OBLIGATION FOR EQUIPMENT
In 1995, the Partnership negotiated a contract with Ericsson, Inc. for an
upgrade to the switch. The contract price for this upgrade totaled $1,782,525.
The upgrade was completed and became fully operational in January, 1996. By the
terms of the contract, payment of $284,909 was made during 1995 leaving a
F-72
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 5--OBLIGATION FOR EQUIPMENT (CONTINUED)
balance due Ericsson, Inc. of $1,497,616. The original contract for the
equipment has been adjusted to include sales tax of $123,553 for a total balance
due to Ericsson, Inc. of $1,621,169. This obligation will become due in full if
one of the following conditions are met: when the system reaches 25,000
subscribers; or if the switch is moved from its present location; or if the
switch is taken out of service; or prior to or as an item of closing of the sale
of the system to another business entity. Due to the subsequent sale of the
system as discussed in Note 9, management fulfilled the obligation for the
upgrade to the switch in April, 1998, therefore this obligation is classified as
a current liability at March 31, 1998 on the balance sheet.
NOTE 6--ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and March 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Accounts receivable--roamer...................................... $ 114,270 $ 186,440
Accounts receivable--subscriber.................................. 1,216,190 1,303,430
Accounts receivable--other....................................... 27,001 116,053
Less allowance for doubtful accounts............................. (126,000) (162,000)
------------ ------------
Total............................................................ $1,231,461 $1,443,923
------------ ------------
------------ ------------
</TABLE>
NOTE 7--RETIREMENT PLAN
The Partnership maintains a 401(k) profit sharing plan for its employees.
After meeting eligibility requirements on age and months of service, all
employees are covered. Contributions to the plan consist of the salary reduction
each eligible employee has elected to defer. Additional contributions to the
plan are at the discretion of management. Contributions for the three months
ended March 31, 1997 and 1998 were $5,500 and $8,715, respectively.
NOTE 8--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Partnership is committed under operating leases principally for
facilities, cell sites and office space with remaining terms from one to nine
years with options for additional periods. Certain leases provide for payment by
the lessee of taxes, maintenance and insurance.
F-73
<PAGE>
CELLULAR 2000 (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, MARCH 31, 1997 AND 1998
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The statement of income includes rental expense for operating leases of
approximately $101,200 for the three months ended March 31, 1997 and $107,161
for the three months ended March 31, 1998. The partnership's future minimum
lease commitments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
REAL ESTATE EQUIPMENT
PERIOD LEASES RENTALS
- -------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Nine months ended 12-31-98.......................................... $ 314,385 $ 2,855
Year ended 12-31-99................................................. 346,501 1,586
Year ended 12-31-00................................................. 326,523
Year ended 12-31-01................................................. 226,151
Year ended 12-31-02................................................. 133,050
Year ended 12-31-03................................................. 126,851
Thereafter.......................................................... 305,525
------------ -----------
Total............................................................... $ 1,652,135 $ 4,441
------------ -----------
------------ -----------
</TABLE>
The Partnership had a management agreement with Rural Cellular Management
(RCM) which terminated on September 1, 1995. Prior to termination, the monthly
management fee was based upon the most current population of the Rural Service
Area (RSA) multiplied by $.1042. In 1996, the Partnership paid $45,350 to RCM
which represented a correction in the calculation of the prior year's management
fee paid. On August 24, 1996, the Partnership and RCM agreed upon a termination
fee of $4,000,000 in settlement of the management agreement. As of December 31,
1996, the partnership had paid $2,500,000 to RCM. The balance of the termination
fee, $1,500,000, was paid in August, 1997.
NOTE 9--SUBSEQUENT EVENT
On November 17, 1997, the shareholders of Cellular 2000 Telephone Co.
entered into a definitive agreement to sell their stock in Cellular 2000
Telephone Co. and to transfer the Federal Communications Commission (FCC)
Operating Licenses to Dobson Cellular of California, Inc. (Dobson). Cellular
2000 Telephone Co. owns 75.018 percent of the outstanding partnership interests
of Cellular 2000 (A Partnership), and thereby owns a controlling interest in the
Partnership. The financial statements do not reflect any expenses incurred or
expected to be incurred related to the sale. The FCC has consented to the
transfer of control of the Partnership's FCC licenses to Dobson and has granted
authorization to Dobson to operate the cellular telephone system. The sale
closed in April, 1998.
On March 19, 1998, RSA 339, Inc. entered into a definitive agreement to sell
their minority interest in the Partnership to Dobson. RSA 339, Inc. owns the
remaining 24.982 percent of the outstanding partnership interests of the
Partnership. The sale closed in April, 1998.
F-74
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sygnet Wireless, Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' equity (deficit), and cash flows of Sygnet Wireless, Inc. for the
years ended December 31, 1996 and 1997, and for the period from January 1, 1998
through December 23, 1998 (the date of the sale of the Company). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Sygnet Wireless, Inc. for the years ended December 31, 1996
and 1997, and for the period from January 1, 1998 through December 23, 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
February 5, 1999
F-75
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 THROUGH
----------------------------- DECEMBER 23,
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Subscriber revenue.............................................. $ 31,784,883 $ 55,153,827 $ 64,785,498
Roamer revenue.................................................. 8,737,284 23,377,299 28,034,831
Equipment sales................................................. 2,416,769 4,323,052 5,794,056
Other revenue................................................... 1,607,245 1,679,412 1,653,264
------------- -------------- --------------
Total revenue..................................................... 44,546,181 84,533,590 100,267,649
Costs and expenses:
Cost of services................................................ 5,258,386 8,948,346 9,433,254
Cost of equipment sales......................................... 5,816,144 9,663,151 10,443,870
General and administrative...................................... 9,852,004 16,975,592 19,796,012
Selling and marketing........................................... 6,080,308 10,841,059 12,327,160
Merger related costs (Note 2)................................... -- -- 1,883,952
Depreciation and amortization................................... 10,038,439 28,718,937 27,497,687
------------- -------------- --------------
Total costs and expenses.......................................... 37,045,281 75,147,085 81,381,935
------------- -------------- --------------
Income from operations............................................ 7,500,900 9,386,505 18,885,714
Other:
Interest expense................................................ 11,173,688 29,901,678 27,895,156
Merger related costs (Note 2)................................... -- -- 5,205,492
Other expense, net.............................................. 194,723 101,221 319,121
------------- -------------- --------------
Loss before extraordinary item.................................... (3,867,511) (20,616,394) (14,534,055)
Extraordinary loss on extinguishment of debt (Note 4)............. (1,420,864) -- --
------------- -------------- --------------
Net loss.......................................................... $ (5,288,375) $ (20,616,394) $ (14,534,055)
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-76
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
WILCOM CORPORATION SYGNET COMMUNICATIONS, INC.
COMMON STOCK COMMON STOCK
---------------------------------------------- ---------------------------------------------
TYPE A TYPE B TYPE A TYPE B
---------------------- ---------------------- -------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- --------- ----------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1996........................ 500 $ 12,500 2,500 $ 62,500 209,362 $ 209,362 1,046,801 $ 1,046,801
Net loss....................
Dividends declared..........
Corporate merger............ (500) (12,500) (2,500) (62,500) 4,360 4,360 21,800 21,800
Retirement of treasury
stock..................... (8,024) (40,173)
Sygnet Wireless
capitalization............ (205,698) (213,722) (1,028,428) (1,068,601)
Capital contribution of S
Corporation earnings......
Preferred stock dividend....
Accretion of preferred
stock.....................
Exchange of common shares...
----- --------- ----------- --------- --------- --------- ---------- -----------
Balance as of December 31,
1996........................ -- -- -- -- -- -- -- --
Net loss....................
Preferred stock dividend....
Accretion of preferred
stock.....................
Stock option compensation...
Excess of redemption price
over carrying value of
preferred stock...........
Net proceeds from issuance
of common shares to Boston
Ventures..................
Exchange of common shares...
----- --------- ----------- --------- --------- --------- ---------- -----------
Balance as of December 31,
1997........................ -- -- -- -- -- -- -- --
Net loss....................
Exchange of common shares...
----- --------- ----------- --------- --------- --------- ---------- -----------
Balance as of December 23,
1998........................ -- $ -- -- $ -- -- $ -- -- $ --
----- --------- ----------- --------- --------- --------- ---------- -----------
----- --------- ----------- --------- --------- --------- ---------- -----------
<CAPTION>
SYGNET WIRELESS, INC.
---------------------------------------------
NOTE TREASURY
CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE STOCK
---------------------- --------------------- PAID-IN EARNINGS FROM OFFICER/ ---------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER SHARES
--------- ----------- ---------- --------- ----------- ------------ ------------- ---------
<S> <C>
Balance as of January 1,
1996........................ -- $ -- -- $ -- $ 4,170,368 $ 753,675 $ (249,952) 48,197
Net loss.................... (5,288,375)
Dividends declared.......... (261,625)
Corporate merger............ 48,840
Retirement of treasury
stock..................... (1,718,991) (48,197)
Sygnet Wireless
capitalization............ 6,170,630 61,706 1,220,617
Capital contribution of S
Corporation earnings...... 2,809,405 (2,809,405)
Preferred stock dividend.... (690,411)
Accretion of preferred
stock..................... (27,617)
Exchange of common shares... 2,653 27 (2,653) (27)
--------- ----------- ---------- --------- ----------- ------------ ------------- ---------
Balance as of December 31,
1996........................ 2,653 27 6,167,977 61,679 5,812,211 (7,605,730) (249,952) --
Net loss.................... (20,616,394)
Preferred stock dividend.... (1,149,040)
Accretion of preferred
stock..................... (46,849)
Stock option compensation... 306,000
Excess of redemption price
over carrying value of
preferred stock........... (925,534)
Net proceeds from issuance
of common shares to Boston
Ventures.................. 3,000,000 30,000 43,601,710
Exchange of common shares... 1,008,000 10,080 (1,008,000) (10,080)
--------- ----------- ---------- --------- ----------- ------------ ------------- ---------
Balance as of December 31,
1997........................ 4,010,653 40,107 5,159,977 51,599 47,598,498 (28,222,124) (249,952) --
Net loss.................... (14,534,055)
Exchange of common shares... 731,893 7,319 (731,893) (7,319)
--------- ----------- ---------- --------- ----------- ------------ ------------- ---------
Balance as of December 23,
1998........................ 4,742,546 $ 47,426 4,428,084 $ 44,280 $47,598,498 $(42,756,179) $ (249,952) --
--------- ----------- ---------- --------- ----------- ------------ ------------- ---------
--------- ----------- ---------- --------- ----------- ------------ ------------- ---------
<CAPTION>
AMOUNT
-----------
Balance as of January 1,
1996........................ $(1,718,991)
Net loss....................
Dividends declared..........
Corporate merger............
Retirement of treasury
stock..................... 1,718,991
Sygnet Wireless
capitalization............
Capital contribution of S
Corporation earnings......
Preferred stock dividend....
Accretion of preferred
stock.....................
Exchange of common shares...
-----------
Balance as of December 31,
1996........................ --
Net loss....................
Preferred stock dividend....
Accretion of preferred
stock.....................
Stock option compensation...
Excess of redemption price
over carrying value of
preferred stock...........
Net proceeds from issuance
of common shares to Boston
Ventures..................
Exchange of common shares...
-----------
Balance as of December 31,
1997........................ --
Net loss....................
Exchange of common shares...
-----------
Balance as of December 23,
1998........................ $ --
-----------
-----------
</TABLE>
See accompanying notes.
F-77
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, THROUGH
------------------------------- DECEMBER 23,
1996 1997 1998
--------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................ $ (5,288,375) $ (20,616,394) $ (14,534,055)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation................................................ 5,948,693 16,018,841 15,085,641
Amortization................................................ 4,089,746 12,700,096 12,412,046
Compensation expense from issuance of stock options......... -- 306,000 --
Loss on disposal of equipment............................... 177,633 102,955 96,128
Extraordinary loss on extinguishment of debt................ 1,420,864 -- --
Changes in operating assets and liabilities:
Accounts receivable....................................... (184,315) (1,854,599) (1,526,182)
Inventory................................................. (287,900) (170,493) (921,077)
Prepaid and deferred expenses............................. 28,649 232,548 30,380
Accounts payable and accrued expenses..................... 2,424,406 2,866,653 3,494,470
Accrued interest payable.................................. 6,481,912 (190,868) (3,366,590)
--------------- -------------- --------------
Net cash provided by operating activities....................... 14,811,313 9,394,739 10,770,761
INVESTING ACTIVITIES
Acquisitions of Horizon and Erie................................ (254,150,136) (599,442) --
Purchases of property and equipment............................. (10,049,999) (25,575,837) (13,654,200)
Proceeds from sale of equipment................................. -- 405,995 444,500
--------------- -------------- --------------
Net cash used in investing activities........................... (264,200,135) (25,769,284) (13,209,700)
FINANCING ACTIVITIES
Dividends paid.................................................. (261,625) -- --
Proceeds from long-term debt.................................... 320,750,000 30,500,000 21,800,000
Principal payments on long-term debt............................ (78,000,000) (37,250,000) (18,800,000)
Increase in financing costs..................................... (10,290,097) (65,376) --
Net proceeds from issuance of preferred stock................... 19,000,000 -- --
Redemption of preferred stock................................... -- (21,839,451) --
Net proceeds from issuance of common stock...................... -- 43,631,710 --
--------------- -------------- --------------
Net cash provided by financing activities....................... 251,198,278 14,976,883 3,000,000
--------------- -------------- --------------
Increase (decrease) in cash and cash equivalents................ 1,809,456 (1,397,662) 561,061
Cash and cash equivalents at beginning of year.................. 448,292 2,257,748 860,086
--------------- -------------- --------------
Cash and cash equivalents at end of year........................ $ 2,257,748 $ 860,086 $ 1,421,147
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-78
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND THE
PERIOD FROM JANUARY 1, 1998 THROUGH DECEMBER 23, 1998
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
These financial statements include the combined financial statements of
Sygnet Communications, Inc. (SYGNET) and Wilcom Corporation (Wilcom) through
August 31, 1996, the effective date of the merger described below and the
accounts of Sygnet Wireless, Inc. and its wholly-owned subsidiary Sygnet
Communications, Inc. (Sygnet) (hereinafter collectively referred to as the
"Company"). Intercompany balances and transactions have been eliminated in the
consolidated financial statements. The Company owns and operates in one segment,
cellular telephone systems, serving one large cluster with an approximate
population of 2.4 million in Northeastern Ohio, Western Pennsylvania and Western
New York.
On August 19, 1996, the shareholders of SYGNET and Wilcom effected a
corporate restructuring whereby Wilcom was merged into SYGNET and shareholders
of Wilcom received 8.72 shares of SYGNET common stock for each share of Wilcom
common stock held as of August 31, 1996, the effective date of the merger.
Immediately prior to the merger, 90% of SYGNET's voting interests were owned by
the same individuals as 100% of Wilcom's voting interests. This merger was a
business combination between entities under common control whereby the assets
and liabilities so transferred were accounted for at historical cost in a manner
similar to that in pooling-of-interests accounting. Also, in conjunction with
this merger, the shareholders of SYGNET amended the articles of incorporation to
change SYGNET's name to Sygnet Wireless, Inc.
Prior to the restructuring, SYGNET and Wilcom had been operating their
cellular business through three partnerships (Youngstown Cellular Telephone
Company [YCTC], Erie Cellular Telephone Company [Erie], and Wilcom Cellular) and
Sharon--Youngstown Cellular, Inc. (Sharon). As a result of the restructuring and
merger, Sharon was renamed Sygnet and is the wholly-owned subsidiary and
operating company of Sygnet Wireless, Inc. The existence of YCTC, Erie, and
Wilcom Cellular terminated on October 1, 1996 when all partnership interests
transferred to Sygnet.
2. SUBSEQUENT EVENT
On December 23, 1998, a wholly-owned subsidiary of Dobson Communications
Corp. (Dobson), acquired all outstanding shares of Class A and B common stock
(including the granted options of the Company as described in Note 11) of the
Company for $337.5 million in cash. In connection with the purchase, the Notes
(as described in Note 5) were tendered for a total price of $1,181.61 for each
$1,000 in principal. The Bank Credit Facility (as described in Note 5) was
repaid and terminated. The Company incurred $7.1 million in merger costs
associated with this business combination. The merger costs included
approximately $4.8 million for an advisory fee and $0.4 million in legal and
accounting fees which are recorded as other non-operating expenses. In addition,
the Company incurred $1.9 million for related employee severance, retention and
stock option plans which are included in costs and expenses.
3. ACQUISITIONS
On October 9, 1996, the Company acquired certain cellular licenses,
property, equipment, customer lists, current assets and current liabilities of
Horizon Cellular Telephone Company of Chautauqua L.P., Horizon Cellular
Telephone Company of Crawford L.P., and Horizon Cellular Telephone Company of
Indiana L.P. (hereinafter collectively referred to as "Horizon") for cash of
$252.9 million. The acquired systems provide cellular service to an estimated
population of 1.4 million in contiguous markets in Western Pennsylvania and
Western New York.
F-79
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
On September 30, 1995, SYGNET, as a general partner, purchased 95.46% of
Erie for cash of $40.53 million. On November 30, 1995, Sharon purchased 4.54% of
Erie for $1.92 million, which was paid on February 12, 1996.
The above transactions were accounted for as purchases and, accordingly, the
results of operations of the companies acquired have been included in the
consolidated financial statements since the date of acquisition.
Cash paid for the acquisitions in 1996 is summarized below:
<TABLE>
<S> <C>
Current assets acquired....................................... $ 3,613,696
Property and equipment........................................ 18,986,400
Cellular licenses............................................. 207,223,616
Customer lists................................................ 25,700,000
Current liabilities assumed................................... (774,134)
-----------
Net assets acquired........................................... 254,749,578
Cash paid in 1997............................................. (599,442)
-----------
Cash paid in 1996............................................. $254,150,136
-----------
-----------
</TABLE>
4. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives (ranging from 2.5 to 19 years) calculated under the
straight-line or double declining balance methods.
INTANGIBLE ASSETS
CELLULAR LICENSES AND CUSTOMER LISTS
The FCC issues licenses that enable cellular carriers to provide cellular
service in specific geographic areas. The FCC grants licenses for a term of up
to 10 years and generally grants renewals if the licensee has complied with its
obligations under the Communications Act of 1934. In 1993, the FCC adopted
specific standards to apply to cellular renewals, concluding it will award a
renewal to a cellular licensee that meets certain standards of past performance.
Historically, the FCC has granted license renewals routinely. The Company
believes that it has met, and will continue to meet all requirements necessary
to secure renewal of its cellular licenses.
The Company has acquired cellular licenses and customer lists through its
acquisition of interests in various cellular systems. The cost of licenses and
customer lists acquired was $231,003,426 in 1996. The Company uses a 40 year
useful life to amortize its licenses under the straight-line method. Purchased
cellular and paging customer lists are being amortized over 5 years under the
straight-line method.
F-80
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortization expense was $3,652,470 and $11,559,031 in 1996 and 1997,
respectively, and $11,295,083 for the period from January 1 through December 23,
1998.
The ongoing value and remaining useful lives of intangible and other
long-term assets are subject to periodic evaluation and the Company currently
expects the carrying amounts to be fully recoverable. When events and
circumstances indicate that intangible and other long-term assets might be
impaired, an undiscounted cash flow methodology would be used to determine
whether an impairment loss would be recognized. Measurement of the amount of the
impairment may be based on appraisal, market values of similar assets, or
estimated discounted cash flows reflecting the use and ultimate disposition of
the assets.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized over the terms of the bank
credit facility and senior notes. Amortization expense was $437,276 and
$1,141,065 in 1996 and 1997, respectively, and $1,116,963 for the period from
January 1, 1998 through December 23, 1998. Upon entering into a new bank credit
facility in October 1996, an extraordinary loss of $1,420,864 was incurred to
write-off unamortized financing costs under the extinguished bank credit
agreement as described in Note 5.
REVENUE RECOGNITION
The Company earns revenue primarily by providing cellular services to its
customers (Subscriber Revenue) and from the usage of its system by the customers
of other cellular carriers (Roamer Revenue). Access revenue for Subscriber
Revenue is billed one month in advance. Revenue is recognized as service is
rendered. Subscriber acquisition costs (primarily commissions and loss on
equipment sales) are expensed when incurred.
ADVERTISING COSTS
Advertising costs are recorded as expense when incurred. Advertising expense
was $1,225,151 and $1,841,138 in 1996 and 1997, respectively, and $1,851,047 for
the period from January 1, 1998 through December 23, 1998.
STOCK COMPENSATION
The Company accounts for its stock-based employee compensation arrangements
based on the intrinsic value of the equity instruments granted, as set forth in
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results may 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
48%, 43% and 43% of the Company's Roamer Revenue was earned from two cellular
F-81
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carriers in 1996 and 1997, and for the period from January 1, 1998 through
December 23, 1998, respectively.
FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company in the management
of interest rate exposure and are accounted for on an accrual basis. Income and
expense are recorded in the same category as that arising from the related
liability being hedged (i.e., adjustments to interest expense).
The Company uses variable interest rate credit facilities to finance
acquisitions and operations of the Company. The Company may reduce its exposure
to fluctuations in interest rates by creating offsetting positions through the
use of derivative financial instruments. The Company does not use derivative
financial instruments for trading or speculative purposes, nor is the Company a
party to leveraged derivatives. The notional amount of interest rate swaps is
the underlying principal amount used in determining the interest payments
exchanged over the life of the swap. The notional amount is not a measure of the
Company's exposure through its use of derivatives.
The Company may be exposed to credit loss in the event of nonperformance by
the counterparties to its interest rate swap agreements. The Company anticipates
the counterparties will be able to fully satisfy their obligations under the
agreements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
RECLASSIFICATION
Certain 1996 and 1997 amounts have been reclassified to conform with 1998
presentation.
5. LONG-TERM DEBT
On September 19, 1996, the Company Issued $110,000,000 11 1/2% unsecured
Senior Notes due October 1, 2006 (the Notes). The Notes paid interest
semiannually on April 1 and October 1 of each year commencing April 1, 1997. The
Notes were redeemable at the option of the Company at redemption prices
(expressed as a percentage of principal amount) ranging from 105.75% in 2001 to
100.00% in 2005 and thereafter. Among other things, the Notes contain certain
covenants which limited additional indebtedness, payment of dividends, sale of
assets or stock, changes in control and transactions with related parties. The
proceeds from the Notes were used to repay amounts borrowed under a $75 million
bank credit agreement and to finance the acquisition of Horizon described in
Note 3. The notes were retired in connection with the sale of the Company
described in Note 2.
On October 9, 1996, Sygnet entered into a new financing agreement (the Bank
Credit Facility) with a commercial bank group. The Bank Credit Facility was a
senior secured reducing revolver that provided Sygnet the ability to borrow up
to $300 million through June 30, 1999. Mandatory reductions in the revolver were
to occur quarterly thereafter through June 30, 2005, when the Bank Credit
Facility was to terminate. The Bank Credit Facility was secured by certain
assets and the stock of Sygnet. The Bank Credit Facility provided for various
borrowing rate options based on either a fixed spread over the London
F-82
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Interbank Offered Rate (LIBOR) or the prime rate. Interest payments were made
quarterly. The Bank Credit Facility was retired in connection with the sale of
the Company described in Note 2.
Among other things, the Bank Credit Facility contained financial covenants
which required the maintenance of debt service ratios and the hedging of
interest rate risk and limited distributions to shareholders and sales of
assets. In connection with these covenants, the Company has a three year
interest rate swap with a total underlying notional amount of $80 million. The
swap agreement converted the interest rate on $80 million notional amount of the
credit facility from a variable rate based upon a three month LIBOR (5.25% at
December 23, 1998) to fixed rates ranging from 5.79% to 6.03%. Amounts paid or
received under these agreements are recognized as adjustments to interest
expense.
Interest paid was $4,691,776 and $30,076,031 in 1996 and 1997, respectively,
and $31,294,880 for the period from January 1, 1998 through December 23, 1998.
6. LEASES
The Company has entered into various operating leases for land and office
facilities. Leases for tower sites provide for periodic extensions of lease
periods with future lease payments indexed to the consumer price index.
Rent expense was $906,042 and $2,077,644 in 1996 and 1997, respectively, and
$2,411,310 for the period from January 1, 1998 through December 23, 1998.
7. RETIREMENT PLAN
The Company sponsors a 401(k) retirement and profit sharing plan which
covers substantially all its employees. Eligible employees can contribute from
1% to 15% of their compensation. The Company, at its discretion, may match a
portion of the employee's contribution. The Company may also, at its discretion,
make additional profit sharing contributions to the plan. In connection with the
sale of Company described in Note 2, the Plan will be merged with the Dobson
401(k) plan. Total pension expense was $181,000 and $293,000 in 1996 and 1997,
respectively, and $356,747 for the period from January 1, 1998 through December
23, 1998.
8. REDEEMABLE PREFERRED STOCK AND WARRANTS
On April 3, 1997, 100,000 shares of Series A Senior Cumulative Nonvoting
Preferred Stock (Preferred Stock) were redeemed by the Company at a cost of
$10,000,000 which was funded by the Bank Credit Facility. On June 20, 1997, the
remaining 118,394.51 shares of Preferred Stock were redeemed by the Company at a
cost of $11,839,451. This redemption was funded by the Common Stock Sale
described in Note 9.
The Preferred Stock had a redemption value of $100 per share and was
recorded at fair value on the date of issuance less issuance costs. Dividends
were cumulative from the date of issuance, accrued quarterly in arrears and were
payable in shares of Preferred Stock. The dividend rates increased annually from
15% in 1997 to 21% in 2000 and thereafter. As of December 31, 1996, the Company
accrued stock dividends in the amount of $690,411 (which represented 6,904
shares). The Preferred Stock included the potential issuance of warrants to
purchase shares of the Company's Class A Common Stock. No warrants were issued.
For financial reporting purposes, the excess of the redemption value of the
Preferred Stock over the carrying value was accreted by periodic charges to
additional paid-in capital over the life of the issue.
F-83
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE PREFERRED STOCK AND WARRANTS (CONTINUED)
The Company has authorized 5 million shares of Nonvoting Preferred Stock,
par value $.01 per share, of which 500,000 are designated as Series A Senior
Cumulative Nonvoting Preferred Stock.
The Company has also authorized 10 million shares of Voting Preferred Stock,
par value $.01 per share, none of which are issued.
9. SHAREHOLDERS' EQUITY
On June 20, 1997, the Company issued and sold 3,000,000 shares of Class A
Common Stock, $0.01 par value, to Boston Ventures Limited Partnership V (Boston
Ventures) at a price of $15 per share (Common Stock Sale). The proceeds of $43.6
million, net of issuance fees of $1.4 million, were used to redeem the remaining
outstanding Preferred Stock as described in Note 8 and to reduce amounts
outstanding under the Bank Credit Facility. As a condition of the Common Stock
Sale, Boston Ventures appointed two representatives on the Company's eleven
member board of directors.
In August 1997, Boston Ventures purchased 1,000,000 shares of Class B Common
Stock from shareholders pursuant to a tender offer which upon purchase became
Class A Common Stock.
On August 28, 1996, the Company approved a plan to recapitalize the Company
whereby the Sygnet common stock Type A (205,698 shares) and Type B (1,028,428
shares) were converted into 6,170,630 shares of Sygnet Wireless, Inc. Class B
common stock in a 5 for 1 split, effective September 20, 1996. These shares are
entitled to ten votes per share.
Under the most restrictive of the covenants discussed in Note 5, the Company
could not declare any dividends on its common stock through December 23, 1998.
On December 29, 1994, the Company received a promissory note from an
officer/shareholder for $249,952 for the purchase of common shares from a
shareholder. The note required annual payment of interest at 8.23% with
principal repayment commencing on December 31, 1998 through December 31, 2001.
The officer/shareholder repaid 100% of the note and interest accrued on December
29, 1998.
10. INCOME TAXES
On August 31, 1996, Sygnet and Wilcom terminated their status as Subchapter
S Corporations. As a result of this termination, application of the provisions
of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, requires deferred income taxes to be provided for differences in the
basis for tax purposes and for financial accounting purposes of recorded assets
and liabilities. As a result of the termination of their Subchapter S
Corporation status, SYGNET and Wilcom contributed their undistributed earnings
to additional paid-in capital. At December 23, 1998, the Company has net
deferred tax assets of $37.0 million which includes net operating loss
carryforwards of $45.2 million that expire in 2012 and 2013. For financial
reporting purposes, a valuation allowance of $12.6 million has been recognized
to offset the net deferred tax assets related primarily to the net operating
loss carryforwards.
F-84
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The components of the income tax provision (benefit) in the consolidated
statements of operations for the years ended December 31, 1996 and 1997, and for
the period January 1, 1998 through December 23, 1998, are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cumulative effect of conversion from S to C corporation status....... $ 745,000 $ -- $ --
Deferred income tax (benefit)........................................ (1,898,500) (6,697,800) (4,782,900)
Valuation allowance.................................................. 1,153,500 6,097,800 4,782,900
------------- ------------- -------------
Total provision for income tax (benefit)............................. $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
11. STOCK OPTION PLAN
The Company has stock option plans that provide for the purchase of Class A
common stock by employees and directors of the Company. Under the stock option
plans, the Company is authorized to issue 1,250,000 options for the purchase of
shares of Class A common stock (1,000,000 for employees and 250,000 for
non-employee directors). These options vest over a period ranging from grant
date to five years, are exercisable based upon the terms of the grants and
expire at the end of ten years. The Company applies APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in
accounting for the plan, which requires that for certain options granted, the
Company recognizes as compensation expense the excess of the fair value for
accounting purposes of the common stock over the exercise price of the options.
For the majority of options, no compensation cost has been recognized. Had stock
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net loss would have
increased by $24,000 and $625,000 from the amounts reported in 1996 and 1997,
respectively, and $419,000 from the amounts reported for the period from January
1, 1998 through December 23, 1998.
For pro forma calculations, the fair value of each option is estimated on
the date of grant using the Minimum Value option-pricing model with the
following weighted-average assumptions used for grants in 1996, 1997 and 1998:
risk-free interest rates ranging from 6.9% to 5.9% and average expected lives
ranging from 5.0 to 7.5 years for issued options.
F-85
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Company's stock option plan as of December
31, 1996 and 1997, and December 23, 1998, and changes during the periods then
ended is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
Outstanding at beginning of year....................... -- $ -- 533,200 $ 10.00 716,200 $ 10.08
Granted................................................ 533,200 10.00 183,000 10.31 210,500 18.03
Exercised.............................................. -- -- -- -- -- --
Canceled............................................... -- -- -- -- (1,000) 20.00
--------- ----------- --------- ----------- --------- -----------
Outstanding at year end................................ 533,200 $ 10.00 716,200 $ 10.08 925,700 $ 11.88
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
Options exercisable at year end........................ -- 651,200 815,700
--------- --------- ---------
--------- --------- ---------
Weighted-average fair value of options granted during
the year............................................. $ -- $ 7.80 $ 1.65
--------- --------- ---------
--------- --------- ---------
Weighted-average remaining contractual life............ 9.68 8.87 8.71
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 23, 1998, there were 324,300 options available for future grant.
12. COMMITMENTS
On June 8, 1998, the Company entered into an agreement with Pinellas
Communications to purchase the license to operate a cellular telephone system in
the Rural Service Area PA-2. The purchase price is $6 million and the
transaction is expected to close in the first quarter of 1999.
F-86
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Oklahoma General Corporation Act under which the Company
is incorporated, Article VII of the Company's Amended and Restated Certificate
of Incorporation provides for indemnification of each of the Company's officers
and directors against (a) expenses, including attorney's fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with any action, suit or proceeding brought by reason of his being or
having been a director, officer, employee or agent of the Company, or of any
other corporation, partnership, joint venture, or other enterprise at the
request of the Company, other than an action by or in the right of the Company,
provided that he acted in good faith and in a manner he reasonably believed to
be in the best interest of the Company, and with respect to any criminal action,
he had no reasonable cause to believe that his conduct was unlawful and (b)
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of any action or suit by or in the
right of the Company brought by reason of his being or having been a director,
officer, employee or agent of the Company, or any other corporation,
partnership, joint venture, or other enterprise at the request of the Company,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the Company; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged liable to the Company, unless and
only to the extent that the court in which such action or suit was decided has
determined that the person is fairly and reasonably entitled to indemnification
for such expenses which the court shall deem proper. The Company's bylaws
provide for similar indemnification. These provisions may be sufficiently broad
to indemnify such persons for liabilities arising under the Securities Act of
1933, as amended.
The Company's directors and officers are also insured against claims arising
out of the performance of their duties in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
2.1 Asset Purchase Agreement dated as of November 19, 1996 as amended by
Amendment No. 1 thereto effective as of January 17, 1997 and Amendment
No. 2 thereto dated February 6, 1997, among Horizon Cellular Telephone
Company of Hagerstown L.P., Cumberland Cellular Partnership and Dobson
Cellular of Maryland, Inc., and Dobson Operating Company. (1) [10.5.1]
2.2 Asset Purchase Agreement dated September 25, 1996 among Maryland
Wireless Communications L.P., Wendy C. Coleman, Dobson Cellular of
Maryland, Inc. and Dobson Operating Company. (1) [10.5.2]
2.3.1 Purchase Agreement dated February 28, 1997 among Aztel, Inc. Gila River
Telecommunications, Inc., US West New Vector Group, Inc., Tohono
O'odham Utility Authority and Dobson Cellular of Arizona, Inc. (1) [10.5.3]
2.3.2 First Amendment to Purchase Agreement dated August 29, 1997. (2) [2.1.1]
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
2.4 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating
Company, Associated TTI Limited Partnership and Hinton CATV relating
to the Company's purchase of the ATTI stock. (2) [2.2]
2.5 Asset Purchase Agreement dated October 9, 1997 between Texas 16 Cellular
Telephone Company and Dobson Cellular of Texas, Inc. (3) [2.1]
2.6.1 Stock Purchase Agreement dated November 17, 1997 as amended by Amendment
No. 1 thereto effective as of March 18, 1998 between Cellular 2000
Telephone Co. and its shareholders listed therein and Dobson Cellular
of California, Inc. (4) [2.6.1]
2.6.2 Stock Purchase Agreement dated March 19, 1998 between RSA 339, Inc. and
AT&T Wireless Services, Inc. and Dobson Cellular of California, Inc. (5) [2.6.2]
2.7 Stock Purchase Agreement dated March 25, 1998 between Santa Cruz
Cellular Telephone, Inc. and its shareholders and optionholders listed
therein and Dobson Cellular of California, Inc. (5) [2.7]
2.8 Agreement and Plan of Merger dated July 28, 1998 between Sygnet
Wireless, Inc. and Dobson/Sygnet Operating Company (formerly known as
Front Nine Operating Company) (without schedules). (6) [2.0]
2.9 Asset Purchase Agreement dated August 20, 1998, between Ohio Wireless
Communications, L.L.C. and Dobson Cellular of Sandusky. (9)
2.10 Asset Purchase Agreement dated as of September 2, 1998 between A-1
Cellular of Texas, L.P. and Dobson Cellular of Navarro, Inc. (9)
2.11 Asset Purchase Agreement dated November 24, 1998 between First Cellular
of Maryland, Inc. and Dobson Cellular of Maryland, Inc. (9)
2.12 Agreement to furnish unfiled schedules. (9)
3.1 Registrant's Amended and Restated Certificate of Incorporation. (11) [3.1]
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 Preferred Stock. (6) [3.3]
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 Preferred Stock. (6) [3.4]
3.7 Certificate of Amendment to the Certificate of Designation of the
Registrant's Class E Preferred Stock. (11) [3.7]
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <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 Preferred Stock. (6) [3.8]
3.11 Certificate of Designation for the Registrant's 12 1/4% Senior
Exchangeable Preferred Stock Mandatorily Redeemable 2008. (6) [3.9]
4.1 Third Amended and Restated Credit Agreement among the Agents and Lenders
named therein and Dobson Operating Company dated March 25, 1998. (4) [4.1]
4.2 $120 million Revolving Credit Agreement among Dobson Cellular Operations
Company and the Agents and Lenders named therein dated as of March 25,
1998. (4) [4.2]
4.3 $80 million 364-Day Revolving Credit and Term Loan Agreement among
Dobson Cellular Operations Company and the Agents and Lenders named
therein dated as of March 25, 1998. (4) [4.3]
4.4 Credit Agreement among the Agents and Lenders named therein and
Dobson/Sygnet Operating Company, dated as of December 23, 1998. (9)
4.5 $17.5 million Term Loan Agreement between Dobson Tower Company and
NationsBank, N.A. dated as of December 23, 1998. (9)
4.6 Telephone Loan Contract dated as of November 7, 1958 between Dobson
Telephone Company, Inc. and United States of America. (1) [4.2]
4.7 Telephone Loan Contract dated as of March 19, 1956 between McLoud
Telephone Company and United States of America. (1) [4.3]
4.8 Telephone Loan Contract dated as of January 15, 1993 between Dobson
Telephone Company, Inc., Rural Telephone Bank and United States of
America. (1) [4.4]
4.9 Restated Mortgage, Security Agreement and Financing Statement dated as
of May 15, 1993 between Dobson Telephone Company and United States of
America. (1) [4.5]
4.10 Indenture dated as of February 28, 1997 between the Registrant, as
Issuer, and United States Trust Company of New York, as Trustee. (1) [4.6]
4.11 Escrow and Security Agreement dated February 28, 1997 among the
Registrant as Pledgor, and Morgan Stanley & Co. Incorporated, Alex.
Brown & Sons Incorporated, First Union Capital Markets, and
NationsBanc Capital Markets, Inc., as Placement Agents, and United
States Trust Company of New York, as Trustee. (1) [4.9]
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
4.12 Registration Rights Agreement dated January 16, 1998 between the
Registrant and Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery
Securities LLC. (4) [4.11]
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. (f/k/a Dobson Wireline Company), as Issuer, and
United States Trust Company of New York, as Trustee. (7) [4.5]
4.15 Escrow and Security Agreement dated June 12, 1998 among Logix
Communications 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. (7) [4.6]
4.16 Registration Rights Agreement dated June 12, 1998 between Logix
Communications Enterprises, Inc. (f/k/a Dobson Wireline Company) and
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery
Securities LLC. (7) [4.7]
4.17 Indenture dated December 23, 1998 between Dobson/Sygnet Communications
Company, as Issuer, and United States Trust Company of New York, as
Trustee. (6) [4.1]
4.18 Pledge Agreement dated December 23, 1998 between Dobson/ Sygnet
Communications Company, 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. (9)
4.19 Registration Rights Agreement dated December 23, 1998 between
Dobson/Sygnet 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. (9)
4.20 Registration Rights Agreement dated December 23, 1998 between the
Registrant and NationsBanc Montgomery Securities LLC. (9)
4.21 Certificate of Designation relating to Senior Preferred Stock is
contained in Exhibit 3.9 and incorporated herein by reference. (6) [3.9]
4.22 Preferred Stock Certificate. (9)
5 Opinion of McAfee & Taft A Professional Corporation. (8)
10.1.1* Registrant's 1996 Stock Option Plan, as amended. (9)
10.1.2* 1998 Stock Option Plan of Logix Communications Enterprises, Inc. (f/k/a
Dobson Wireline Company). (9)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
10.2.1 Promissory Note dated February 10, 1997 of G. Edward Evans in the amount
of $300,000 in favor of Western Financial Services Corp. (1) [10.2.1]
10.2.2 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating
Company, Associated TTI Limited Partnership and Hinton CATV Company,
Inc. (5) [10.2.3]
10.2.3 Stock Purchase Agreement, dated as of March 26, 1998, between the
shareholders of American Telco Inc. and American Telco Network
Services, Inc. and Logix Communications Enterprises, Inc. (f/k/a
Dobson Wireline Company). (10) [2.1]
10.2.4 First Amendment to Stock Purchase Agreement among American Telco Inc.
and American Telco Network Services, Inc. and Logix Communications
Enterprises, Inc. (f/k/a Dobson Wireline Company). (10) [2.2]
10.2.5 Stock Purchase Agreement, dated December 23, 1998 among the Registrant,
the Fleet Investors and the other entities listed therein. (9)
10.2.6 Asset Purchase Agreement dated December 23, 1998 by and between Sygnet
Communications, Inc. and Dobson Tower Company. (9)
10.2.7 Master Site License Agreement dated December 23, 1998 by and between
Sygnet Communications, Inc. and Dobson Tower Company. (9)
10.3.1* Letter dated June 3, 1996 from Registrant to Bruce R. Knooihuizen
describing employment arrangement. (1) [10.3.2]
10.3.2* Letter dated October 15, 1996 from Fleet Equity Partners to Justin L.
Jaschke regarding director compensation. (1) [10.3.3]
10.3.3* Letter dated December 26, 1996 from Registrant to G. Edward Evans
describing employment arrangement. (1) [10.3.1]
10.3.4* Letter dated September 16, 1997 from Registrant to William J. Hoffman,
Jr. describing employment arrangement. (5) [10.3.4]
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas Morgan
describing employment arrangement. (5) [10.3.5]
10.3.6* Letter dated August 25, 1998 from Registrant to Richard D. Sewell, Jr.
describing employment arrangement. (9)
10.3.7* Consulting Agreement dated December 21, 1998 between Registrant and
Albert H. Pharis, Jr. (9)
10.3.8* Consulting Agreement dated August 15, 1998 between the Registrant and
Russell L. Dobson (11) [10.3.8]
10.4.1 North American Cellular Network Services Agreement dated August 26, 1992
between North American Cellular Network, Inc. and Dobson Cellular
Systems, Inc. (1) [10.4.2]
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
10.4.2 Agreement for DS-3 service dated December 16, 1993 between Logix
Communications Corporation (f/k/a Dobson Fiber Company) and NTS
Communications, Inc. and Addendum thereto dated June 1, 1994. (1) [10.4.1]
10.4.3 Services Agreement dated September 25, 1996 among Dobson Cellular of
Maryland, Inc., Maryland Wireless Communications Limited Partnership,
Wendy Coleman and Washington/ Baltimore Cellular One Limited
Partnership. (1) [10.5.2]
10.4.4 General Purchase Agreement dated January 13, 1998 between Lucent
Technologies, Inc. and Dobson Cellular Systems, Inc. (5) [10.4.7]
10.4.5 Operating Agreement dated January 16, 1998 between AT&T Wireless
Services, Inc. and Dobson Cellular Systems, Inc. (11) [10.4.5]
10.4.6 Fourth Amended General Purchase Agreement dated January 5, 1999 between
Northern Telecom Inc. and Registrant. (4) [10.4.8]
10.5.1 Assignment Agreement dated January 23, 1997 between Texas 16 Cellular
Telephone Company, Inc. and Dobson Cellular of Texas, Inc. re Cellular
One License Agreement. (9)
10.5.2 Form of Cellular One License Agreements dated February 25, 1997 between
Cellular One Group and Dobson Cellular of Enid, Inc., Dobson Cellular
of Woodward, Inc. and Dobson Cellular of Kansas/Missouri, Inc. (1) [10.4.5]
10.5.3 Trademark Sublicense Agreement dated February 28, 1997 between AirTouch
Communications, Inc. (f/k/a WMC Partners L.P.) and Dobson Cellular of
Arizona, Inc. (1) [10.4.3]
10.5.4 Affiliation Agreement dated February 28, 1997 among Registrant, Dobson
Cellular of Arizona, Inc. and AirTouch Communications, Inc. (f/k/a WMC
Partners, L.P.). (1) [10.4.4]
10.5.5 Letter Agreement dated September 30, 1997 between U.S. West, New Vector
Group, Inc. 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. (9)
10.5.6 Trademark Sub-License Agreement dated October 1, 1997 between AirTouch
Communications, Inc. (f/k/a WMC Partners, L.P.) and Gila River
Cellular General Partnership. (9)
10.5.7 Agreement dated April 1, 1998 between Cellular 2000 Telephone Co. and
Dobson Cellular of California re Cellular One License Agreement. (9)
10.5.8 Agreement dated June 16, 1998 between Santa Cruz Cellular Telephone,
Dobson Cellular of California and the other parties listed therein re
Cellular One License Agreement. (9)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
10.5.9 Affiliation Agreement, Trademark License Agreement, Intercarrier Roamer
Service 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. (9)
10.5.10 Affiliation Agreement dated as of August 28, 1998 by and among the
Registrant, Dobson Cellular of Sandusky, Inc., New Par, on behalf of
itself and its subsidiaries and affiliates, d/b/a AirTouch Cellular. (9)
10.6 Non-Recourse Term Loan Agreement dated September 30, 1997 between the
Registrant and Gila River Telecommunications Subsidiary, Inc., as
borrower, with respect to $6.1 million loan. (2) [10.7]
10.7 Second Amended and Restated Partnership Agreement of Gila River Cellular
General Partnership dated September 30, 1997. (2) [10.8]
10.8.1 Investment and Transaction Agreement, dated December 23, 1998, among the
Registrant, Dobson CC Limited Partnership and J. W. Childs Equity
Partners II, L.P. (without exhibits). (9)
10.8.2 Stockholder and Investor Rights Agreement, dated December 23, 1998 among
the Registrant and the shareholders listed therein, (without
exhibits). (9)
10.8.2.1 Amendment to Stockholder and Investors Rights Agreement, dated April 13,
1999 among the Registrant and the Shareholders listed therein (without
exhibits). (8)
10.8.3 Investors Agreement, dated December 23, 1998, among the Registrant, and
certain shareholders of Sygnet Wireless, Inc. and their affiliates
listed therein. (9)
10.9 License Agreement dated February 15, 1999 between Registrant and H.O.
Systems, Inc. (11) [10.9]
11 Statement regarding computation of earnings per share. (11) [11]
12 Ratio of earnings to combined fixed charges and preferred stock
dividends. (9)
21 Subsidiaries. (9)
23.1 Consent of McAfee & Taft A Professional Corporation will be contained in
Exhibit 5 hereto. (8) [5]
23.2 Consent of Arthur Andersen LLP (Oklahoma City--DCC). (8)
23.3 Consent of Ernst & Young LLP (Philadelphia--Horizon). (8)
23.4 Consent of Arthur Andersen LLP (Denver--Gila River). (8)
23.5 Consent of Holliday, Lemons, Thomas & Cox, P.C. (8)
23.6 Consent of Ernst & Young LLP (Cleveland--Sygnet). (8)
24 Power of Attorney. (9)
27 Financial Data Schedule. (11) [27]
99.1 Letter of Transmittal. (9)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------------------------ ------------------
<C> <S> <C>
99.2 Notice of Guaranteed Delivery. (9)
99.3 Company letter. (9)
99.4 Client letter. (9)
99.5 Instruction to Beneficial Holders. (9)
99.6 Guidelines for Certification of Taxpayer Identification Number. (9)
</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 on 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.
(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) Previously filed as an exhibit to this Registration Statement.
(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.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 as the exhibit number indicated in brackets and
incorporated by reference herein.
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-8
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registration pursuant to the provisions described under Item 20, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnifications against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma, on the 3rd day of May, 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 Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on the 3rd day of May, 1999.
NAME TITLE
- ------------------------------ ----------------------------------------
/s/ Everett R. Dobson* Chairman of the Board, President and
- ------------------------------ Chief Executive Officer (Principal
Everett R. Dobson Executive Officer) and Director
/s/ Stephen T. Dobson* Secretary and Director
- ------------------------------
Stephen T. Dobson
/s/ Bruce R. Knooihuizen Vice President and Chief Financial
- ------------------------------ Officer (Principal Financial Officer)
Bruce R. Knooihuizen
/s/ Trent LeForce* Corporate Controller (Principal
- ------------------------------ Accounting Officer)
Trent LeForce
/s/ Russell L. Dobson* Director
- ------------------------------
Russell L. Dobson
/s/ Justin L. Jaschke* Director
- ------------------------------
Justin L. Jaschke
/s/ Albert H. Pharis, Jr.* Director
- ------------------------------
Albert H. Pharis, Jr.
/s/ Dana L. Schmaltz* Director
- ------------------------------
Dana L. Schmaltz
<TABLE>
<S> <C> <C> <C>
*By: /s/ Bruce R. Knooihuizen
-------------------------
Bruce R. Knooihuizen
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ---------------------------------------------------------------------------------- ------------------
<C> <S> <C>
2.1 Asset Purchase Agreement dated as of November 19, 1996 as amended by Amendment No.
1 thereto effective as of January 17, 1997 and Amendment No. 2 thereto dated
February 6, 1997, among Horizon Cellular Telephone Company of Hagerstown L.P.,
Cumberland Cellular Partnership and Dobson Cellular of Maryland, Inc., and
Dobson Operating Company. (1) [10.5.1]
2.2 Asset Purchase Agreement dated September 25, 1996 among Maryland Wireless
Communications L.P., Wendy C. Coleman, Dobson Cellular of Maryland, Inc. and
Dobson Operating Company. (1) [10.5.2]
2.3.1 Purchase Agreement dated February 28, 1997 among Aztel, Inc. Gila River
Telecommunications, Inc., US West New Vector Group, Inc., Tohono O'odham Utility
Authority and Dobson Cellular of Arizona, Inc. (1) [10.5.3]
2.3.2 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,
Associated TTI Limited Partnership and Hinton CATV relating to the Company's
purchase of the ATTI stock. (2) [2.2]
2.5 Asset Purchase Agreement dated October 9, 1997 between Texas 16 Cellular Telephone
Company and Dobson Cellular of Texas, Inc. (3) [2.1]
2.6.1 Stock Purchase Agreement dated November 17, 1997 as amended by Amendment No. 1
thereto effective as of March 18, 1998 between Cellular 2000 Telephone Co. and
its shareholders listed therein and Dobson Cellular of California, Inc. (4) [2.6.1]
2.6.2 Stock Purchase Agreement dated March 19, 1998 between RSA 339, Inc. and AT&T
Wireless Services, Inc. and Dobson Cellular of California, Inc. (5) [2.6.2]
2.7 Stock Purchase Agreement dated March 25, 1998 between Santa Cruz Cellular
Telephone, Inc. and its shareholders and optionholders listed therein and Dobson
Cellular of California, Inc. (5) [2.7]
2.8 Agreement and Plan of Merger dated July 28, 1998 between Sygnet Wireless, Inc. and
Dobson/Sygnet Operating Company (formerly known as Front Nine Operating Company)
(without schedules). (6) [2.0]
2.9 Asset Purchase Agreement dated August 20, 1998, between Ohio Wireless
Communications, L.L.C. and Dobson Cellular of Sandusky. (9)
2.10 Asset Purchase Agreement dated as of September 2, 1998 between A-1 Cellular of
Texas, L.P. and Dobson Cellular of Navarro, Inc. (9)
2.11 Asset Purchase Agreement dated November 24, 1998 between First Cellular of
Maryland, Inc. and Dobson Cellular of Maryland, Inc. (9)
2.12 Agreement to furnish unfiled schedules. (9)
3.1 Registrant's Amended and Restated Certificate of Incorporation. (11) [3.1]
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 Preferred Stock. (6) [3.3]
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]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
- --------- ---------------------------------------------------------------------------------- ------------------
<C> <S> <C>
3.6 Certificate of Amendment to the Certificate of Designation of the Registrant's
Class D Preferred Stock. (6) [3.4]
3.7 Certificate of Amendment to the Certificate of Designation of the Registrant's
Class E Preferred Stock. (11) [3.7]
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 Preferred Stock. (6) [3.8]
3.11 Certificate of Designation for the Registrant's 12 1/4% Senior Exchangeable
Preferred Stock Mandatorily Redeemable 2008. (6) [3.9]
4.1 Third Amended and Restated Credit Agreement among the Agents and Lenders named
therein and Dobson Operating Company dated March 25, 1998. (4) [4.1]
4.2 $120 million Revolving Credit Agreement among Dobson Cellular Operations Company
and the Agents and Lenders named therein dated as of March 25, 1998. (4) [4.2]
4.3 $80 million 364-Day Revolving Credit and Term Loan Agreement among Dobson Cellular
Operations Company and the Agents and Lenders named therein dated as of March
25, 1998. (4) [4.3]
4.4 Credit Agreement among the Agents and Lenders named therein and Dobson/Sygnet
Operating Company, dated as of December 23, 1998. (9)
4.5 $17.5 million Term Loan Agreement between Dobson Tower Company and NationsBank,
N.A. dated as of December 23, 1998. (9)
4.6 Telephone Loan Contract dated as of November 7, 1958 between Dobson Telephone
Company, Inc. and United States of America. (1) [4.2]
4.7 Telephone Loan Contract dated as of March 19, 1956 between McLoud Telephone
Company and United States of America. (1) [4.3]
4.8 Telephone Loan Contract dated as of January 15, 1993 between Dobson Telephone
Company, Inc., Rural Telephone Bank and United States of America. (1) [4.4]
4.9 Restated Mortgage, Security Agreement and Financing Statement dated as of May 15,
1993 between Dobson Telephone Company and United States of America. (1) [4.5]
4.10 Indenture dated as of February 28, 1997 between the Registrant, as Issuer, and
United States Trust Company of New York, as Trustee. (1) [4.6]
4.11 Escrow and Security Agreement dated February 28, 1997 among the Registrant as
Pledgor, and Morgan Stanley & Co. Incorporated, Alex. Brown & Sons Incorporated,
First Union Capital Markets, and NationsBanc Capital Markets, Inc., as Placement
Agents, and United States Trust Company of New York, as Trustee. (1) [4.9]
4.12 Registration Rights Agreement dated January 16, 1998 between the Registrant and
Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and NationsBanc Montgomery Securities LLC. (4) [4.11]
4.13 Agreement to furnish unfiled debt instruments. (4) [4.12]
</TABLE>
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4.14 Indenture dated as of June 12, 1998 between Logix Communications Enterprises, Inc.
(f/k/a Dobson Wireline Company), as Issuer, and United States Trust Company of
New York, as Trustee. (7) [4.5]
4.15 Escrow and Security Agreement dated June 12, 1998 among Logix Communications
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. (7) [4.6]
4.16 Registration Rights Agreement dated June 12, 1998 between Logix Communications
Enterprises, Inc. (f/k/a Dobson Wireline Company) and Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities LLC. (7) [4.7]
4.17 Indenture dated December 23, 1998 between Dobson/Sygnet Communications Company, as
Issuer, and United States Trust Company of New York, as Trustee. (6) [4.1]
4.18 Pledge Agreement dated December 23, 1998 between Dobson/Sygnet Communications
Company, 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. (9)
4.19 Registration Rights Agreement dated December 23, 1998 between Dobson/Sygnet
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. (9)
4.20 Registration Rights Agreement dated December 23, 1998 between the Registrant and
NationsBanc Montgomery Securities LLC. (9)
4.21 Certificate of Designation relating to Senior Preferred Stock is contained in
Exhibit 3.9 and incorporated herein by reference. (6) [3.9]
4.22 Preferred Stock Certificate. (9)
5 Opinion of McAfee & Taft A Professional Corporation. (8)
10.1.1* Registrant's 1996 Stock Option Plan, as amended. (9)
10.1.2* 1998 Stock Option Plan of Logix Communications Enterprises, Inc. (f/k/a Dobson
Wireline Company). (9)
10.2.1 Promissory Note dated February 10, 1997 of G. Edward Evans in the amount of
$300,000 in favor of Western Financial Services Corp. (1) [10.2.1]
10.2.2 Stock Purchase Agreement dated September 30, 1997 among Dobson Operating Company,
Associated TTI Limited Partnership and Hinton CATV Company, Inc. (5) [10.2.3]
10.2.3 Stock Purchase Agreement, dated as of March 26, 1998, between the shareholders of
American Telco Inc. and American Telco Network Services, Inc. and Logix
Communications Enterprises, Inc. (f/k/a Dobson Wireline Company). (10) [2.1]
10.2.4 First Amendment to Stock Purchase Agreement among American Telco Inc. and American
Telco Network Services, Inc. and Logix Communications Enterprises, Inc. (f/k/a
Dobson Wireline Company). (10) [2.2]
</TABLE>
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10.2.5 Stock Purchase Agreement, dated December 23, 1998 among the Registrant, the Fleet
Investors and the other entities listed therein. (9)
10.2.6 Asset Purchase Agreement dated December 23, 1998 by and between Sygnet
Communications, Inc. and Dobson Tower Company. (9)
10.2.7 Master Site License Agreement dated December 23, 1998 by and between Sygnet
Communications, Inc. and Dobson Tower Company. (9)
10.3.1* Letter dated June 3, 1996 from Registrant to Bruce R. Knooihuizen describing
employment arrangement. (1) [10.3.2]
10.3.2* Letter dated October 15, 1996 from Fleet Equity Partners to Justin L. Jaschke
regarding director compensation. (1) [10.3.3]
10.3.3* Letter dated December 26, 1996 from Registrant to G. Edward Evans describing
employment arrangement. (1) [10.3.1]
10.3.4* Letter dated September 16, 1997 from Registrant to William J. Hoffman, Jr.
describing employment arrangement. (5) [10.3.4]
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas Morgan describing
employment arrangement. (5) [10.3.5]
10.3.6* Letter dated August 25, 1998 from Registrant to Richard D. Sewell, Jr. describing
employment arrangement. (9)
10.3.7* Consulting Agreement dated December 21, 1998 between Registrant and Albert H.
Pharis, Jr. (9)
10.3.8* Consulting Agreement dated August 15, 1998 between Registrant and Russell L.
Dobson. (11) [10.3.8]
10.4.1 North American Cellular Network Services Agreement dated August 26, 1992 between
North American Cellular Network, Inc. and Dobson Cellular Systems, Inc. (1) [10.4.2]
10.4.2 Agreement for DS-3 service dated December 16, 1993 between Logix Communications
Corporation (f/k/a Dobson Fiber Company) and NTS Communications, Inc. and
Addendum thereto dated June 1, 1994. (1) [10.4.1]
10.4.3 Services Agreement dated September 25, 1996 among Dobson Cellular of Maryland,
Inc., Maryland Wireless Communications Limited Partnership, Wendy Coleman and
Washington/Baltimore Cellular One Limited Partnership. (1) [10.5.2]
10.4.4 General Purchase Agreement dated January 13, 1998 between Lucent Technologies,
Inc. and Dobson Cellular Systems, Inc. (5) [10.4.7]
10.4.5 Operating Agreement dated January 16, 1998 between AT&T Wireless Services, Inc.
and Dobson Cellular Systems, Inc. as amended. (11) [10.4.5]
10.4.6 Fourth Amended General Purchase Agreement dated January 5, 1999 between Northern
Telecom Inc. and Registrant. (4) [10.4.8]
10.5.1 Assignment Agreement dated January 23, 1997 between Texas 16 Cellular Telephone
Company, Inc. and Dobson Cellular of Texas, Inc. re Cellular One License
Agreement. (9)
10.5.2 Form of Cellular One License Agreements dated February 25, 1997 between Cellular
One Group and Dobson Cellular of Enid, Inc., Dobson Cellular of Woodward, Inc.
and Dobson Cellular of Kansas/ Missouri, Inc. (1) [10.4.5]
</TABLE>
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10.5.3 Trademark Sublicense Agreement dated February 28, 1997 between AirTouch
Communications, Inc. (f/k/a WMC Partners L.P.) and Dobson Cellular of Arizona,
Inc. (1) [10.4.3]
10.5.4 Affiliation Agreement dated February 28, 1997 among Registrant, Dobson Cellular of
Arizona, Inc. and AirTouch Communications, Inc. (f/k/a WMC Partners, L.P.). (1) [10.4.4]
10.5.5 Letter Agreement dated September 30, 1997 between U.S. West, New Vector Group,
Inc. 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. (9)
10.5.6 Trademark Sub-License Agreement dated October 1, 1997 between AirTouch
Communications, Inc. (f/k/a WMC Partners, L.P.) and Gila River Cellular General
Partnership. (9)
10.5.7 Agreement dated April 1, 1998 between Cellular 2000 Telephone Co. and Dobson
Cellular of California re Cellular One License Agreement. (9)
10.5.8 Agreement dated June 16, 1998 between Santa Cruz Cellular Telephone, Dobson
Cellular of California and the other parties listed therein re Cellular One
License Agreement. (9)
10.5.9 Affiliation Agreement, Trademark License Agreement, Intercarrier Roamer Service
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. (9)
10.5.10 Affiliation Agreement dated as of August 28, 1998 by and among Dobson
Communications Corporation, Dobson Cellular of Sandusky, Inc., New Par, on
behalf of itself and its subsidiaries and affiliates, d/b/a AirTouch Cellular. (9)
10.6 Non-Recourse Term Loan Agreement dated September 30, 1997 between the Company and
Gila River Telecommunications Subsidiary, Inc., as borrower, with respect to
$6.1 million loan. (2) [10.7]
10.7 Second Amended and Restated Partnership Agreement of Gila River Cellular General
Partnership dated September 30, 1997. (2) [10.8]
10.8.1 Investment and Transaction Agreement, dated December 23, 1998, among the
Registrant, Dobson CC Limited Partnership and J. W. Childs Equity Partners II,
L.P. (without exhibits). (9)
10.8.2 Stockholder and Investor Rights Agreement, dated December 23, 1998 among the
Registrant and the shareholders listed therein, (without exhibits). (9)
10.8.2.1 Amendment to Stockholder and Investors Rights Agreement, dated April 13, 1999,
among the Registrant and the shareholders listed therein (without exhibits). (8)
10.8.3 Investors Agreement, dated December 23, 1998, among the Registrant, and certain
shareholders of Sygnet Wireless, Inc. and their affiliates listed therein. (9)
10.9 License Agreement dated February 15, 1999 between Registrant and H.O. Systems,
Inc. (11) [10.9]
11 Statement regarding computation of earnings per share. (11) [11]
</TABLE>
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12 Ratio of earnings to combined fixed charges and preferred stock dividends. (9)
21 Subsidiaries. (9)
23.1 Consent of McAfee & Taft A Professional Corporation will be contained in Exhibit 5
hereto. (8) [5]
23.2 Consent of Arthur Andersen LLP (Oklahoma City--DCC). (8)
23.3 Consent of Ernst & Young LLP (Philadelphia--Horizon). (8)
23.4 Consent of Arthur Andersen LLP (Denver--Gila River). (8)
23.5 Consent of Holliday, Lemons, Thomas & Cox, P.C. (8)
23.6 Consent of Ernst & Young LLP (Cleveland--Sygnet). (8)
24 Power of Attorney. (9)
27 Financial Data Schedule. (11) [27]
99.1 Letter of Transmittal. (9)
99.2 Notice of Guaranteed Delivery. (9)
99.3 Company letter. (9)
99.4 Client letter. (9)
99.5 Instruction to Beneficial Holders. (9)
99.6 Guidelines for Certification of Taxpayer Identification Number. (9)
</TABLE>
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* 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 on 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.
(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) Previously filed as an exhibit to this Registration Statement.
(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.
(11) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 as the exhibit number indicated in brackets
and incorporated by reference herein.
<PAGE>
[LETTERHEAD]
MAY 3, 1999
Dobson Communications Corporation
13439 N. Broadway Extension, Suite 200
Oklahoma City, OK
Re: 12 1/4% Senior Exchangeable Preferred Stock
Ladies and Gentlemen:
We have acted as special counsel to Dobson Communications Corporation
("Dobson" or the "Company") in connection with the issuance and sale of 64,646
shares of the Company's 12 1/4% Senior Exchangeable Preferred Stock (which,
together with all accrued and paid dividends in kind are referred to herein as
the "Old Shares") and the registration under the Securities Act of 1933 of up to
67,146 shares of the Company's 12 1/4% Senior Exchangeable Preferred Stock (the
"New Shares"). The New Shares are to be offered in exchange for all outstanding
Old Shares (the "Exchange Offer") as more fully set forth in the prospectus
which forms are a part of the Company's Registration Statement on Form S-4, as
amended (Registration No. 333-71633); (the "Registration Statement").
In this connection we have examined the Company's Amended and Restated
Certificate of Incorporation (including the Certificate of Designation creating
the 12 1/4% Senior Exchangeable Preferred Stock) and Amended and Restated
Bylaws, minutes of certain meetings of the Company's Board of Directors and have
made such other investigations of fact and law as we deem necessary to render
the opinions set forth herein.
Based on the foregoing, we are of the opinion that the New Shares to be
exchanged for the Old Shares in the Exchange Offer, when issued in accordance
therewith, will be validly issued, fully paid and non-assessable.
We hereby consent to the reference to our firm in the Prospectus under the
caption "Legal Matters."
Very truly yours,
/S/ MCAFEE & TAFT
A Professional Corporation
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
AMENDED AND RESTATED STOCKHOLDER AND
INVESTOR RIGHTS AGREEMENT
dated as of April 13, 1999
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<PAGE>
AMENDED AND RESTATED STOCKHOLDER AND INVESTOR RIGHTS AGREEMENT
AMENDED AND RESTATED STOCKHOLDER AND INVESTOR RIGHTS AGREEMENT, dated as of
April 13, 1999 (this "Agreement"), by and among the investors listed on Schedule
I (individually, each a "Cash Equity Investor" and, collectively, with any of
its Affiliated Successors, the "Cash Equity Investors") and Dobson
Communications Corporation, an Oklahoma corporation (the "Company"). Each of
the foregoing Persons, together with all other Persons who, in connection with a
Transfer (as hereinafter defined) are required to become a party to this
Agreement (other than the Company) are sometimes referred to herein,
individually, as a "Stockholder" and, collectively, as the "Stockholders."
RECITALS
WHEREAS:
(A) The Company and certain of its stockholders originally entered into
this Agreement on December 23, 1998 following the termination of the earlier
Stockholder Agreement of the Company, dated as of February 26, 1997, in order to
provide for the management of the Company and to impose certain restrictions
with respect to the sale, transfer or other disposition of Common Stock and
Preferred Stock on the terms and conditions hereinafter set forth; and
(B) The Company, together with the other parties thereto have agreed to
amend and restate the Stockholder and Investor Rights Agreement and AT&T
Wireless Services, Inc. wishes to become a party hereto as of the date hereof;
and
(C) The authorized capital stock of the Company consists of: (a)
1,500,000 shares of common stock, par value $0.001 per share ("Common Stock"),
consisting of (i) 1,438,000 shares of Class A Common Stock ("Class A Common
Stock"), of which 491,954 shares are issued and outstanding, (ii) 31,000 shares
of Class B Common Stock ("Class B Common Stock"), of which 29,767 shares are
subject to options which have been granted but not exercised, and (iii) 31,000
shares of Class C Common Stock ("Class C Common Stock"), of which 2,414 shares
are subject to options which have been granted but not exercised; and
(b) 2,500,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock"), consisting of (i) 734,000 shares designated 12 1/4% Senior Exchangeable
Preferred Stock, Mandatorily Redeemable 2008, of which 270,497 shares are issued
and outstanding, including PIK dividends thereon through April 15, 1999, (ii)
450,000 shares designated Class A 5% Non-Cumulative, Non-Voting, Non-Convertible
Preferred Stock ("Class A Preferred Stock"), of which 314,286 shares are issued
and outstanding, (iii) 90,000 shares designated Class D Convertible Preferred
Stock ("Class D Preferred Stock"), of which 75,093.7 shares are
<PAGE>
issued and outstanding, (iv) 517,000 shares designated Class E Preferred Stock
("Class E Preferred Stock"), of which zero shares are issued and outstanding,
(v) 30,000 shares designated Class F Preferred Stock ("Class F Preferred
Stock"), of which 30,000 shares are issued and outstanding, (vi) 62,000 shares
designated Class G Preferred Stock ("Class G Preferred Stock"), of which 37,853
shares are issued and outstanding, and (vii) 62,000 shares designated Class H
Preferred Stock ("Class H Preferred Stock"), of which zero shares are issued and
outstanding; and
(D) Each Stockholder is the registered owner of the respective shares of
Common Stock and Preferred Stock set forth opposite its name on Schedule II.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, conditions and agreements hereinafter
set forth, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used herein, the following terms have
the following meanings (unless indicated otherwise, all Section and Article
references are to Sections and Articles in this Agreement, and all Schedule and
Exhibit references are to Schedules and Exhibits to this Agreement):
"AAA RULES" shall have the meaning set forth in Section 14.9.
"ADVICE" shall have the meaning set forth in Section 5(d)(xvii).
"AFFILIATE" shall have the meaning given such term in Rule 501(b) under the
Securities Act, provided, that, (i) Logix Communications will not be deemed to
be part of the Company or an Affiliate of the Company for purposes of this
Agreement, including for purposes of giving rise to Conflicts from and after the
Logix Communications, Spin-Off or an initial public offering of Logix
Communications stock or tracking stock, and (ii) prior to the Logix
Communications Spin-Off or an initial public offering of Logix Communications
stock or tracking stock Logix Communications will not be deemed to be part of
the Company or an Affiliate of the Company for purposes of giving rise to
Conflicts unless the Logix Communications Spin-Off or an initial public offering
of Logix Communications stock or tracking stock does not occur by the second
anniversary of the Amendment and Restatement Date, in which case, effective as
of such second anniversary, this clause (ii) will have no further effect.
"AFFILIATED SUCCESSOR" shall mean, with respect to any Person, an Affiliate
thereof
<PAGE>
that is a transferee or a successor in interest to any or all of such Person's
Company Stock and that is required to become a party to this Agreement in
accordance with the terms hereof; provided, however, that, for purposes of
Section 4, with respect to any Cash Equity Investor, "Affiliated Successor"
shall also include partners, limited partners or members of a Cash Equity
Investor that are transferees of Preferred Stock or Common Stock pursuant to
distributions in accordance with the partnership agreement or operating
agreement of such Cash Equity Investor.
"AMENDMENT AND RESTATEMENT DATE" shall mean April __, 1999.
"APPRAISAL PROCEDURE" means the following procedure for determining the
Market Price, for the purpose of valuing the Logix Communications Common Stock
pursuant to Section 6.4 or the Class A Common Stock pursuant to a Conflict Put
Notice pursuant to Section 12.2(c), in the event that the shares of Class A
Common Stock are not listed or admitted for trading on any national securities
exchange and are not quoted on NASDAQ or any similar service:
(i) The Company and the holders of a majority of the outstanding
shares of stock being appraised, or any investment bank
appointed by them, shall each determine, and attempt to
mutually agree upon, the Market Price.
(ii) In the event that the parties fail to agree on the Market
Price or to mutually agree on an investment bank within 30
days then two independent accounting or investment banking
firms of nationally recognized standing (each, an
"Appraiser"), one chosen by the Company and one by the
holders of a majority of the outstanding shares of stock
being appraised, shall each determine and attempt to
mutually agree upon, the Market Price. Each party shall
deliver a notice to the other appointing its Appraiser
within 15 days after the expiration of the 30-day period
referred to in the prior sentence. If either the Company or
such holders fail to appoint an Appraiser within such 15-day
period, the Market Price shall be determined by the
Appraiser that has been so appointed.
(iii) If within 30 days after appointment of the two Appraisers
they are unable to agree upon the Market Price, an
independent accounting or investment banking firm of
nationally recognized standing shall within 10 days
thereafter be chosen to serve as a third Appraiser by the
mutual consent of such first two Appraisers. The
determination of the Market Price by the third Appraiser so
appointed and chosen shall be made within 30 days after the
selection of such third Appraiser.
<PAGE>
(iv) If three Appraisers shall be appointed and the determination
of one Appraiser is disparate from the middle determination
by more than twice the amount by which the other
determination is disparate from the middle determination,
then the determination of such Appraiser shall be excluded,
the remaining two determinations shall be averaged, and such
average shall be binding and conclusive on the Company and
such holders; otherwise the average of all three
determinations shall be binding and conclusive on the
Company and such holders.
(v) In connection with any appraisal conducted pursuant to this
Appraisal Procedure, the Appraisers shall adhere to the
guidelines provided in the definition of "Market Price" set
forth below, including the proviso thereto.
(vi) The fees and expenses of each Appraiser shall be borne
one-half by the Company and one-half by such holders.
"ARBITRATION NOTICE" shall have the meaning set forth in Section 14.9.
"AT&T" shall mean AT&T Wireless Services, Inc., a Delaware corporation.
"AT&T COMPETITIVE CONFLICT" shall mean that the aggregate number of POPs in
the AT&T Overlap Territory exceeds the lesser of 2,000,000 or 10% of all POPs in
the Company Territory, after giving effect to the particular acquisition or
transaction giving rise to such Conflict.
"AT&T OVERLAP TERRITORY" shall mean any AT&T Territory (excluding AT&T
Territory as of the Amendment and Restatement Date) that also constitutes
Company Territory as of the date AT&T or an Affiliate of AT&T (i) commences
Offering CMRS Service in such Company Territory or (ii) enters into a binding
agreement to acquire, manage or control a Person that is Offering CMRS Service
in such Company Territory.
"AT&T REGULATORY CONFLICT" shall mean a Regulatory Conflict that arises
solely as a result of actions taken or activities commenced by AT&T and its
Affiliates after the Amendment and Restatement Date.
"AT&T TERRITORY" shall mean, as of any date, any geographic area in which
AT&T or any Affiliate of AT&T is Offering CMRS Service, together with any
geographic area in which any other Person is Offering CMRS Service if, as of the
applicable date, AT&T or an Affiliate of AT&T has entered into a binding
agreement to acquire, manage or control such Person or such Person's business of
Offering CMRS Service in such area.
<PAGE>
"AVAILABLE CASH" shall have the meaning given to such term in the
Subordinated Put Note.
"BENEFICIALLY OWN" shall have the meaning set forth in Rule 13d-3 of the
Exchange Act.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company, as
duly constituted in accordance with this Agreement, or any committee thereof
duly constituted in accordance with this Agreement, the by-laws and applicable
law and duly authorized to make the relevant determination or take the relevant
action. To the extent that the Board of Directors (or any committee thereof) is
required under this Agreement to authorize or approve, or make a determination
in respect of a transaction between the Company, on the one hand, and a
Stockholder, and/or a Stockholder's Affiliates, on the other hand, the Board of
Directors shall be deemed to exclude such Stockholder, any of its Affiliates,
and any of the directors, officers, employees, agents or representatives of such
Stockholder and/or its Affiliates, who are members of the Board of Directors.
"BTA" shall mean a geographic area established by the Rand McNally 1992
Commercial Atlas & Marketing Guide, 123rd Edition, as modified by the FCC to
form the initial geographic area of license for the C, D, E and F blocks of
broadband PCS spectrum as defined in Section 24.202 of the FCC's rules.
"CALL NOTICE" shall have the meaning set forth in Section 13.2.
"CASH EQUITY INVESTORS" shall have the meaning set forth in the preamble.
"CELLULAR SYSTEM" shall mean a mobile communication system constructed and
operated in a MSA or a RSA (or any successor territorial designations or
subdivision thereof authorized by the FCC) exclusively using frequencies in the
800 MHz band, or portions thereof, pursuant to a License therefor issued by the
FCC.
"CELLULAR TERRITORY" shall mean the cellular geographic service area in an
MSA or RSA in which the Company or its Subsidiaries has been granted a licence
to operate a Cellular System by the FCC.
"CERTIFICATES OF DESIGNATION" shall mean collectively the Certificates of
Designation of the Company in respect of each class of Preferred Stock,
substantially in the forms of Exhibits B-1 through B-6 hereto.
"CHANGE OF CONTROL" shall mean (i) prior to an IPO, any transaction as a
result of which Everett Dobson and his Affiliates, directly or indirectly, cease
to control 50.1% of the Company's Voting Securities, (ii) following an IPO, any
transaction as a result of
<PAGE>
which Everett Dobson and his Affiliates, directly or indirectly, cease to
control 35% of the Company's Voting Securities, or (iii) the sale of all or
substantially all of the Company's stock, business or assets (including through
a merger or otherwise), PROVIDED, HOWEVER, that a Change of Control will not be
deemed to occur in connection with and solely as a result of (x) the sale or
redemption by the Dobson Partnership of up to $25.0 million in aggregate
principal amount of capital stock of the Company, together with any accrued and
unpaid dividends thereon, in one transaction or a series of transactions in
accordance with Section 4.2(e), (y) an IPO, and (z) the Logix Communications
Spin-Off.
"CHANGE OF LAW" shall mean a change in a Law applicable to the Company,
AT&T and/or any of their respective Affiliates or their respective businesses,
properties or assets which is adopted or occurs after the Amendment and
Restatement Date.
"CLASS A COMMON STOCK" shall have the meaning given such term in recital
(C) hereto.
"CLASS A PREFERRED STOCK" shall have the meaning set forth in recital (C)
hereto.
"CLASS B COMMON STOCK" shall have the meaning given such term in recital
(C) hereto.
"CLASS B PREFERRED STOCK" shall mean the Class B Convertible Preferred
Stock of the Company, which has been redeemed as of the date of this Agreement.
"CLASS C COMMON STOCK" shall have the meaning set forth in recital (C)
hereto, which is designed to track the financial performance of the Wireless
Subsidiaries.
"CLASS C PREFERRED STOCK" shall mean the Class C 8% Cumulative, Non-Voting,
Non-Convertible, Preferred Stock of the Company, which has been redeemed as of
the date of this Agreement.
"CLASS D PREFERRED STOCK" shall have the meaning set forth in recital (C)
hereto.
"CLASS E PREFERRED STOCK" shall have the meaning set forth in recital (C)
hereto.
"CLASS F PREFERRED STOCK" shall have the meaning set forth in recital (C)
hereto.
"CLASS F PREFERRED STOCK DOCUMENTS" shall mean 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 SUBSCRIPTION AGREEMENTS" shall mean the
Subscription
<PAGE>
Agreements between the Company and certain former Sygnet Wireless, Inc.
stockholders, in respect of the Class F Preferred Stock Warrants.
"CLASS F PREFERRED STOCK WARRANTS" shall mean the Class F Preferred Stock
Warrants issued by the Company in conjunction with the Class F Preferred Stock.
"CLASS F PREFERRED STOCK WARRANT SHARES" shall mean the Class A Common
Stock to be issued by the Company upon exercise of the Class F Preferred Stock
Warrants.
"CLASS G PREFERRED STOCK" shall have the meaning set forth in recital (C)
hereto. The terms of the Class G Preferred Stock are set forth in the form of
Certificate of Designation on Exhibit B-5 hereto.
"CLASS H PREFERRED STOCK" shall have the meaning set forth in recital (C)
hereto. The terms of the Class H Preferred Stock are set forth in the form of
Certificate of Designation set forth on Exhibit B-6 hereto.
"CLAWBACK EXERCISE PRICE" shall have the meaning given such term in
Article 11.
"CLOSING PRICE" shall mean, with respect to each share of any class or
series of capital stock for any day, (i) the last reported sale price regular
way or, in case no such sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case as reported on the principal
national securities exchange on which such class or series of capital stock is
listed or admitted for trading or (ii) if such class or series of capital stock
is not listed or admitted for trading on any national securities exchange, the
last reported sale price or, in case no such sale takes place on such day, the
average of the highest reported bid and the lowest reported asked quotation for
such class or series of capital stock, in either case as reported on NASDAQ or a
similar service if NASDAQ is no longer reporting such information.
"CMRS" shall mean a Commercial Mobile Radio Service regulated under Part 20
of the FCC rules as of the date of this Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" shall collectively mean the Class A Common Stock, the Class
B Common Stock and the Class C Common Stock.
"COMPANY" shall have the meaning set forth in the preamble.
"COMPANY STOCK" shall mean the Preferred Stock and the Common Stock.
<PAGE>
"COMPANY COMPETITIVE CONFLICT" shall mean that the aggregate number of POPs
in the Company Overlap Territory exceeds the lesser of 2,000,000 or 10% of all
POPs in the Company Territory, after giving effect to the particular acquisition
or transaction giving rise to such Conflict.
"COMPANY OVERLAP TERRITORY" shall mean any Company Territory (other than
Company Territory as of the Amendment and Restatement Date) that constitutes
AT&T Territory as of the date the Company or an Affiliate of the Company (i)
commences Offering CMRS Service in such AT&T Territory or (ii) enters into a
binding agreement to acquire, manage or control a Person that is Offering CMRS
Service in such AT&T Territory.
"COMPANY REGULATORY CONFLICT" shall mean a Regulatory Conflict that arises
solely as a result of actions taken or activities commenced by the Company and
its Affiliates after the Amendment and Restatement Date.
"COMPANY TERRITORY" shall mean, as of any date, any geographic area in
which the Company or any Affiliate of the Company is Offering CMRS Service,
together with any geographic area in which any other Person is Offering CMRS
Service if, as of the applicable date, the Company or an Affiliate of the
Company has entered into a binding agreement to acquire, manage or control such
Person or such Person's business of Offering CMRS Service in such area.
"CONFIDENTIAL INFORMATION" shall have the meaning assigned to such term in
Section 6.3(a).
"CONFLICT" shall mean an AT&T Competitive Conflict, a Company Competitive
Conflict or a Regulatory Conflict.
"CONFLICT NON-VOTING NOTICE" shall have the meaning set forth in Section
12.2(b).
"CONFLICT NOTICE" shall have the meaning set forth in Section 12.2(a).
"CONFLICT PUT NOTICE" shall have the meaning set forth in Section 12.2(b).
"CONSOLIDATED LEVERAGE RATIO" shall be calculated in accordance with the
Senior Notes Indenture regardless of whether or not the Senior Notes Indenture
is still in effect.
"CREDIT AGREEMENTS" shall mean (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
<PAGE>
Company, as Guarantor, and the Company Subsidiaries party thereto, as amended on
December 23, 1998, (ii) the Revolving Credit Agreement, dated as of March 25,
1998, among 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 December 23, 1998,
between Dobson/Sygnet Operating Company, as Borrower and NationsBank N.A., as
Administrative Agent and (v) the Term Loan Agreement, dated as of December 23,
1998, among Dobson Tower Company and NationsBank, N.A.
"CREDIT DOCUMENTS" shall mean, collectively, the Credit Agreements and all
documents and instruments evidencing or securing or guarantying indebtedness
thereunder.
"DISPUTE" shall have the meaning set forth in Section 14.9.
"DOBSON PARTNERSHIP" shall mean Dobson CC Limited Partnership, an Oklahoma
limited partnership.
"DOBSON/SYGNET" shall mean Dobson/Sygnet Communications Company, an
Oklahoma corporation.
"DOBSON/SYGNET NOTE DOCUMENTS" shall mean, collectively, the Dobson/Sygnet
Note Indenture, the Dobson/Sygnet Note Purchase Agreement, the Dobson/Sygnet
Notes and the Dobson/Sygnet Note Registration Rights Agreement.
"DOBSON/SYGNET NOTE INDENTURE" shall mean the Indenture, dated December 23,
1998, 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" shall mean the Purchase Agreement,
dated as of December 16, 1998, among Dobson/Sygnet and NationsBanc Montgomery
Securities LLC.
"DOBSON/SYGNET NOTE REGISTRATION RIGHTS AGREEMENT" shall mean the
Registration Rights Agreement, dated December 23, 1998, among Dobson/Sygnet and
NationsBanc Montgomery Securities LLC.
"DOBSON/SYGNET NOTES" shall mean the $200 million in aggregate principal
amount of 12 1/4% Senior Notes due 2008 issued by Dobson/Sygnet pursuant to the
Dobson/Sygnet Note Indenture.
<PAGE>
"EQUITY SECURITIES" shall mean, with respect to any Person, any shares of
stock of, or partnership interest or other ownership or beneficial interest in,
such Person, in each case outstanding at any time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business, whether or not incorporated,
that, together with the Company, would be deemed to be a "single employer"
within the meaning of Section 4001(b) of ERISA.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FCC" shall mean the Federal Communications Commission or similar
regulatory authority established in replacement thereof.
"FINANCING AGREEMENTS" shall mean, 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, the Class F Preferred Stock Documents, the Investment and Transaction
Agreement and, as appropriate, all documents, instruments and agreements
evidencing or securing the foregoing and any amendments or refinancings
permitted by Section 12.6. This definition shall not be construed in accordance
with the final sentence of Section 1.2.
"FLEET BUYOUT STOCK" shall mean collectively the 17,412 shares of Class A
Common Stock purchased by JWC, the 22,459 shares of Class A Common Stock
purchased by the Company, the 17,412 shares of Class A Common Stock purchased by
the Dobson Partnership and the 20,886 shares of Class A Common Stock purchased
by Dobson Operating Company directly, in each case from Fleet Equity on December
23, 1998 pursuant to the terms of the Stock Purchase Agreement among Fleet
Equity and each such purchaser.
"FLEET EQUITY" shall mean collectively Fleet Venture Resources, Inc., Fleet
Equity Partners VI, L.P. and Kennedy Plaza Partners together with their
respective Affiliates.
"FLEET EQUITY PURCHASE AGREEMENT" shall mean the Securities Purchase
agreement, dated as of March 19, 1996, among the Company and the Purchasers
named therein as amended by Amendment No.1 thereto, dated as of February 26,
1997.
"FORMER SHAREHOLDERS' AGREEMENT" shall mean the Shareholders' Agreement of
the Company, dated as of February 26, 1996, among the Company and the
shareholders named therein, and which has been terminated, effective as of
December 23, 1998.
<PAGE>
"FULLY DILUTED BASIS" shall mean with respect to any Equity Securities
issued 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, or other rights to acquire such Equity
Securities, whether or not exercisable or convertible at the time of such
determination.
"GAAP" means U.S. generally accepted accounting principles, consistently
applied.
"GOVERNMENTAL AUTHORITY" shall mean a Federal, state or local court,
legislature, governmental agency (including, without limitation, the United
States Department of Justice), commission or regulatory or administrative
authority or instrumentality.
"GUARANTEED PENSION PLAN" shall mean any employee pension benefit plan
within the meaning of Section 3(2) of ERISA maintained or contributed to by the
Company or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA, other
than a Multiemployer Plan.
"INDEBTEDNESS" means any indebtedness (including, without limitation,
Senior Indebtedness), whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
deferred and unpaid balance of the purchase price of any property (including
pursuant to capital leases), and any financial hedging obligations, if and to
the extent such indebtedness (other than a financial hedging obligation) would
appear as a liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with generally accepted accounting principles,
other than a trade payable or accrued expense, and also includes, the guarantee
of items that would be included within this definition.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(e)(v).
"INDEMNIFIED STOCKHOLDER" shall have the meaning set forth in Section
5(e)(i).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(e)(v).
"INVESTMENT AND TRANSACTION AGREEMENT" shall mean the Investment and
Transaction Agreement, dated as of December 23, 1998, among the Company and the
Purchasers named therein, as amended by this Agreement.
"IPO" shall mean an initial public offering of Class A Common Stock
pursuant to an effective Registration Statement under the Securities Act, the
aggregate gross proceeds from such public offering equals or exceeds $50.0
million (or, where the context expressly provides otherwise in this Agreement,
such other amount as is
<PAGE>
expressly stated).
"IPO DATE" shall mean the first date on which an IPO occurs.
"JWC" and "JWC Group Stockholders" each mean J.W. Childs Equity Partners
II, L.P., a Delaware limited partnership, and its affiliated funds and
co-investors listed on Schedule I hereto.
"JWC COMMON STOCK" shall mean the 17,412 shares of Class A Common Stock
purchased by JWC from Fleet Equity pursuant to the Fleet Purchase Agreement,
dated December 23, 1998, among Fleet Equity and the purchasers named therein.
The term JWC Common Stock, for purposes of this Agreement, shall include the
shares of Class A Common Stock purchased by AT&T from JWC pursuant to the Stock
Purchase Agreement.
"JWC SELLDOWN" shall mean the sale by JWC of up to $33.3 million of its
initial investment in Company Stock including, without limitation, Company Stock
sold to AT&T, pursuant to the Stock Purchase Agreement and Section 5.14 of the
Investment and Transaction Agreement.
"LAW" shall mean applicable common law and any statute, ordinance, code or
other law, rule, permit, permit condition, regulation, order, decree, technical
or other standard, requirement or procedure enacted, adopted, promulgated,
applied or followed by any Governmental Authority.
"LICENSE" shall mean a license, permit, certificate of authority, waiver,
approval, certificate of public convenience and necessity, registration or other
authorization, consent or clearance to construct or operate a facility,
including any emissions, discharges or releases therefrom, or to transact an
activity or business, to construct a tower or to use an asset or process, in
each case issued or granted by a Governmental Authority.
"LIENS" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, right of first refusal or right of others therein or
encumbrance of any nature whatsoever in respect of such asset.
"LIQUIDATION PREFERENCE" shall mean, with respect to each share of
Preferred Stock, the liquidation preference therefore, calculated in accordance
with the Certificate of Designation for the relevant class of Preferred Stock.
"LIQUIDITY EVENT" shall mean any of the following events, the occurrence of
the IPO Date, the sale of all or substantially all of the Company Stock or the
Company's business and assets (including through a merger or otherwise), the
substantial
<PAGE>
recapitalization of the Company or any other event which provides substantial
financial liquidity to the Company's Stockholders in respect of their investment
in the Company.
"LOGIX COMMUNICATIONS" shall mean Logix Communications Enterprises, Inc. an
Oklahoma corporation.
"LOGIX COMMUNICATIONS COMMON STOCK" shall mean Common Stock, par value
$1.00 per share, of Logix Communications.
"LOGIX COMMUNICATIONS 1998 STOCK OPTION PLAN" shall mean the Logix
Communications 1998 Stock Option Plan.
"LOGIX COMMUNICATIONS SPIN-OFF" shall mean the consummation of the proposed
spin-off by the Company of the business of Logix Communications.
"MAJOR TELECOM COMPETITOR" shall mean any of (i) MCI/Worldcom Corp., Sprint
Corporation, Bell Atlantic Corporation, GTE Corporation, LCI International Inc.,
British Telecommunications plc, Cable & Wireless plc, Deutsche Telecom, Telecom
Italia SpA, France Telecom, Stentor companies, Omnipoint Corporation, AirTouch
Communications, Inc., and Telecommunicaciones de Mexico or (ii) any other Person
that derives over $2 billion of revenue per annum (based on the most recently
available data for the immediately preceding year) from the provision or sale of
telecommunications services, as of the date of measurement.
"MARKET PRICE" shall mean, with respect to each share of any class or
series of capital stock for any day, (i) the average of the daily Closing Prices
for the ten consecutive trading days commencing 15 days before the day in
question or (ii) if on such date the shares of such class or series of capital
stock are not listed or admitted for trading on any national securities exchange
and are not quoted on NASDAQ or any similar service, the cash amount that a
willing buyer would pay a willing seller (neither acting under compulsion) in an
arm's-length transaction without time constraints per share of such class or
series of capital stock as of such date, viewing the Company on a going concern
basis, determined in accordance with the Appraisal Procedure; provided that, in
determining such cash amount, the following shall be ignored: (i) any contract
or legal limitation in respect of the stock, including transfer, voting and
other rights, (ii) the "minority interest" or "control" status of the stock,
(iii) any illiquidity arising by contract in respect of the stock and any voting
rights or control rights amongst the stockholders, and (iv) any other contract
rights or restrictions, including those set forth herein.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect in the
business, assets, properties (tangible and intangible), operations, condition
(financial or otherwise), liabilities or prospects of the Company and the
Subsidiaries, taken as a
<PAGE>
whole, whether or not in the ordinary course of business, whether separately or
in the aggregate with other occurrences or developments, and whether insured
against or not or any event, circumstances or conditions which reasonably may
have such a material adverse effect.
"MSA" means a Metropolitan Statistical Area, comprised of one or more
counties in the Unites States, as listed in Public Notice Report No. CL-92-40,
"Common Carrier Public Mobile Services Information, Cellular MSA/RSA Markets and
Counties," dated January 24, 1992. DA 92-109.
"MTA" shall mean a geographic area established by the Rand McNally 1992
Commercial Atlas & Marketing Guide, 123rd Edition, as modified by the FCC to
form the initial geographic area of license for the A and B blocks of broadband
PCS spectrum as defined in Section 24.202 of the FCC's rules.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers'
Automated Quotation System.
"NEW COMPANY STOCK OPTION PLAN" shall mean the Dobson Communications
Corporation 1996 Stock Option Plan, adopted on February 6, 1997, as amended by
Amendment No. 1 thereto, dated December 21, 1998.
"NEW SECURITIES" shall have the meaning set forth in Section 4.7(b).
"OFFERING CMRS SERVICES" means the offering of CMRS Services to the public
utilizing radio facilities licensed to the offeror by the FCC or in which the
offeror is advertising the availability of, and directly or through franchise
arrangements operating, retail outlets for the offering of the offeror's or its
Affiliate's CMRS Services.
"OVERLAP TERRITORY" shall mean the aggregate of AT&T Overlap Territory and
Company Overlap Territory.
"PCS SYSTEM" shall mean a mobile communication system constructed and
operated in a BTA or a MTA (or any successor territorial designations or
subdivision thereof authorized by the FCC) exclusively using the 1850 MHZ to
1910 MHZ and 1930 MHZ to 1990 MHZ frequencies, or portions thereof, pursuant to
a License therefor issued by the FCC.
"PCS TERRITORY" shall mean an MTA or BTA in which the Company or any of its
Subsidiaries has been granted a license to operate a PCS System by the FCC.
<PAGE>
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, association, joint stock company, Governmental Authority,
business trust or other legal entity.
"POPs" shall mean, with respect to any distinct geographic area, the
residents of such area based on the most recent publication by Equifax Marketing
Decision Systems, Inc.
"PREFERRED STOCK" shall mean collectively, the Senior PIK Preferred Stock,
the Sygnet PIK Preferred Stock, the Class A Preferred Stock, the Class D
Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock, the
Class G Preferred Stock and the Class H Preferred Stock.
"PREFERRED STOCK PUT RIGHT" shall have the meaning given such term in
Section 12.1.
"PROHIBITED TRANSFEREE" shall mean any Person (other than AT&T and its
Affiliates) that is one of the five largest providers of wireless
telecommunications services (based on revenue derived from the provision of such
wireless telecommunications services during the most recent fiscal year for
which such information is available) in any PCS Territory or Cellular Territory
or any entity which is controlled by any such Person; or a Person (other than
the Company and AT&T and its Affiliates) who derives a material portion of its
business by providing wireless telecommunications services in any PCS Territory
or Cellular Territory.
"PROSPECTUS" shall have the meaning set forth in Section 5(d)(i).
"PUT RIGHT" shall mean a Preferred Stock Put Right or the right of AT&T to
require the Company to repurchase Company Stock held by it pursuant to Section
12.2(c), as the context requires.
"QUALIFIED HOLDER" shall mean any Stockholder or group of Stockholders that
Beneficially Owns shares of Common Stock reasonably expected to, upon sale,
result in aggregate gross proceeds of at least $50.0 million.
"REGISTRABLE SECURITIES" shall mean (a) the Common Stock now owned or
hereafter acquired by any Stockholder or issuable upon conversion of any Equity
Security or exchange of Common Stock, and (b) all Common Stock issued or
issuable upon conversion, exchange or exercise of any Equity Security which is
issued pursuant to a stock split, stock dividend or other similar distribution
or event with respect to Common Stock but with respect to any Common Stock, only
until such time as such Common Stock (i) has been effectively registered under
the Securities Act and disposed of in accordance with the Registration Statement
covering it, (ii) has been
<PAGE>
sold to the public pursuant to Rule 144 (or any similar provision then in
force), (iii) shall otherwise have been transferred, a new certificate
evidencing such Common Stock without a legend restricting further transfer shall
have been delivered by the Company, and subsequent public distribution of such
Common Stock shall neither require registration under the Securities Act nor
qualification (or any similar filing) under any state securities or "blue sky"
law then in effect, or (iv) shall have ceased to be issued and outstanding.
"REGISTRATION" shall have the meaning set forth in Section 5(d).
"REGISTRATION EXPENSES" shall have the meaning set forth in Section 5(g).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
5(d)(i).
"REGULATORY CONFLICT" shall mean the existence or occurrence of any of the
following conditions: (a) either AT&T or the Company or any of their respective
Affiliates own an attributable interest in both Cellular Systems authorized to
serve a Cellular Territory which violates any FCC rule or regulation prohibiting
such overlapping interests; or (b) either AT&T, the Company or any of their
respective Affiliates holds an attributable interest in more licensed broadband
PCS, cellular, and SMR spectrum regulated as CMRS than is permitted under any
FCC spectrum cap regulation prohibiting such interest; or (c) either AT&T or the
Company or any of their respective Affiliates holds any other attributable
interest or interests which violates any rule or regulation of the FCC, for
example, prohibitions on the ownership of certain interests in the telephone
company and cable television company serving the same market; provided, that, in
any case, a Regulatory Conflict will not be deemed to exist if such Regulatory
Conflict would not exist but for a Change of Law.
"RELATED AGREEMENTS" shall mean the Investment and Transaction Agreement,
the Stock Purchase Agreement, the Certificates of Designation for each of the
Class D Preferred Stock, the Class E Preferred Stock, the Class G Preferred and
the Class H Preferred, the New Company Stock Option Plan, and the Logix
Communications 1998 Stock Option Plan and the Investor Questionnaires.
"RELEVANT PERCENTAGE INTEREST" shall have the meaning given such term in
Section 3.4.
"REPRESENTATIVES" shall have the meaning set forth in Section 6.3(a).
"RESTATED BY-LAWS" shall mean the Amended and Restated By-Laws of the
Company in the form of Exhibit C.
"RESTATED CERTIFICATE" shall mean the Amended and Restated Certificate of
Incorporation of the Company, in the form of Exhibit A.
<PAGE>
"RSA" means a Rural Statistical Area, comprised of one or more counties in
the United States, as listed in Public Notice Report No. CL-92-40, "Common
Carrier Public Mobile Services Information, Cellular MSA/RSA Markets and
Counties," dated January 24, 1992, DA 92-109.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act (or any
similar rule as may be in effect from time to time).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING STOCKHOLDER" shall have the meaning set forth in Section 4.2(a).
"SENIOR INDEBTEDNESS" shall mean the principal, interest on, premium, if
any, fees (including, without limitation, any attorneys', commitment, agency,
facility, structuring, restructuring or other fee), costs, expenses,
indemnities, and other amounts due on or in connection with the Financing
Agreements and any refinancings or replacements of the foregoing prior to the
date of issuance of any Subordinated Put Note, in accordance with Section 12.6
hereof or from the date of issuance of any Subordinated Put Note, in accordance
with the terms of such Subordinated Put Note, in each case whether or not with
new lenders, now or hereafter incurred, any documents executed under or in
connection therewith, and any amendments, modifications, deferrals, renewals of
the Financing Agreements prior to the date of issuance of any Subordinated Put
Note, in accordance with Section 12.6, or from the date of issuance of any
Subordinated Put Note, in accordance with the terms of such Subordinated Put
Note, any amounts owed in respect of any Indebtedness incurred in refinancing,
replacing or refunding the foregoing prior to the date of issuance of any
Subordinated Put Note, in accordance with Section 12.6 or from the date of
issuance of any Subordinated Put Note, in accordance with the terms of such
Subordinated Put Note, in each case whether or not with new lenders, unless the
terms of such Indebtedness expressly provide that such Indebtedness is not
Senior Indebtedness with respect to any Subordinated Put Note.
"SENIOR NOTE DOCUMENTS" shall mean, collectively, the Senior Note
Indenture, the Senior Notes and the Senior Notes Escrow and Security Agreement.
"SENIOR NOTE INDENTURE" shall mean the Indenture, dated as of February 28,
1997, among the Company and United States Trust Company of New York, as Trustee
thereunder, in respect of the Senior Notes.
"SENIOR NOTES" shall mean the 11 3/4% Senior Notes due 2007 issued by the
Company pursuant to the Senior Note Indenture.
"SENIOR NOTES ESCROW AND SECURITY AGREEMENT" shall mean the Escrow and
<PAGE>
Security Agreement, dated February 28, 1997, among, the Company and the
placement agents, party thereto, and United States Trust Company of New York, as
Trustee thereunder.
"SENIOR PIK PREFERRED STOCK" shall have the meaning set forth in recital
(C) hereto.
"SENIOR PIK PREFERRED STOCK CERTIFICATE OF DESIGNATION" shall mean the
Certificate of Designation in respect of the Senior PIK Preferred Stock.
"STOCKHOLDER" shall have the meaning set forth in the preamble.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement, dated as of
April __, 1999, among the Company, JWC and AT&T.
"SUBORDINATED PUT NOTE" shall mean any Negotiable Junior Subordinated
Unsecured Note of the Company, substantially in the form of Exhibit D, issued in
accordance with the terms of this Agreement in connection with the exercise of
Put Rights.
"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" shall mean the acquisition by the Company's wholly
owned subsidiary, Dobson/Sygnet, of all of the outstanding capital stock of
Sygnet Wireless, Inc., an Ohio corporation, pursuant to the Sygnet Merger
Agreement dated July 28, 1998, as amended, between Dobson/Sygnet Operating
Company and Sygnet Wireless, Inc.
"SYGNET MERGER AGREEMENT" shall mean the Agreement and Plan of Merger,
dated as of July 28, 1998, between Dobson/Sygnet Operating Company and Sygnet
<PAGE>
Wireless, Inc.
"SYGNET PIK PREFERRED STOCK" shall have the meaning set forth in recital
(C) hereof.
"TAG-ALONG EVENT" shall have the meaning set forth in Section 4.2(a).
"TAG-ALONG EVENT PURCHASER" shall have the meaning set forth in Section
4.2(a).
"TAG-ALONG NOTICE" shall have the meaning set forth in Section 4.2(a).
"TAG-ALONG STOCK" shall have the meaning set forth in Section 4.2(a).
"TAXES" means with respect to any Person a net income, gross income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, transfer, occupation, premium,
property or windfall profit tax, custom duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest and any penalty, addition to tax or additional amount imposed by any
jurisdiction or other taxing authority (domestic or foreign) on such Person.
"TERRITORY" shall mean, collectively, all of the PCS Territories and all
of the Cellular Territories.
"TRANSFER" shall have the meaning set forth in Section 4.1(a).
"VOTING SECURITIES" shall mean equity securities of a Person having the
right to vote generally in the election of the directors of such Person.
"WIRELESS SUBSIDIARIES" shall mean collectively DCC PCS Inc., Western
Financial Services, Inc., Dobson Cellular Operations Company, DOC Cellular
Subsidiary Company, Dobson Operating Company, Dobson Tower Company,
Dobson/Sygnet Communications Company and their respective Subsidiaries.
1.2 OTHER DEFINITIONAL PROVISIONS. Each definition or pronoun herein
shall be deemed to refer to the singular, plural, masculine, feminine or neuter
as the context requires. Words such as "herein," "hereinafter," "hereof,"
"hereto" and "hereunder" refer to this Agreement as a whole, unless the context
otherwise requires. References to a document or agreement shall be to such
document or agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
<PAGE>
ARTICLE 2.
STOCKHOLDER APPROVAL
2.1 ORGANIZATIONAL DOCUMENTS. The Stockholders consent to the
amendment of the By-Laws and their replacement by the Restated By-Laws and adopt
and approve the Restated By-Laws.
2.2 APPROVAL OF STOCK OPTION PLANS. The Stockholders approve and
adopt the New Company Stock Option Plan and the Logix Communications 1998 Stock
Option Plan and consent to the issuance of stock options and common stock in
accordance with the terms thereof and to the consummation of the other
transactions contemplated thereby.
2.3 LOGIX COMMUNICATIONS SPIN-OFF. The Stockholders hereby approve
and consent to the consummation of the Logix Communications Spin-Off provided
that such Logix Communications Spin-Off occurs within 12 months of the receipt
by the Company of (A) either (i) a private letter ruling by the Internal Revenue
Service with respect to the Logix Communications Spin-Off under the currently
pending application therefor by the Company or (ii) an opinion from a nationally
recognized law firm or accounting firm, acceptable in form and substance to the
Board of Directors, that the Logix Communications Spin-Off will not result in
the recognition of income, gain or loss for the Company or its Stockholders for
US federal tax purposes and (B) all necessary creditor, noteholder and other
third party approvals, consents and waivers shall have been obtained or waived.
In addition, if the alternative referred to in (A)(ii) above is pursued, the
Company will, as a pre-condition of the Logix Communications Spin-Off, obtain
insurance coverage in respect of any tax-related risks or liabilities arising if
the Logix Communications Spin-Off is a taxable event for the Company and/or its
stockholders, and such insurance policy, including its terms and coverage, will
be approved by the Board of Directors of the Company. The Stockholders
acknowledge that the holders of Class D Preferred Stock will participate in the
Logix Communications Spin-Off on a pro rata basis according to their percentage
ownership of Common Stock on a Fully Diluted Basis at the time of the Logix
Communications Spin-Off (assuming for this purpose that all options issued under
the Logix Communications 1998 Stock Option Plan have been exercised). The JWC
Common Stock shall participate in the Logix Communications Spin-Off on the same
terms as all other shares of Class A Common Stock.
ARTICLE 3.
MANAGEMENT OF THE COMPANY
3.1 BOARD OF DIRECTORS. (a) The Board of Directors shall, subject to
the other
<PAGE>
provisions hereof, consist of seven (7) directors; PROVIDED, HOWEVER, that the
number of directors constituting the Board of Directors shall be reduced in the
circumstances set forth in this Section 3.1. Each of the Stockholders hereby
agrees that it will vote all of the shares of its Common Stock and Preferred
Stock (to the extent entitled to vote) owned or held of record by it (whether
now owned or hereafter acquired), in person or by proxy, to cause the election
of directors and thereafter the continuation in office of such directors as
follows:
(i) one director selected by JWC, in its sole discretion, so
long as it Beneficially Owns at least 35% of the Class D Preferred Stock (or the
Class A Common Stock or Class E Preferred Stock acquired upon conversion
thereof) it holds as of the Amendment and Restatement Date;
(ii) one director selected by AT&T, in its sole discretion, so
long as it Beneficially Owns at least 50% of the Class D Preferred Stock (or the
Class A Common Stock or Class E Preferred Stock acquired upon conversion
thereof) it holds as of the Amendment and Restatement Date, subject to section
3.1(b);
(iii) four directors selected by the Dobson Partnership, in its
sole discretion; and
(iv) one director jointly selected by JWC, AT&T (in the event
its designee is a member of the current Board of Directors) and the Dobson
Partnership, subject to Section 3.1(b). In the event that AT&T shall have
relinquished, and shall continue to relinquish, its right to designate a
director under Section 3.1(a)(ii) in accordance with Section 3.1(b), then the
director jointly selected by JWC and the Dobson Partnership pursuant to this
Section 3.1(a)(iv) shall be reasonably acceptable to AT&T, which consent shall
not be unreasonably withheld.
Each of JWC and AT&T (in the event its designee is a member of the
current Board of Directors) shall have the right to, so long as they hold their
respective Relevant Percentage Interest, designate one director for the Board of
Directors of each Subsidiary of the Company.
If, for any reason, any director to be designated pursuant to
clause (iv) hereof is not designated within 45 days of the time when such
designation right arises, then (x) such director will be jointly selected by JWC
and AT&T (in the event its designee is a member of the current Board of
Directors), and (y) if any such director is not designated pursuant to clause
(x) within 90 days of such time, then such director will be selected by the
Dobson Partnership. In the event that any Class D Preferred Stock is converted
into Class A Common Stock and Class E Preferred Stock in accordance with the
terms thereof, the rights of the holders of such Preferred Stock to vote to
appoint directors in accordance with the terms hereof shall survive such
conversion.
<PAGE>
Any nomination or designation of directors and the acceptance
thereof pursuant to Section 3.1 shall be evidenced in writing.
(b) If, for any reason, AT&T's director selected pursuant to
clause (a)(ii) above resigns or AT&T determines that it no longer desires to
have director designation rights, including as a result of a Conflict and the
related provisions herein, then AT&T may, at its option, relinquish such
director designation rights, in which case, an additional director will be
designated pursuant to Section 3.1(a)(iv) above and AT&T will be entitled to
observer rights as provided in Section 3.1(d) below, PROVIDED, that if AT&T
subsequently determines to reinstate such director designation rights, it may do
so by notifying the parties hereto, in which case, such observer rights will
terminate, AT&T's director designation rights in Section 3.1(a)(ii) will be
reinstated, and the additional director designated pursuant to this Section
3.1(b) and 3.1(a)(iv) will concurrently resign or be removed.
(c) The Stockholders acknowledge the rights of the holders of
Senior PIK Preferred Stock to designate an additional 2 directors, the right of
the holders of Sygnet PIK Preferred Stock to designate an additional 2 directors
and the right of the holders of the Class F Preferred Stock to designate one
additional director, in the event that the triggering events described in
paragraph (iii) of the Senior PIK Preferred Stock Certificate of Designation,
paragraph (iii) of the Sygnet PIK Preferred Stock Certificate of Designation,
and subparagraph (c)(iii) of the Class F Preferred Stock Certificate of
Designation, respectively occur.
(d) If AT&T relinquishes its director designation rights pursuant
to Section 3.1(b), then AT&T will be entitled to designate an observer in
addition to its observer appointed under Section 3.4, who will be entitled to
attend all meetings of the Board of Directors and receive the same notice and
information provided to members of the Board of Directors. The Company will
reimburse the observer appointed pursuant to this Section in connection with
such person's role as observer for the reasonable and documented out-of-pocket
expenses and costs (including travel expenses), incurred by such observer in
connection with the performance of his service as an observer of the Board of
Directors.
3.2 REMOVAL; FILLING OF VACANCIES. Except as set forth in Section 3.1,
each Stockholder agrees it will not vote any shares of Company Stock
Beneficially Owned by such Stockholder, and shall not permit any Affiliated
Successor of such Stockholder holding any Company Stock, to vote for the removal
without cause of any director designated by any other Stockholder in accordance
with Section 3.1. Any Stockholder or group of Stockholders who has the right to
designate any member(s) of the Board of Directors shall have the right to
replace any member(s) so designated by it (whether or
<PAGE>
not such member is removed from the Board of Directors with or without cause or
ceases to be a member of the Board of Directors by reason of death, disability
or for any other reason) upon written notice to the other Stockholders, the
Company and the members of the Board of Directors which notice shall set forth
the name of the member(s) being replaced and the name of the new member(s). Each
of the Stockholders agrees to vote, and to cause its Affiliated Successors to
vote, its shares of Preferred Stock and Common Stock, or shall otherwise take
any action as is necessary to cause the election of any successor director
designated by any Stockholder pursuant to this Section 3.2.
3.3 DIRECTORS. In accordance with the Oklahoma General Corporation Law
and pursuant to the provisions of Section 3.1 of this Agreement, the
Stockholders hereby consent to the election of and do hereby elect in accordance
with Section 3.1 hereof the persons designated in Schedule III hereto as
directors of the Company. Such persons shall hold office until their successors
are duly elected and qualified, except as otherwise provided in this Agreement,
the Restated Certificate or the Restated By-Laws.
3.4 COMPENSATION AND REIMBURSEMENT. The members of the Board of
Directors (other than the director selected pursuant to Section 3.1(a)(iv))
shall not be compensated for their services as a director or as a member of any
committee of the Board of Directors. For so long as JWC Beneficially Owns at
least 35% and AT&T Beneficially Owns at least 50%, respectively, of the number
of shares of Class D Preferred Stock (or any Class A Common Stock or Class E
Preferred Stock into which it may have been converted) which JWC or AT&T, as the
case may be, owns as of the Amendment and Restatement Date (the "Relevant
Percentage Interests"), JWC and AT&T shall each have the right to have an
observer present at all meetings of the Board of Directors and any committees
thereof (in addition to any directors appointed pursuant to Sections 3.1(a)(i)
and (ii) above). The Company will reimburse the observers appointed pursuant to
this Section and each member of the Board of Directors for the reasonable and
documented out-of-pocket expenses and costs (including travel expenses) incurred
by such observers or such directors in connection with the performance by each
such person of his service as an observer or as a director or as a member of any
committee of the Board of Directors.
3.5 BUSINESS OF THE COMPANY. The business and affairs of the Company
shall be conducted by the officers of the Company under the supervision of the
Board of Directors. The Board of Directors of the Company shall meet at least
once per fiscal quarter. The Board of Directors of Logix Communications shall
meet at least once in every two month period.
3.6 REQUIRED VOTES. All actions of the Board of Directors of the
Company shall require the vote of at least a majority of the entire Board of
Directors, unless
<PAGE>
otherwise required by Law, the Restated Certificate, the Restated By-Laws or
this Agreement.
3.7 TRANSACTIONS BETWEEN THE COMPANY AND THE STOCKHOLDERS OR THEIR
AFFILIATES. Any transaction or series of transactions outside the ordinary
course of business and agreements or transactions entered into from time to time
and involving, in any 12-month period, in the aggregate, more than $1.0 million,
between the Company or its Subsidiaries, on the one-hand, and its Stockholders
or Affiliates, or any of them, on the other hand, must be approved by any two of
the directors selected in clauses (i), (ii) and (iv) of Section 3.1(a), PROVIDED
that no such approval will be required in connection with (A) this Agreement,
the Investment and Transaction Agreement, the New Company Stock Option Plan and
the Logix Communications 1998 Stock Option Plan, any Financing Agreement to be
entered into simultaneously herewith, (B) the Logix Communications Spin-Off, (C)
the Stock Purchase Agreement, (D) the proposed arms-length development and lease
by the Company and its Subsidiaries of space in an office building in which the
Dobson family has an ownership interest and (E) the AT&T Operating Agreement and
any other transactions between Dobson and/or its Subsidiaries on the one hand
and AT&T and/or its Affiliates on the other; PROVIDED, HOWEVER, that in the
event that the director in Section 3.1 (a)(iv) above has been selected by the
Dobson Partnership without the approval of JWC and AT&T, then the consent of the
director designated by JWC in Section 3.1(a)(i) and the director designated by
AT&T in Section 3.1(a)(ii) shall be required to approve a transaction of the
type described in this Section 3.7.
3.8 BOARD COMMITTEES. If a committee of the Board of Directors is
established, the directors selected pursuant to Section 3.1(a)(i) and (ii) shall
each be entitled to be a member of such committee, and if AT&T shall relinquish
its director designation rights, AT&T shall be entitled to observer rights in
respect of such committee.
3.9 OTHER ACTIONS. The Company shall not, and shall not permit any of
its Subsidiaries to, take any of the following actions without the prior
approval of a majority of directors of the Board of Directors of the Company:
(i) register securities under the Securities Act or grant registration rights;
(ii) change the size of the Board of Directors; (iii) change the Company's
independent public accountants; (iv) amend this Agreement, subject to Section
14.3; (v) adversely amend or alter any preferences, rights or powers of the
Class D Preferred Stock, whether such rights be set forth in the Restated
Certificate or Restated Bylaws or in any other agreement; (vi) redeem,
repurchase or pay any dividends on any stock that is junior to, or on a parity
with, the Class D Preferred Stock, except for repurchases of management,
employee or consultant stock or stock options pursuant to contractual rights
which do not exceed $500,000 in any fiscal year of the Company or $1,500,000 in
the aggregate; (vii) issue or authorize any shares of capital stock of the
Company having a preference over, or being on parity
<PAGE>
with, the Class D Preferred Stock, including the issuance of additional shares
of Class D Preferred Stock, subject to Section 6.5, PROVIDED, that the Company
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 in connection with future acquisitions and capital
projects and the financing thereof, and (y) the Logix Communications Spin-Off;
or (viii) merge or consolidate with or into another Person, or sell all or
substantially all of its assets or liquidate its assets or business. Nothing in
this Section 3.9 is intended to imply that by virtue of the approval of the
Board of Directors pursuant to this Section 3.9 the Company can take any action
(including any action requiring separate or additional approval by the
Stockholders herein) that it is otherwise prohibited from taking.
ARTICLE 4.
TRANSFERS OF SHARES
4.1 GENERAL.
(a) Each Cash Equity Investor (other than Dobson Partnership)
agrees that at all times prior to, the earliest of (A) the IPO Date (B) December
23, 2003 or (C) a Change of Control, it shall not, directly or indirectly,
transfer, sell, assign, pledge, or tender or otherwise grant or create a Lien in
or upon, give, or otherwise voluntarily or involuntarily (including transfers by
testamentary or intestate succession) dispose of by operation of law, offer or
otherwise (any such action being referred to herein as a "Transfer") any of the
shares of Company Stock Beneficially Owned by such Stockholder as of the date
hereof or which may hereafter be acquired by such Stockholder, except that a
Cash Equity Investor may Transfer shares of Preferred Stock and Common Stock (i)
to an Affiliate or an Affiliated Successor (notwithstanding anything else to the
contrary in this Article 4), (ii) to family members and trusts and partnerships
which are Affiliates thereof, (iii) to another Stockholder, (iv) in connection
with a public sale in accordance with Rule 144, (v) by JWC under the JWC
Selldown or the Stock Purchase Agreement, and (vi) to any other Person after
complying with Section 4.2, if applicable, PROVIDED, that in the case of clauses
(i), (ii), (iii), (v), and (vi) each such transferee shall execute a counterpart
of and become a party to this Agreement and shall agree in a writing in form and
substance reasonably satisfactory to the Company to be bound and becomes bound
by the terms of this Agreement. Nothing in this Agreement shall prohibit a bona
fide pledge of Company Stock by co-investors in the JWC Group (other than JWC)
to a bank or financial institution.
(b) Notwithstanding anything to the contrary contained in this
Article 4, JWC Common Stock shall not be subject to Section 4.1, PROVIDED that
any transferee of such shares shall execute a counterpart of and become party to
this Agreement and
<PAGE>
shall agree in a writing in form and substance satisfactory to the Company to be
bound and becomes bound by the terms of this Agreement. Fleet Buyout Stock shall
be subject to the provisions of Section 4.2 and 4.5 of this Agreement.
4.2 TAG-ALONG RIGHTS.
(a) Subject to Sections 4.2(e) and 4.3(c), no Stockholder
("Selling Stockholder") shall, directly or indirectly, Transfer, in any single
transaction or series or related transactions to one or more Persons who are not
Affiliated Successors of such Stockholder (each such Person a "Tag-Along Event
Purchaser") shares of Preferred Stock or Common Stock (collectively, "Tag-Along
Stock") constituting 5% or more of such Stockholder's total investment in the
Company on a Fully Diluted Basis (a "Tag-Along Event"), unless the terms and
conditions of such sale to such Tag-Along Event Purchaser shall include an offer
to each Stockholder (including the Selling Stockholder) to Transfer to such
Tag-Along Event Purchasers up to that number of shares determined as follows:
(i) subject to Section 4.3(c), each JWC Group Stockholder
and AT&T shall have the right to Transfer to such Tag-Along Event
Purchaser up to that number of shares of Tag-Along Stock then
Beneficially Owned by such JWC Group Stockholder (without duplication)
or AT&T, respectively, as are equal in value to (x) the aggregate value
of the shares of Tag-Along Stock that such Tag-Along Event Purchaser
has offered to purchase (the "Total Tag-Along Value"), times (y) a
fraction, the numerator of which is the value of the shares of Class A
Common Stock and Class E Preferred Stock (valued at its Liquidation
Preference) at that time Beneficially Owned (without duplication) by
such JWC Group Stockholder or AT&T, as the case may be, and the
denominator of which is the value of all then outstanding Class A
Common Stock (the aggregate value of all of the shares of Tag-Along
Stock that may be purchased from the JWC Group Stockholders and AT&T is
hereinafter referred to as the "JWC/AT&T Group Value", and the Total
TagAlong Value minus the JWC/AT&T Group Value is hereinafter referred
to as the "Remaining Value");
(ii) subject to Section 4.3(c), each Stockholder that
is not a JWC Group Stockholder or AT&T (together with the Selling
Stockholders, the "Remaining Offerees") shall have the right to
Transfer to such Tag-Along Event Purchaser up to that number of shares
of Tag-Along Stock then Beneficially Owned by such Remaining Offeree
(without duplication) as are equal in value to (x) the Remaining Value,
times (y) a fraction, the numerator of which is the value of shares of
Class A Common Stock and Class E Preferred Stock (other than such stock
held by Dobson Partnership) (valued at its Liquidation Preference) at
that time Beneficially Owned (without duplication) by such Remaining
Offeree, and the denominator of which is the value of all then
outstanding Class A Common Stock.
<PAGE>
If the Selling Stockholders receive a bona fide offer from a Tag-Along
Event Purchaser to purchase shares of Tag-Along Stock in circumstances in which
would result in a Tag-Along Event, and which offer such Selling Stockholders
wish to accept, the Selling Stockholders shall then cause the Tag-Along Event
Purchaser's offer to be reduced to writing (which writing shall include an offer
to purchase shares of Tag-Along Stock from each Stockholder according to the
terms and conditions set forth in this Section 4.2) and the Selling Stockholders
shall send written notice of the Tag-Along Event Purchaser's offer (the
"TagAlong Notice") to each Stockholder, which Tag-Along Notice shall specify (i)
the names of the Selling Stockholders, (ii) the names and addresses of the
proposed acquiring Person, (iii) the amount of shares proposed to be Transferred
and the price, form of consideration and other terms and conditions of such
Transfer (including, if in a series of related transactions, such information
with respect to shares of Tag-Along Stock theretofore Transferred), (iv) that
the acquiring Person has been informed of the rights provided for in this
Section 4.2 and has agreed to purchase shares of Tag-Along Stock in accordance
with the terms hereof, (v) the date by which each other Selling Stockholder may
exercise its respective rights contained in this Section 4.2, which date shall
not be less than thirty (30) days after the giving of the Tag-Along Notice and
(vi) whether the provisions of Section 4.3(c) are applicable to such Tag-Along
Event. The Tag-Along Notice shall be accompanied by a true and correct copy of
the TagAlong Event Purchaser's offer. At any time within thirty (30) days after
receipt of the Tag-Along Notice, each Stockholder may accept the offer included
in the Tag-Along Notice for up to such number of shares of Tag-Along Stock as is
determined in accordance with this Section 4.2, by furnishing written notice of
such acceptance to each Selling Stockholder, and delivering, to an escrow agent
(which shall be a bank or a law or accounting firm designated by the Company),
on behalf of the Selling Stockholders, the certificate or certificates
representing the shares of Tag-Along Stock to be sold pursuant to such offer by
each Stockholder, duly endorsed in blank, together with a limited power-of-
attorney authorizing the escrow agent, on behalf of the Stockholder, to sell the
shares to be sold pursuant to the terms of such Tag-Along Event Purchaser's
offer.
If any Stockholder desires to sell less than its proportionate amount
of shares of Tag-Along Stock that it is entitled to sell pursuant to this
Section 4.2, then each of the other Stockholders shall have the right to sell to
the Tag-Along Event Purchaser an additional amount of shares of Tag-Along Stock
as shall be calculated in accordance with the allocations and procedures set
forth in the immediately preceding paragraph. Such process shall be repeated in
series until all of the remaining Stockholders agree to sell their remaining
proportionate number of shares of Tag-Along Stock.
Schedule IV sets forth an illustrative example for this Section 4.2(a),
PROVIDED, HOWEVER, that in the event of any conflict between such illustration
and this Section 4.2, Section 4.2 shall govern.
<PAGE>
(b) The purchase from each Tag-Along Event Offeree pursuant to
this Section 4.2 shall be on the same terms and conditions, including the price
per share received by the Selling Stockholders and stated in the Tag-Along
Notice provided to each Stockholder. In the event that the Tag-Along Stock is
Common Stock, all Stockholders shall be required, as a condition of
participating in such transaction (in cases where the Preferred Stock is
convertible into Common Stock), to convert the required amount of its Preferred
Stock into Common Stock and Transfer Common Stock to the Tag-Along Event
Purchaser.
(c) Simultaneously with the consummation of the sale of the
shares of Tag-Along Stock to the Tag-Along Event Purchaser pursuant to the
Tag-Along Event Purchaser's offer, the Selling Stockholders shall notify each
Stockholder and shall cause the Tag-Along Event Purchaser to remit to each
Stockholder the total sales price of the shares of Tag-Along Stock held by each
Stockholder sold pursuant thereto and shall furnish such other evidence of the
completion and time of completion of such sale and the terms thereof as may be
reasonably requested by each Stockholder.
(d) If within thirty (30) days after receipt of the Tag-Along
Notice, a Stockholder has not accepted the offer contained in the Tag-Along
Notice, such Stockholder shall be deemed to have waived any and all rights with
respect to the sale described in the Tag-Along Notice (but not with respect to
any subsequent sale, to the extent this Section 4.2 is applicable to such
subsequent sale) and the Selling Stockholders shall have sixty (60) days from
the initial delivery of the last Tag-Along Notice in which to sell not more than
the number of shares of Tag-Along Stock described in the Tag-Along Notice, on
terms not more favorable to the Selling Stockholders than were set forth in the
Tag-Along Notice; PROVIDED, HOWEVER, that if such purchase is subject to the
consent of the FCC or any public service or public utilities commission, the
purchase of such shares shall be closed on the first business day after all such
consents shall have been obtained by Final Order.
(e) Without limiting Section 4.1(a), Section 4.2 will not apply
to (i) Transfers of Company Stock made after the IPO Date in a public offering
in accordance with Section 5 or pursuant to Rule 144, (ii) subject to Section
6.12.8, the sale or redemption of up to $25.0 million in aggregate principal
amount by the Dobson Partnership of Company Stock, together with any dividends
thereon, in one transaction or a series of transactions, (iii) the sale of any
Class F Preferred Stock; (iv) any transfer pursuant to Section 4.1(a)(i), (ii),
(iii) or (v) hereof (and similar Transfers of Fleet Buyout Stock); and (v)
transfers by any JWC Group Stockholder or AT&T after the earliest to occur of
(A) the IPO Date, (B) December 23, 2003 or (C) a Change of Control.
<PAGE>
4.3 ADDITIONAL CONDITIONS TO PERMITTED TRANSFERS.
(a) As a condition to any Transfer to an Affiliated Successor
permitted pursuant to Section 4.1, or any Transfer pursuant to Section 4.2, each
transferee that is not a party hereto shall, prior to such Transfer, agree in
writing to be bound by all of the provisions of this Agreement applicable to the
Stockholders (and shall thereby become a Stockholder for all purposes of this
Agreement). Any Transfer without compliance with such provisions of this
Agreement shall be null and void and such transferee shall have no rights as a
Stockholder of the Company.
(b) Notwithstanding anything to the contrary contained in this
Agreement (other than the next sentence) each Stockholder agrees that it will
not effect a Transfer of shares of Company Stock to a Prohibited Transferee. In
the event that the Dobson Partnership Transfers any Preferred Stock or Common
Stock to a Prohibited Transferee, JWC and AT&T shall equally be entitled to
transfer such securities to such Person pursuant to Section 4.2. It shall be
deemed a breach of this Section 4.3(b) by a Stockholder Beneficially Owning more
than 10% of the Common Stock outstanding if any Prohibited Transferee shall
acquire, directly or indirectly, in a private sale Beneficial Ownership of more
than 331/3% of any class of equity securities or equity interest in, such
Stockholder and the Dobson Partnership shall not have Transferred any shares of
Company Stock to such Prohibited Transferee.
(c) Notwithstanding anything to the contrary contained in this
Agreement, the Dobson Partnership shall not, nor shall it permit any of its
Affiliates (other than the Company) to, sell any shares of Company Stock to a
Major Telecom Competitor, unless such Major Telecom Competitor makes an
irrevocable offer to AT&T and its Affiliates to purchase from them, at the same
price and otherwise on the same terms and conditions as the sale to such Major
Telecom Competitor by the Dobson Partnership or such Affiliate, up to all of the
shares of Company Stock Beneficially Owned by AT&T and its Affiliates. At any
time within 14 days after receipt by AT&T of the Tag-Along Notice with respect
to such sale, AT&T may accept such offer and, to the extent AT&T and its
Affiliates elect to accept such offer, concurrently with the consummation of any
such sale by the Dobson Partnership or such Affiliate, the sale of all of At&T's
shares of Tag-Along Stock in respect of which it accepted such offer shall be
consummated. The provisions of this Section 4.3(c) shall not apply to any
transferees or assigns of AT&T.
4.4 STOP-TRANSFER. The Company agrees not to effect any Transfer of
shares of Company Stock by any Stockholder whose proposed Transfer is subject to
Section 4.2 until it has received evidence reasonably satisfactory to it that
the rights provided to any other Stockholders pursuant to such Section, if
applicable to such Transfer, have been complied with and satisfied in all
respects. No Transfer of any shares of Preferred Stock and/or Common Stock shall
be made except in compliance with all applicable securities laws. Any Transfer
made in violation of this Agreement shall be null and void.
<PAGE>
4.5 DRAG ALONG RIGHTS. If at any time the Board of Directors shall
approve the sale or exchange (in a business combination or otherwise) by
Stockholders of Common Stock and Class D Preferred Stock and Class E Preferred
Stock of the Company in a bona fide arm's-length transaction to a third party
pursuant to an agreement that (i) treats equally, on an "as-if-converted basis,"
the value of all holders of Common Stock, Class D Preferred Stock and Class E
Preferred Stock, except as provided in the Restated Certificate of
Incorporation, (ii) is approved by the Board of Directors as fair to all
Stockholders, and (iii) which shall have been approved by Stockholders holding
50.1% of the outstanding Common Stock of the Company on an as-if-converted
basis, then, upon the written request of the Company, each Stockholder shall be
obligated to, and shall, if so requested by such third party, (a) sell, transfer
and deliver or cause to be sold, transferred and delivered to such third party,
shares of Common Stock and Preferred Stock owned by such Stockholder, and (b) if
Stockholder approval of the transaction is required, vote his, her or its shares
of Company Stock in favor thereof. Notwithstanding the previous sentence, a Cash
Equity Investor may not be obligated to sell any shares of Class D Preferred
Stock or Class E Preferred Stock unless it receives as consideration for such
shares at least their Liquidation Preference and it may not be obligated to sell
any shares of Common Stock unless all of the shares of Class D Preferred Stock
or Class E Preferred Stock then held by such Cash Equity Investors are to be
sold for cash in such transaction.
4.6 REDEMPTION RIGHTS. Subject to the terms of the Financing
Agreements and not giving rise to either a default or an event of default
thereunder, the Class D Preferred Stock (or Class E Preferred Stock) will be
redeemed within 90 days following the vote of holders of a majority of the
outstanding shares of the Class D Preferred Stock (or Class E Preferred Stock as
the case may be), at any time (a) after twelve years from the date of this
Agreement or (b) upon the completion of an IPO by the Company of Common Stock.
Upon redemption of Class D Preferred Stock, the holders of Class D Preferred
Stock so redeemed will receive a cash payment equivalent to the then current
Liquidation Preference per share plus the number of shares of Class A Common
Stock such holders would have received had they converted such Class D Preferred
Stock into shares of Class E Preferred Stock and Class A Common Stock
immediately prior to such redemption.
4.7 RIGHT OF FIRST REFUSAL FOR NEW SECURITIES; CAPITAL RAISING.
(a) The Company hereby grants to each of JWC and AT&T, on the
same terms and conditions, a right of first refusal, to the extent necessary to
maintain their ownership in the Company on a Fully Diluted Basis, to purchase
shares of any New Securities (as defined below) which the Company may, from time
to time, propose to issue and sell to private equity investors (and not through
a public offering or a private
<PAGE>
placement (which provides for registration within one year of issuance)/Rule
144A offering, which, together with any supplemental or additional offerings,
results in gross proceeds in excess of $50.0 million). Such right of first
refusal shall allow each of JWC and AT&T to purchase a pro rata portion
necessary to maintain such ownership on a Fully Diluted Basis of the New
Securities proposed to be issued, determined with reference to the aggregate
number of outstanding shares of Common Stock (on an as-if-converted basis) held
by JWC and AT&T as the case may be, before the proposed issuance of New
Securities. The right of first refusal granted hereunder may be exercised by
either of JWC or AT&T as to themselves and shall terminate if unexercised within
30 calendar days after receipt of notice from the Company to the Cash Equity
Investors.
(b) "New Securities" shall mean any authorized but unissued
shares, and any treasury shares, of preferred stock or common stock of the
Company and all rights, options or warrants to purchase common stock, and
securities of any type whatsoever that are, or may become, convertible into
common stock; PROVIDED, HOWEVER, that the term "New Securities" does not include
(i) shares of Common Stock or stock options issued to officers, employees,
directors, consultants of the Company or others in connection with their
services pursuant to a plan or plans approved by the Board of Directors; (ii)
securities issued upon conversion of shares of Class D Preferred Stock to Class
A Common Stock and Class E Preferred Stock or shares issued upon the conversion
of any Class G Preferred Stock for Class H Preferred Stock; (iii) securities
issued by the Company pursuant to the acquisition of another corporation by the
Company by merger, purchase of all or substantially all of the assets or other
reorganization whereby the Company shall become the owner of more than 50% of
the voting power of such corporation; (iv) shares of Common Stock issued in
connection with any stock split or stock dividend of the Company; (v) capital
stock (including warrants, options or other rights to purchase capital stock, or
that are convertible into or exchangeable for capital stock of the Company)
issued directly in connection with any borrowings or the incurrence of any
indebtedness by the Company or its Subsidiaries in connection with acquisitions
or capital projects; (vi) shares of Class A Common Stock issued pursuant to any
IPO in excess of $50.0 million (taken together with any supplemental or
additional offerings) or Rule 144A promulgated thereunder which provide for
registration of such Capital Stock within one year of their issuance; or (vii)
shares issuable upon exercise of the Sygnet PIK Preferred Stock Warrants.
(c) If the Company or any Subsidiary in the future proposes to
raise private equity capital it shall provide JWC with the terms of such
proposal prior to approaching other potential investors and shall grant JWC the
initial opportunity to make any such investment, PROVIDED that nothing herein
shall require the Company to enter into any agreement or sale with the Company
as to such private equity capital on terms less favorable than the prevailing
market terms and rates offered to comparable companies to the Company. If JWC
determines to provide such private equity capital,
<PAGE>
then JWC will make available to AT&T its pro rata portion thereof, determined by
reference to their respective holdings of Company Stock on a Fully Diluted Basis
in the Company at the Amendment and Restatement Date, on similar terms and
conditions as provided by JWC.
ARTICLE 5.
REGISTRATION RIGHTS
The Company will not grant registration rights for Company capital stock to
a Person other than the Cash Equity Investors on terms pari passu with or senior
to or more favorable than those granted to the Cash Equity Investors.
(a) DEMAND REGISTRATION RIGHTS.
(i) RIGHT TO DEMAND REGISTRATION. At any time following 180 days
after the IPO Date (or such longer period as may be reasonably required by the
managing underwriters of the Company's IPO) and (A) the Dobson Partnership
shall have the right to make one written request, and (B) JWC shall have the
right to make two written requests, and (C) AT&T shall have the right to make
one written request (each, a "Demanding Stockholder" and, collectively, the
"Demanding Stockholders") to the Company for registration with the Commission,
under and in accordance with the provisions of the Securities Act, of all or
part of their Registrable Securities pursuant to an underwritten offering (a
"Demand Registration"), which request shall specify the number of Registrable
Securities proposed to be sold in the offering; PROVIDED, HOWEVER, that (x) the
Company need not effect a Demand Registration unless the sale of the Registrable
Securities proposed to be sold by the Demanding Stockholder shall reasonably be
expected to result in aggregate gross proceeds of at least $25.0 million, and
(y) if the Board of Directors determines that a Demand Registration would
interfere with any pending or contemplated material acquisition, disposition,
financing or other material transaction, the Company may defer a Demand
Registration (including by withdrawing any Registration Statement filed in
connection with a Demand Registration); so long as that the aggregate of all
such deferrals shall not exceed ninety (90) days in any 360-day period. A Demand
Registration shall not be deemed a Demand Registration hereunder until such
Demand Registration has been declared effective by the Commission (without
interference by any stop order, injunction or other order or requirement of the
Commission or other governmental agency, for any reason), and maintained
continuously effective for a period of at least six (6) months or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such Demand Registration. A Demanding Stockholder may make a
written request for a Demand Registration in accordance with the foregoing in
respect of Company Stock that it intends to convert into shares of Common Stock
upon the
<PAGE>
effectiveness of the Registration Statement prepared in connection with such
demand, and the Company shall fulfill its obligations under this Article 5 in a
manner that permits such Demanding Stockholder to exercise its conversion rights
in respect of such Company Stock and substantially contemporaneously sell the
shares of Common Stock issuable upon such conversion under such Registration
Statement.
In addition to the rights set forth above, each of the Demanding
Stockholders shall have the right to demand that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for an offering of
Registrable Securities in which at least $15.0 million of gross proceeds are
reasonably expected therefrom, PROVIDED that the Company is not obligated to
participate in any "road-show" or exceptional marketing, diligence or other
efforts in connection with such offering. This additional demand registration
may be a one year "shelf-registration." The procedures and limitations for
effecting the registration of the Registrable Securities on Form S-3 (or any
successor form to Form S-3), including the procedure used for any underwriting
limitation, shall be as set forth in this Article 5.
Within ten (10) days after receipt of the request for a Demand
Registration, the Company will send written notice (the "Demand Notice") of such
Registration request and its intention to comply therewith to all Stockholders
who are holders of Registrable Securities and, subject to Section 5(a)(ii), the
Company will include in such Demand Registration all Registrable Securities of
such Stockholders with respect to which the Company has received written
requests for inclusion therein within twenty (20) days after the last date such
Demand Notice was deemed to have been given pursuant to Section 14.1.
(ii) PRIORITY ON REGISTRATION. If the managing underwriter or
underwriters advise the Company and the holders of the Registrable Securities to
be registered in writing that in its or their opinion the number of Registrable
Securities proposed to be sold in any Registration (including, without
limitation, a Piggyback Registration) and any other securities of the Company
requested or proposed to be included in such Registration exceeds the number
that can be sold in such offering without (A) creating a substantial risk that
the proceeds or price per share that will be derived from such Registration will
be materially reduced or that the number of Registrable Securities to be
registered is too large a number to be reasonably sold, or (B) materially and
adversely affecting such Registration in any other respect, the Company will (x)
include in such Registration the aggregate number of Registrable Securities
recommended by the managing underwriter (the number of Registrable Securities to
be registered for each Stockholder to be reduced FIRSTLY, against the Dobson
Partnership, SECONDLY, against the other Stockholders (other than JWC and AT&T)
and LASTLY, against JWC and AT&T; in each case PRO RATA based on the amount of
Registrable Securities of the Stockholders in the applicable class requested to
be included in such Registration), and (y) not allow any securities other than
Registrable Securities to be included in such
<PAGE>
Registration unless all Registrable Securities requested to be included shall
have been included therein, and then only to the extent recommended by the
managing underwriter or determined by the Company after consultation with an
investment banker of nationally recognized standing (notification of which
number shall be given by the Company to the holders of Registrable Securities).
(iii) SELECTION OF UNDERWRITERS. The offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of an underwritten offering. The Demanding Stockholder that initiated such
Demand Registration will select a managing underwriter or underwriters of
recognized national standing to administer the offering, which managing
underwriter or underwriters shall be reasonably acceptable to the Company.
(b) PIGGYBACK REGISTRATION RIGHTS.
RIGHT TO PIGGYBACK. If the Company proposes to register any
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) with the Commission under the Securities Act (other than a
Registration on Form S-4 or Form S-8, or any successor forms), and the
Registration form to be used may be used for the Registration of the Registrable
Securities (a "Piggyback Registration"), the Company will give written notice (a
"Piggyback Notice") to all Stockholders, at least thirty (30) days prior to the
anticipated filing date, of its intention to effect such a Registration, which
notice will specify the proposed offering price (if determined at that time),
the kind and number of securities proposed to be registered, the distribution
arrangements and will, subject to Section 5(a)(ii), include in such Piggyback
Registration all Registrable Securities with respect to which the Company has
received written requests (which requests have not been withdrawn) for inclusion
therein within twenty (20) days after the last date such Piggyback Notice was
deemed to have been given pursuant to Section 15.1. If at any time after giving
the Piggyback Notice and prior to the effective date of the Registration
Statement filed in connection with such Registration, the Company determines for
any reason not to register or to delay Registration, the Company may, at its
election, give written notice of such determination to each holder of
Registrable Securities that has requested inclusion of Registrable Securities in
such Registration and (A) in the case of a determination not to register, shall
be relieved of its obligation to register any Registrable Securities in
connection with such Registration, and (B) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities.
No Stockholder may obtain a Piggyback Registration on a Demand
Registration initiated by JWC or AT&T except that each of AT&T and JWC may
Piggyback on the Demand Registrations of the other; PROVIDED that, in such
circumstances, any reduction requested by the managing underwriter(s) in such
<PAGE>
registration in the number of Registrable Securities to be registered shall
first be applied to the party seeking to Piggyback on the Demand Registration.
(c) SELECTION OF UNDERWRITERS. Except as set forth in Section 5.1(a)(iii),
the Company (by action of the Board of Directors) will select the managing
underwriter or underwriters to administer offerings of its capital stock, which
managing underwriter or underwriters will be of nationally recognized standing.
(d) REGISTRATION PROCEDURES. With respect to any Demand Registration or
Piggyback Registration (each, a "Registration"), the Company shall, subject to
Sections 5(a)(i) and (5)(a)(ii) and Section 5(b)(i), as expeditiously as
practicable:
(i) prepare and file with the Commission, as promptly as
reasonably practicable (but in no event more than forty-five (45) days) after
the receipt of the Registration requests under Sections 5(a) or 5(b), a
registration statement or registration statements (each, a "Registration
Statement") relating to the applicable Registration on any appropriate form
under the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof; cooperate and assist in any filings required to be made
with the NASD; and use its reasonable best efforts to cause such Registration
Statement to become and (to the extent provided herein) remain effective;
PROVIDED, HOWEVER, that before filing a Registration Statement or prospectus
related thereto (a "Prospectus") or any amendments or supplements thereto, the
Company shall furnish to the holders of the Registrable Securities covered by
such Registration Statement and the underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the
reasonable review of such holders and underwriters and their respective counsel,
and the Company shall not file any Registration Statement or amendment thereto
or any Prospectus or any supplement thereto to which the holders of a majority
of the Registrable Securities covered by such Registration Statement or the
underwriters, if any, shall reasonably object;
(ii) prepare and file with the Commission such amendments and
supplements to the Registration Statement as may be necessary to keep each
Registration Statement effective for six (6) months (nine (9) months in the case
of any shelf registration requested by a Qualified Holder pursuant to this
Section 5) or such shorter period that will terminate when all Registrable
Securities covered by such Registration Statement have been sold; cause each
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to the
Prospectus;
<PAGE>
(iii) promptly notify the selling holders of Registrable
Securities and the managing underwriters, if any (and, if requested by any such
Person or entity, confirm such advice in writing), (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (B) of any request by the Commission for amendments
or supplements to the Registration Statement or the Prospectus or for additional
information; (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (D) if at any time the representations and
warranties of the Company contemplated by subsection (xiv) of this subsection
(d) below cease to be true and correct; (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and (F) of the happening of any event which makes any statement made in
the Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading;
(iv) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of (I) the Registration Statement, or
(II) the qualification of the Registrable Securities for sale under the
securities or blue sky laws of any jurisdiction at the earliest possible time;
(v) if requested by the managing underwriter or underwriters or
a holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and any other terms of the
underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(vi) furnish to each selling holder of Registrable Securities and
each managing underwriter, without charge, at least one signed copy of the
Registration Statement and any amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
<PAGE>
(vii) deliver to each selling holder of Registrable Securities
and the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such selling holder of Registrable Securities underwriters may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such selling holder;
(viii) prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify or cooperate with the
selling holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the Registration or qualification of such
Registrable Securities for offer and sale under the securities or "blue sky"
laws of such jurisdictions in the United States as any seller or underwriter
reasonably requests in writing, use its reasonable best efforts to obtain all
appropriate registrations, permits and consents required in connection
therewith, and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; PROVIDED, HOWEVER, that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would
subject it to taxation or general service of process in any such jurisdiction
where it is not then so subject;
(ix) cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and to be in such denominations and registered
in such names as the managing underwriters may request at least two (2) business
days prior to any sale of Registrable Securities to the underwriters;
(x) use its reasonable best efforts to cooperate with any
selling holder to cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary to
enable the seller or sellers thereof or the underwriters, if any, to consummate
the disposition of such Registrable Securities;
(xi) upon the occurrence of any event contemplated by subsection
(iii)(F) above, promptly prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
<PAGE>
(xii) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed, or, if not so listed, cause such
Registrable Securities to be authorized for trading on the NASDAQ National
Market System if any similar securities issued by the Company are then so
authorized, if requested by the holders of a majority of such Registrable
Securities or the managing underwriters, if any;
(xiii) not later than the effective date of the applicable
Registration, provide a CUSIP number for all Registrable Securities;
(xiv) enter into such customary agreements (including in the case
of a Demand Registration that is an underwritten offering, an underwriting
agreement in customary form) and take all such other actions reasonably required
in connection therewith in order to expedite or facilitate the disposition of
such Registrable Securities and in such connection, whether or not an
underwriting agreement is entered into and whether or not the Registration is an
underwritten Registration, (A) make such representations and warranties to the
holders of such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings; (B) use reasonable best efforts to obtain
opinions of counsel to the Company and updates thereof (which opinions of
counsel shall be in form, scope and substance reasonably satisfactory to the
managing underwriters, if any, and to the holders of a majority of the
Registrable Securities being sold), addressed to each selling holder and the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters; (C) use reasonable best efforts to
obtain "cold comfort" letters and updates thereof from the Company's independent
certified public accountants addressed to the selling holders of Registrable
Securities and the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort" letters
by underwriters in connection with primary underwritten offerings; and (D)
deliver such documents and certificates as may be reasonably requested by the
holders of a majority of the Registrable Securities being sold and the managing
underwriters, if any, to evidence compliance with subsection (xi) above and with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. All the above in this Section 5(d)(xiv)
shall be done at each closing under each underwriting or similar agreement or as
and to the extent required thereunder;
(xv) make available for inspection by a representative of each
Demanding Stockholder or selling holder, any underwriter participating in any
disposition pursuant to such Registration, and any attorney or accountant
retained by the sellers or underwriter, copies or extracts of all financial and
other records, pertinent
<PAGE>
corporate documents and properties of the Company as shall be reasonably
necessary, in the opinion of the holders' or underwriter's counsel, to enable
them to fulfill their due diligence responsibilities; and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or accountant in connection
with such Registration Statement; PROVIDED, HOWEVER, that the Company shall not
be required to comply with this paragraph (xv) unless such Person executes
confidentiality agreements whereby such person agrees that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such Persons and used only in
connection with the proposed Registration unless disclosure of such records,
information or documents is required by court or administrative order or any
regulatory body having jurisdiction; and each seller of Registrable Securities
agrees that it will, upon learning that disclosure of such records, information
or documents is sought in a court of competent jurisdiction or by a governmental
agency, give notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of any records,
information or documents deemed confidential; PROVIDED FURTHER, HOWEVER,
notwithstanding any designation of confidentiality by the Company, confidential
information shall not include information which (i) becomes generally available
to the public other than as a result of a disclosure by or on behalf of any such
Person, or (ii) becomes available to any such Person on a non-confidential basis
from a source other than the Company or its advisors, PROVIDED that such source
is not to such Person's knowledge bound by a confidentiality agreement with or
other obligations of secrecy to the Company or another party with respect to
such information;
(xvi) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to its security holders, earnings statements satisfying the provisions
of Section 11(a) of the Securities Act, no later than forty-five (45) days after
the end of any twelve (12)-month period (or ninety (90) days, if such period is
a fiscal year) (A) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm or best efforts
underwritten offering, or (B) if not sold to underwriters in such an offering,
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the Registration Statement, which statements shall
cover said twelve (12)-month periods; and
(xvii) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus (after
initial filing of the Registration Statement), provide copies of such document
to counsel to the selling holders of Registrable Securities and to the managing
underwriters, if any, make the Company's executive officers and other
representatives available for discussion of such document and make such changes
in such document prior to the filing thereof as counsel for such selling holders
or underwriters may reasonably request.
<PAGE>
The Company may require each seller of Registrable Securities
as to which any Registration is being effected to furnish to the Company such
information regarding the proposed distribution of such securities as the
Company may from time to time reasonably request in writing. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(d)(xi), such holder shall forthwith
discontinue disposition of Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
5(d)(xi), or until it is advised in writing (the "Advice") by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus; and, if so directed by the Company, such holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such seller's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company gives any such notice, the time periods regarding the maintenance of the
effectiveness of any Registration Statement in Section 5(d)(ii) shall be
extended by the number of days during the period from and including the date of
the receipt of such notice pursuant to Section 5(d)(iii)(F) hereof to and
including the date when each seller of Registrable Securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended prospectuses contemplated by Section 5(d)(xi) or the Advice.
(e) INDEMNIFICATION.
(i) In the event of the Registration or qualification of any
Registrable Securities under the Securities Act or any other applicable
securities laws pursuant to the provisions of this Section 5, the Company agrees
to indemnify and hold harmless each Stockholder thereby offering such
Registrable Securities for sale (an "Indemnified Stockholder"), underwriter,
broker or dealer, if any, of such Registrable Securities, and each other person,
if any, who controls any such Indemnified Stockholder, underwriter, broker or
dealer within the meaning of the Securities Act or any other applicable
securities laws, from and against any and all losses, claims, damages, expenses
or liabilities (or actions in respect thereof), joint or several, to which such
Indemnified Stockholder, underwriter, broker or dealer or controlling person may
become subject under the Securities Act or any other applicable federal or state
securities laws or otherwise, insofar as such losses, claims, damages, expenses
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement under which such Registrable Securities were
registered or qualified under the Securities Act or any other applicable
securities laws, any preliminary prospectus or final prospectus relating to such
Registrable Securities, or any amendment or supplement thereto, or
<PAGE>
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation under the Securities Act or any other applicable federal or state
securities laws applicable to the Company or relating to any action or inaction
required by the Company in connection with any such Registration or
qualification, and will reimburse each such Indemnified Stockholder,
underwriter, broker or dealer and each such controlling person for any legal or
other expenses reasonably incurred by such Indemnified Stockholder, underwriter,
broker or dealer or controlling person in connection with investigating or
defending any such loss, claim, damage, expense, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, expense or liability arises out of or is based
upon an untrue statement or omission contained in such Registration Statement,
such preliminary prospectus, such final prospectus or such amendment or
supplement thereto, made in reliance upon and in conformity with written
information furnished to the Company by such Indemnified Stockholder,
underwriter, broker, dealer or controlling person specifically and expressly for
use in the preparation thereof or by the failure of such Indemnified
Stockholder, underwriter, broker or dealer, or controlling person to deliver a
copy of the Registration Statement, such preliminary prospectus, such final
prospectus or such amendment or supplement thereto after the Company has
furnished such party with a sufficient number of copies of the same and such
party failed to deliver or otherwise provide a copy of the final prospectus to
the person asserting an untrue statement or omission or alleged untrue statement
or omission at or prior to the written confirmation of the sale of securities to
such person, if such statement or omission was in fact corrected in such final
prospectus.
(ii) In the case of an underwritten offering in which the
Registration Statement covers Registrable Securities, the Company agrees to
enter into an underwriting agreement in customary form and substance with such
underwriters and to indemnify the underwriters, their officers and directors, if
any, and each person, if any, who controls such underwriters within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act, to the
same extent as provided in the preceding paragraph with respect to the
indemnification of the holders of Registrable Securities; PROVIDED, HOWEVER, the
Company shall not be required to indemnify any such underwriter, or any officer
or director of such underwriter or any person who controls such underwriter
within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act, to the extent that the loss, claim, damage, expense or liability
(or actions in respect thereof) for which indemnification is sought results from
such underwriter's failure to deliver or otherwise provide a copy of the final
prospectus to the person asserting an untrue statement or omission or alleged
untrue statement or omission at or prior to the written confirmation of the sale
of securities to such person, if such statement or omission was in fact
corrected in such final prospectus.
<PAGE>
(iii) In the event of the Registration or qualification of any
Registrable Securities of the Stockholders under the Securities Act or any other
applicable federal or state securities laws for sale pursuant to the provisions
hereof, each Indemnified Stockholder agrees severally, and not jointly, to
indemnify and hold harmless the Company, each person who controls the Company
within the meaning of the Securities Act, and each officer and director of the
Company from and against any losses, claims, damages, expenses or liabilities
(or actions in respect thereof), joint or several, to which the Company, such
controlling person or any such officer or director may become subject under the
Securities Act or any other applicable securities laws or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of any material
fact contained in any Registration Statement under which such Registrable
Securities were registered or qualified under the Securities Act or any other
applicable securities laws, any preliminary prospectus or final prospectus
relating to such Registrable Securities, or any amendment or supplement thereto,
or arise out of or are based upon an untrue statement therein or the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, which untrue statement or omission was
made therein in reliance upon and in conformity with written information
furnished to the Company by such Indemnified Stockholder specifically and
expressly for use in connection with the preparation thereof, and will reimburse
the Company, such controlling person and each such officer or director for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, expense, liability or
action; PROVIDED, HOWEVER, an Indemnified Stockholder's liability under this
Section 5(e)(iii) shall not exceed the net proceeds received by such Indemnified
Stockholder with respect to the sale of any Registrable Securities.
(iv) In the case of an underwritten offering of Registrable
Securities, each holder of a Registrable Security included in a Registration
Statement shall agree to enter into an underwriting agreement in customary form
and substance with such underwriters, and to indemnify such underwriters, their
officers and directors, if any, and each person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act, to the same extent as provided in the preceding
paragraph with respect to indemnification by such holder of the Company, but
subject to the same limitation as provided in Section 5(e)(ii) with respect to
indemnification by the Company of such underwriters, officers, directors and
control persons.
(v) Promptly after receipt by a person entitled to
indemnification under this Section 5(e) (an "Indemnified Party") of notice of
the commencement of any action or claim relating to any Registration Statement
filed under this Section 5 as to which indemnity may be sought hereunder, such
Indemnified Party will, if a claim for indemnification hereunder in respect
thereof is to be made against any other party
<PAGE>
hereto (an "Indemnifying Party"), give written notice to each such Indemnifying
Party of the commencement of such action or claim, but the omission to so notify
each such Indemnifying Party will not relieve any such Indemnifying Party from
any liability which it may have to any Indemnified Party otherwise than pursuant
to the provisions of this Section 5(e) and shall also not relieve any such
Indemnifying Party of its obligations under this Section 5(e) except to the
extent that any such Indemnifying Party is actually prejudiced thereby. In case
any such action is brought against an Indemnified Party, and such Indemnified
Party notifies an Indemnifying Party of the commencement thereof, such
Indemnifying Party will be entitled (at its own expense) to participate in and,
to the extent that it may wish, jointly with any other Indemnifying Party
similarly notified, to assume the defense, with counsel reasonably satisfactory
to such Indemnified Party, of such action and/or to settle such action and,
after notice from the Indemnifying Party to such Indemnified Party of its
election so to assume the defense thereof, the Indemnifying Party will not be
liable to such Indemnified Party for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with the defense thereof, other
than the reasonable cost of investigation; PROVIDED, HOWEVER, that no
Indemnifying Party shall consent to the entry of any judgment or enter into any
settlement agreement without the prior written consent of the Indemnified Party
unless such Indemnified Party is fully released and discharged from any such
liability, and no Indemnified Party shall consent to the entry of any judgment
or enter into any settlement of any such action the defense of which has been
assumed by an Indemnifying Party without the consent of each Indemnifying Party.
Notwithstanding the foregoing, the Indemnified Party shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (a) the
employment of such counsel shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such suit, action, claim or
proceeding; (b) the Indemnifying Party shall not have employed counsel
(reasonably satisfactory to the Indemnified Party) to take charge of the defense
of such action, suit, claim or proceeding; or (c) such Indemnified Party shall
have reasonably concluded, based upon the advice of counsel, that there may be
defenses available to it which are different from or additional to those
available to the Indemnifying Party which, if the Indemnifying Party and the
Indemnified Party were to be represented by the same counsel, could result in a
conflict of interest for such counsel or materially prejudice the prosecution of
the defenses available to such Indemnified Party. If any of the events specified
in clause (a), (b) or (c) of the preceding sentence shall have occurred or shall
otherwise be applicable, then the fees and expenses of one counsel or firm of
counsel selected by a majority in interest of the Indemnified Parties (and
reasonably acceptable to the Indemnifying Party) shall be borne by the
Indemnifying Party. If, in any such case, the Indemnified Party employs separate
counsel, the Indemnifying Party shall not have the right to direct the defense
of such action, suit, claim or proceeding on behalf of the Indemnified Party and
the Indemnified Party shall assume such defense and/or settle such action;
PROVIDED, HOWEVER, that an Indemnifying Party shall not be liable for the
settlement of any action,
<PAGE>
suit, claim or proceeding effected without its prior written consent, which
consent shall not be unreasonably withheld.
The provisions of this Section 5(e) shall be in addition to
any liability which any party may have to any other party and shall survive any
termination of this Agreement.
(f) CONTRIBUTION. If for any reason the indemnification provided
for in Section 5(e)(i) or 5(e)(iii) is unavailable to an Indemnified Party as
contemplated therein, then the Indemnifying Party, in lieu of indemnification
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such loss, claim, damage, expense or liability (or action in respect
thereof) in such proportion as is appropriate to reflect not only the relative
benefits received by the Indemnified Party and the Indemnifying Party, but also
the relative fault of the Indemnified Party and the Indemnifying Party, as well
as any other relevant equitable considerations, PROVIDED that no Stockholder
shall be required to contribute in an amount greater than the net proceeds
received by such Stockholder with respect to the sale of any Registrable
Securities less all amounts already contributed by such Stockholder with respect
to such claims, including amounts paid for any legal or other fees or expenses
incurred by such Stockholder. No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of any such fraudulent
misrepresentation. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
(g) REGISTRATION EXPENSES. Except as hereinafter provided, all
expenses incident to the Company's performance of or compliance with this
Section 5 will be borne by the Company, including, without limitation, all
Registration and filing fees under the Securities Act and the Exchange Act, the
fees and expenses of the counsel and accountants for the Company (including the
expenses of any "cold comfort" letters and special audits required by or
incident to the performance of such persons), all other costs and expenses of
the Company incident to the preparation, printing and filing under the
Securities Act of the Registration Statement (and all amendments and supplements
thereto), and furnishing copies thereof and of the Prospectus included therein,
all out-of-pocket expenses of underwriters customarily paid for by issuers to
the extent provided for in any underwriting agreement, the costs and expenses
incurred by the Company in connection with the qualification of the Registrable
Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD, the costs and expenses of
<PAGE>
listing the Registrable Securities for trading on a national securities exchange
or authorizing them for trading on NASDAQ and all other costs and expenses
incurred by the Company in connection with any Registration hereunder. In
addition, the Company shall pay or reimburse the sellers of Registrable
Securities the reasonable fees and expenses of one law firm to such sellers
incurred in connection with a registration (collectively, with the expenses
referred to in the immediately preceding sentence, the "Registration Expenses").
Except as provided in the immediately preceding sentence, each Stockholder shall
bear the costs and expenses of any underwriters' discounts and commissions,
brokerage fees or transfer taxes relating to the Registrable Securities sold by
such Stockholder and the fees and expenses of any attorneys, accountants or
other representatives retained by the Stockholder.
(h) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Stockholder
may participate in any underwritten Registration hereunder unless such
Stockholder (i) agrees to sell its Registrable Securities on the basis provided
in any customary and reasonable underwriting arrangements approved by the
persons entitled hereunder to select the underwriter, and (ii) accurately
completes in a timely manner and executes all questionnaires, powers of
attorney, underwriting agreements, indemnities and other documents customarily
required under the terms of such underwriting arrangements.
(i) HOLDBACK AGREEMENTS.
(i) Each holder of Registrable Securities whose securities
are included in a Registration Statement agrees not to effect any sale, transfer
or other disposition of Company Stock or any securities convertible into Company
Stock or other interest in the Company, including through any hedging or
derivative transaction or to effect any distribution of the issue being
registered or a similar security of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act, during the fifteen
(15) days prior to, and during the one hundred eighty (180)-day period (or such
longer period as reasonably requested by the managing underwriter or
underwriters in the case of an underwritten public offering) beginning on, the
effective date of such Registration Statement (except as part of such
Registration), if and to the extent requested by the managing underwriter or
underwriters in an underwritten public offering.
(ii) The Company agrees not to effect any public sale or
distribution of the issue being registered or a similar security of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities (other than any such sale or distribution of such securities in
connection with any merger or consolidation by the Company or any Subsidiary or
the acquisition by the Company or any Subsidiary of the capital stock or
substantially all of the assets of any other Person), during the fifteen (15)
days prior to, and during the ninety (90)-day period beginning on, the effective
date of each Demand Registration.
<PAGE>
(j) PUBLIC INFORMATION REPORTING. (i) The Company hereby covenants
and agrees to and with the Stockholders that at all times following the IPO Date
it shall provide and file such financial and other information concerning the
Company as may from time to time be required by the Commission and any other
governmental authority having jurisdiction, so as to comply with all reporting
requirements under the Exchange Act, and shall, upon request, state in writing
that it has complied with all such requirements, and further agrees that, for so
long as (following the IPO Date) the Company is not subject to Section 13 or
15(d) of the Exchange Act, the Company shall comply in all respects with
paragraph (c)(2) of Rule 144.
(ii) If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements. Upon the request
of a holder of Registrable Securities, the Company covenants and agrees to
provide the information required by Rule 144A(d)(4) under the Securities Act.
ARTICLE 6.
ADDITIONAL RIGHTS AND COVENANTS
6.1 WHOLLY-OWNED SUBSIDIARIES. All of the Company's Subsidiaries shall
be direct or indirect wholly owned Subsidiaries of the Company, and the Company
shall not, and shall not permit any Subsidiary to, sell or issue, transfer,
encumber or otherwise dispose of any shares of capital stock of any of the
Company's Subsidiaries to any Person other than the Company and its direct or
indirect wholly owned Subsidiaries, except for a pledge of any such shares in
connection with the incurrence of indebtedness.
<PAGE>
6.2 AMENDMENTS OF THE RESTATED CERTIFICATE AND BY-LAWS. Prior to the
IPO Date, the Company shall not authorize or adopt any amendment, modification
or repeal of any provision of the Restated Certificate or the Restated By-Laws,
unless such amendment is consistent with the terms of this Agreement, and the
Restated Certificate and has been approved by a majority of directors of the
Board of Directors.
6.3 CONFIDENTIALITY.
(a) Each party shall, and shall cause each of its Affiliates, and
its and their respective stockholders, members, managers, directors, officers,
employees and agents (collectively, "Representatives") to, keep secret and
retain in strictest confidence any and all information relating to the Company
or any other party that is either a trade secret or material, non-public
information or is designated in writing by the party providing such information
or the Company as confidential (other than, in each case, such information as is
otherwise or becomes publicly available (other than in violation of this
Agreement or other applicable confidentiality agreements among the parties), or
has been or is independently developed or obtained from a person in a manner not
in violation of this Agreement or, to its knowledge, any other confidentiality
agreement) ("Confidential Information") and shall not disclose such information,
and shall cause its Representatives not to disclose such information, to anyone
except such Affiliates, Representatives or any other Person that agrees in
writing to keep in confidence all such information in accordance with the terms
of this Section 6.3. Each party agrees to use such information received from
another party or the Company only in connection with its ownership interest in
the Company but not for any other purpose. All such information furnished
pursuant to this Agreement shall be returned promptly to the party to whom it
belongs upon request by such party.
(b) To the fullest extent permitted by law, if a party or any of
its Affiliates or Representatives breaches, or threatens to commit a breach of,
this Section 6.3, the party whose Confidential Information shall be disclosed,
or threatened to be disclosed, shall have the right and remedy to have this
Section 6.3 specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that money damages will not provide an adequate remedy
to such party. Nothing in this Section 6.3 shall be construed to limit the right
of any party to collect money damages in the event of breach of this Section
6.3.
(c) Anything else in this Agreement notwithstanding, each party
shall have the right to disclose any information, including Confidential
Information of the other party or such other party's Affiliates, in any filing
with any regulatory agency, court or other authority or any disclosure to a
trustee of public debt of a party to the extent that the disclosing party
determines in good faith that it is required by Law, regulation or the terms of
such debt to do so; PROVIDED, HOWEVER, that any such disclosure shall be as
limited in scope as possible and shall be made only after giving
<PAGE>
the other party as much notice as practicable of such required disclosure and an
opportunity to contest such disclosure if possible.
6.4 SALE OF LOGIX COMMUNICATIONS STOCK. If JWC or AT&T proposes to
sell any number of shares of Logix Communications Common Stock which sale would
result in a reduction in the ownership interest of JWC or AT&T in Logix
Communications below 35% of the JWC or AT&T Logix Communications ownership
interest, as the case may be, on the Logix Communications Spin-Off (calculated
with reference only to shares of Logix Communications issued with respect to the
Class D Preferred Stock (or any Class A Common Stock or other capital stock
issued with respect thereto other than the JWC Common Stock held as of the
Amendment and Restatement Date), JWC or AT&T, as the case may be, shall give 10
Business Days' written notice thereof to the Company (the "Section 6.4 Notice
Period") and during such Section 6.4 Notice Period the Company may elect to
purchase such Logix Communications Common Stock at a price which is the Market
Price thereof. In the event the Company elects to purchase such Logix
Communications Common Stock, it shall have 30 days (or such longer period as may
be necessary under the Appraisal Procedure) from the date of receipt of the
written notice from JWC or AT&T, as the case may be, in which to purchase such
Logix Communications Common Stock. This purchase right shall terminate upon the
earliest to occur of (i) the consummation by Logix Communication of an initial
public offering of its common stock with aggregate gross proceeds of at least
$50 million, (ii) December 23, 2003, (iii) the exercise by the Stockholders of
the call right pursuant to the terms of Article 11, or (iv) the expiration of
the call right pursuant to the terms of Article 11.
6.5 CLASS PROTECTION. The Company shall not, without first obtaining
consent or approval of the holders of at least a majority of the holders of each
affected class of Company Stock (including each of JWC and AT&T, if they are
holders of such class of Company Stock), voting as a separate class: (i)
adversely amend or alter any preferences, rights or powers of any such class of
Company Stock; or (ii) redeem, repurchase or pay any dividends on any junior
stock or parity stock, except for repurchases of stock or stock options issued
to management, employees or consultants which do not exceed $500,000 in any
fiscal year of the Company or in any event $1,500,000 in the aggregate.
6.6 NEW SECURITIES. (a) Subject to the terms of the Class D Preferred
Stock Certificate of Designation, any Common Stock (other than JWC Common Stock)
and any Logix Communications Common Stock issued to holders of Class D Preferred
Stock shall receive anti-dilution protection, as determined reasonably in good
faith by the Board of Directors to protect the holders thereof in connection
with (i) dilution from the issuance or the exercise of warrants issued in
connection with the Sygnet Acquisition, (ii) any dilution relating to options
then issued or committed as of the Closing Date under the New Company Stock
Option Plan, (iii) any dilution resulting
<PAGE>
from the issuance of options with respect to an aggregate maximum of 5% of the
Logix Communications Stock, (iv) the redemption of all shares of Class B
Preferred Stock and Class C Preferred Stock pursuant to the terms of the
Investment and Transaction Agreement and (v) dilution relating to the conversion
of the Class G Preferred Stock into Class H Preferred Stock and Class A Common
Stock.
(b) Without the prior written consent of JWC (except where any such
issuance would not have a dilutive effect on JWC's Beneficial Ownership interest
in either the Common Stock (including Common Stock issuable upon conversion of
Class D Preferred Stock) or the Logix Communications Common Stock, or both) (as
determined reasonably and in good faith by the Board of Directors) the Company
shall not (i) issue any options pursuant to the New Company Stock Option Plan
other than such options as are committed on the Closing Date, or (ii) issue
options with respect to more than 5% in the aggregate of Logix Communications
Common Stock.
6.7 LOGIX COMMUNICATIONS SPIN-OFF. (a) Upon the consummation of the
Logix Communications Spin-Off, the holders of Class D Preferred Stock and the
holders of Class E Preferred Stock (including Common Stock issuable upon
conversion of Class D Preferred Stock) shall immediately receive their PRO RATA
share, calculated on a Fully Diluted Basis, of such number of shares of Class A
Common Stock equal to the value of the 4,454 options to purchase shares of Class
C Common Stock outstanding on the Closing Date (the "Wireless Options"), as
determined reasonably and in good faith by the Board of Directors (the "Wireless
Option Value Shares").
(b) In the event that the Logix Communications Spin-Off is not
consummated, the holders of Class D Preferred Stock and the holders of Class E
Preferred Stock will receive, immediately prior to the consummation of a
Liquidity Event, Wireless Option Value Shares plus their PRO RATA share,
calculated on a Fully- Diluted Basis as determined reasonably, and in good faith
by the Board of Directors, of Class A Common Stock equal to the value of Logix
Communications stock options that are issued (up to a maximum of 5% of Logix
Communications Common Stock).
(c) An example of the implementation and intent of this Section 6.7 is
set forth on Exhibit E hereto.
6.8 REGULATION M. In the event of any IPO, the Cash Equity Investors
shall not sell, transfer or otherwise dispose any Company Stock or purchase
Company Stock or securities convertible into Company Stock or any interests in
the Company, or otherwise engage in any transaction that would involve a
prohibited market manipulation, whether under Regulation M under the Securities
Act, or otherwise.
6.9 (a) POOLING OF INTERESTS. In the event that the Company is sold in
a transaction involving a "pooling of interests" transaction, for a period of
not more than
<PAGE>
90 days following consummation of such transaction, no Stockholder shall sell,
transfer or otherwise dispose of any Company Stock, securities convertible into
Company Stock or any other interest in the Company, if any such sale, transfer
or other disposition would limit or deny the applicability of the treatment of
such pooling of interests.
(b) In the event of the Logix Communications Spin-Off, the Company
shall enter into a stockholders agreement with the stockholders of Logix
Communications, substantially similar to this Agreement except that there shall
be no transfer restrictions analogous to Section 4.1
6.10 OTHER TAX MATTERS. JWC and AT&T intend that (i) pay in kind
dividends on the Class D Preferred Stock when paid and (ii) any constructive
distribution on the Class D Preferred Stock when deemed paid, will not be
includible in JWC's or AT&T's gross income for Federal, state or local tax
purposes. Accordingly, unless the Company reasonably concludes in good faith
that it cannot make or file any tax return that is consistent with the
Purchaser's intention in the preceding sentence, the Company shall not make or
file any tax return that is inconsistent with such intention. In the event the
Company concludes it is required to file any tax return that is inconsistent
with the Purchaser's intention in the preceding sentence, the Company will
notify JWC and AT&T at least 60 days before filing such return and will attempt,
through discussions with the holders and their representatives, to reach mutual
agreement on such filing requirement.
6.11 CLASS A PREFERRED STOCK TRANSFER RESTRICTION. In the event that
any share of Class D Preferred Stock or Class E Preferred Stock is at any time
outstanding and held by JWC or AT&T, (A) the Class A Preferred Stock held by
Dobson Operating Company as of December 23, 1998 shall not be transferred,
directly or indirectly, to any Person; PROVIDED, HOWEVER, that such shares of
Class A Preferred Stock may be transferred at any time (i) by Dobson Operating
Company to any wholly owned Subsidiary of the Company and (ii) by any
wholly-owned Subsidiary of the Company to any other wholly-owned Subsidiary of
the Company, and (B) such shares of Class A Preferred Stock must be owned by a
wholly-owned Subsidiary of the Company.
6.12 ADDITIONAL COVENANTS. The Company covenants to AT&T and JWC that
so long as AT&T Beneficially Owns at least 50% or JWC owns at least 35% of the
Class D Preferred Stock (or Class E Preferred Stock or Class A Common Stock
received upon conversion thereof) each respectively holds as of the Amended and
Restated Date, the Company will comply, and the Company will cause each of the
Subsidiaries to comply, with the following provisions unless otherwise consented
to in writing by each of AT&T (except in the case of Sections 6.12.9, 6.12.10
and 6.12.12, where the consent of AT&T or any director designated by AT&T shall
not be required) and JWC so long as they continue to own the percentage amounts
of their respective investments stated herein.
<PAGE>
6.12.1 RECORDS AND ACCOUNTS. Each of the Company and the Subsidiaries
will keep true and accurate records and books of account in which full, true and
correct entries will be made in accordance with GAAP and in all other respects
consistent with industry practices.
6.12.2 EXISTENCE; RELATED SECURITIES; MAINTENANCE OF PROPERTIES. Each
of the Company and the Subsidiaries will preserve and keep in full force and
effect and in good standing its corporate or partnership existence, as the case
may be, rights and franchises except for any combination or merger with and into
the Company or a Subsidiary or where the failure to do so would not have a
Material Adverse Effect.
6.12.3 INSURANCE. Each of the Company and the Subsidiaries will maintain
with financially sound and reputable insurance companies, funds or underwriters
insurance of the kinds, covering the risks and in the relative proportionate
amounts usually carried by reasonable and prudent companies conducting
businesses similar to that of the Company and the Subsidiaries, except where the
failure to do so would not have a Material Adverse Effect.
6.12.4 TAXES. Each of the Company and the Subsidiaries will pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue, all Taxes, assessments and other governmental charges imposed upon it
and its real properties, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials or
supplies, which if unpaid might by law become a Lien upon any of their
properties and would have a Material Adverse Effect; PROVIDED, HOWEVER, that any
such Tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if the Company or the applicable Subsidiary shall have set aside
on its books adequate reserves with respect thereto; and PROVIDED, FURTHER, that
the Company and the applicable Subsidiary will pay or cause to be paid all such
Taxes, assessments, charges, levies or claims forthwith upon the commencement of
foreclosure on any Lien which may have attached as security therefor.
6.12.5 INSPECTION OF PROPERTIES AND BOOKS. Each of the Company and the
Subsidiaries shall permit each of AT&T or JWC, or any of their designated
representatives, at the Company's cost, to visit and inspect any of its
properties, to examine its books of account (and to make copies thereof and
extracts therefrom), and, upon reasonable notice, to discuss its affairs,
finances and accounts with, and to be advised as to the same by, officers or
partners of such Persons, all at such times and intervals during normal business
hours and after reasonable notice as AT&T or JWC may reasonably request,
PROVIDED, that in no event shall any such visit, inspection, examination,
discussion or advice interfere in any material respect in the business or other
operations of the Company or any of its employees, representatives or officers.
<PAGE>
6.12.6 COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS. Each of
the Company and the Subsidiaries will comply in all material respects with (a)
all FCC laws and regulations, all Oklahoma Corporations Commission laws and
regulations and all other material laws and regulations wherever its business is
conducted, (b) the provisions of its Restated Certificate and Restated Bylaws,
(c) all other material agreements and instruments by which it or any of its
properties may be bound (including, without limitation, the Related Agreements
and the agreements, documents and instruments executed and delivered by it in
connection with the Financing Agreements), (d) all applicable decrees, orders
and judgments, and (e) all required FCC and Oklahoma Corporations Commission
approvals, permits and licenses and all other material approvals, permits and
licenses, if, in the case of clauses (a), (c) and (e) , the failure to comply
would have a Material Adverse Effect.
6.12.7 EMPLOYEE BENEFIT PLANS. Neither the Company nor any ERISA
Affiliate will:
(a) engage in any "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code;
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA,
whether or not such deficiency is or may be waived;
(c) fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which, could
result in the imposition of a lien or encumbrance on the assets of the
Company or any of the Subsidiaries pursuant to Section 302(f) or Section
4068 of ERISA; or
(d) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of Section 4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of
such Plans, disregarding for this purpose the benefit liabilities and
assets of any such Plan with assets in excess of benefit liabilities,
if, in each such case, such action or failure would have a Material Adverse
Effect.
The Company will (i) promptly upon filing the same with the Department of Labor
or Internal Revenue Service, furnish to each of the Purchasers a copy of the
most recent actuarial statement required to be submitted under Section 103(d) of
ERISA and Annual Report, Form 5500, with all required attachments, in respect of
each Guaranteed Pension Plan, and (ii) promptly upon receipt or dispatch,
furnish to each Purchaser any notice, report or demand sent or received in
respect of a Guaranteed Pension Plan
<PAGE>
under Sections 302, 4041, 4042, 4043, 4065, 4066 and 4068 of ERISA, or in
respect of a Multiemployer Plan, under Section 4041A, 4202, 4219, 4242 or 4245
of ERISA.
6.12.8 DISTRIBUTIONS. The Company shall not make any distribution except
(a) repurchases of management, employee or consultant stock and options 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 (other than stock
and options owned, directly or indirectly, by members of the Dobson family
unless approved by two of the three directors selected in clauses (i), (ii) or
(iv) of Section 3.1(a) of this Agreement), (b) the sale or redemption of up to
$25.0 million in aggregate principal amount now held by Dobson Partnership of
Company securities, plus any accrued and unpaid dividends thereon, in one
transaction or a series of transactions; PROVIDED that no financing or
refinancing by the Company in connection with any such redemption or sale may
have an interest rate in excess of 14% per annum (the "Rate Cap"); and PROVIDED,
FURTHER, that after the first anniversary of the date hereof, the Rate Cap will
not apply to any financing or refinancing to the extent that the Company has met
or exceeded its EBITDA projections as set forth in the budget attached as
Exhibit D to the Investment and Transaction Agreement, for the previous four
fiscal quarters, (c) required distributions in respect of Senior PIK Preferred
Stock and Class F Preferred Stock (and related warrants and warrant shares), (d)
distributions provided by the Restated Certificate, (e) distributions required
or permitted by this Agreement, including the put and call provisions therein,
and (f) the Logix Communications Spin-Off.
6.12.9 MERGER, CONSOLIDATION, SALE OF ASSETS OR OTHER DISPOSITIONS.
Neither the Company nor any Subsidiary will become a party to any merger or
consolidation, or sell, lease, sublease or otherwise transfer or dispose of any
shares of or other equity interests in a Subsidiary or any substantial portion
of its assets, rights and licenses to any Person, or turn over the management
of, or enter into any management contract with respect to, any of its assets,
properties, rights or licenses, whether directly or indirectly or in a single
transaction or a series of related transactions, without the approval by a vote
of 50.1% of the Board of Directors, or, in the case of any such transaction
involving 10% or more of the Company's consolidated assets or consolidated POPs
as of the end of the most recently completed fiscal quarter, the unanimous
approval by the Company Board of Directors (excluding any directors designated
pursuant to Sections 3.1(a)(ii) and 3.1(a)(iv)), PROVIDED, that the foregoing
will not apply to (a) any pledges, Liens or security interests in connection
with Company financing or the Sygnet Acquisition, (b) any merger, consolidation,
sale, lease, sublease, transfer or disposition solely among or involving the
Company and/or its Subsidiaries, (c) the Logix Communications Spin-Off, (d)
management stock options and incentives approved by the Company's Board of
Directors, and (e) transactions in the ordinary course of business.
6.12.10 SALE AND LEASEBACK OF PROPERTY. Neither the Company nor any
<PAGE>
Subsidiary will enter into any arrangement, directly or indirectly, with any
Person whereby it shall sell or transfer any property, whether real, personal or
a combination thereof, used or useful in its business, whether now owned or
hereinafter acquired, and thereafter rent or lease such property, without the
approval by a vote of 50.1 % of the Board of Directors, or, in the case of any
such transaction involving 10% or more of the Company's consolidated assets or
consolidated POPs as of the end of the most recently completed fiscal quarter,
the unanimous approval by the Company Board of Directors (excluding any
directors designated pursuant to Sections 3.1(a)(ii) and 3.1(a)(iv)), PROVIDED
that no such approval shall be required in connection with the sale and
leaseback by the Company or any Subsidiary of cellular towers owned by Sygnet
Communications, Inc. prior to its acquisition by the Company
6.12.11 INVESTMENTS. The Company will not, and will not permit any
Subsidiary to, have outstanding or acquire or commit itself to acquire or hold
any investment except investments in: (a) marketable direct obligations issued
or guaranteed by the United States of America which mature within one year from
the date of acquisition thereof or which are subject to a repurchase agreement,
exercisable within 90 days from the date of acquisition of such agreement, with
any commercial bank or trust company incorporated under the laws of the United
States of America or any State thereof or the District of Columbia, (b)
commercial paper maturing within one year from the date of acquisition thereof
and having, at the date of acquisition thereof, the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Ratings Services,
Inc., (c) bankers' acceptances eligible for rediscount under Federal Reserve
Board requirements accepted by any commercial bank or trust company referred to
in clause (a) hereof, (d) certificates of deposit maturing within one year from
the date of acquisition thereof issued by any commercial bank or trust company
referred to in clause (a) hereof and having capital and surplus of at least
$500,000,000, (e) certificates of deposit issued by banks organized under the
laws of any other jurisdiction, each having combined capital and surplus of not
less than $500,000,000, (f) investments by the Company and each Subsidiary
existing on the date of this Agreement, (g) investments by the Company and its
Subsidiaries in the Company or in Subsidiaries of the Company, (h) investments
up to $25,000,000 in aggregate, and (i) investments permitted by the Company's
Financing Agreements.
6.12.12 MERGER, CONSOLIDATION OR OTHER ACQUISITIONS. Neither the Company
nor any Subsidiary shall directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with, any Person without the
approval of 50.1 % of the Board of Directors, or, in the case of any such
transaction involving 10% or more of the Company's consolidated assets or
consolidated POPs as of the end of the most recently completed fiscal quarter,
the unanimous approval of the Company Board of Directors (excluding any
directors designated pursuant to Sections 3.1(a)(ii) and 3.1(a)(iv)), PROVIDED,
that the foregoing will not apply to (a) any merger, consolidation or
<PAGE>
acquisition solely among or involving the Company and/or its Subsidiaries, (b)
capital expenditures or capital projects approved by the Board of Directors, and
(c) transactions in the ordinary course of business.
6.13 INFORMATION COVENANTS. The Company hereby agrees that so long as
any shares of the Preferred Stock or any shares of the Common Stock are held by
either AT&T or JWC, it will comply with, and it will cause each Subsidiary to
comply with, the following provisions:
6.13.1 ANNUAL STATEMENTS. (a) As soon as available and in any event
within 90 days after the close of each fiscal year of the Company, the Company
will deliver to each of AT&T and JWC, audited consolidated and unaudited
consolidating balance sheets and statements of income and retained earnings and
of cash flows of the Company audited by Arthur Andersen, L.L.P. or any other
public accounting firm selected by the Company and reasonably acceptable to AT&T
and JWC, showing the financial condition of the Company as of the close of such
fiscal year and the results of the Company's operations during such fiscal year,
all on a consolidated basis.
(b) Each of the financial statements delivered pursuant to
this SECTION 6.13.1 shall be certified without qualification by the applicable
accounting firm to have been prepared in accordance with GAAP consistently
applied.
6.13.2 QUARTERLY STATEMENTS. Within forty-five (45) days after the end
of each quarter, the Company will deliver to each of AT&T and JWC consolidated
and consolidating unaudited balance sheets and statements of income and retained
earnings and of cash flows of the Company as of the end of each such quarter and
for the period of the then current fiscal year to the end of such month, and
presenting on a comparative basis the corresponding figures for such period in
the preceding fiscal year and the then current Budget (as defined below), in
each case by region, certified by the Chief Financial Officer of the Company to
be true and correct and to have been prepared in accordance with GAAP subject to
normal year-end adjustments described in reasonable detail.
6.13.3 BUDGETS AND OTHER REPORTS. (a) The Company will deliver to each
of AT&T and JWC, prior to the commencement of each fiscal year project spending
and capital budgets for the succeeding fiscal year, projected monthly statements
of income and cash flow for such fiscal year (the "Budget"), projected quarterly
balance sheets for such fiscal year and as soon as practical after preparation
thereof, complete and correct copies of all quarterly (if any) or annual
budgetary analyses or forecasts of the Company and the Subsidiaries in the form
customarily prepared by management for its own internal use or the use of the
Company. The Company, AT&T and JWC shall once each calendar year, conduct an
annual off-site meeting to review the Company's projections and business plans
with respect to such fiscal year.
<PAGE>
(b) The Company shall also furnish to each of AT&T and JWC (i)
within five (5) days of the Company's receipt thereof, copies of all management
letters of the Company's accountants; (ii) within five (5) days of the Company's
receipt thereof, notice with respect to any material pending or threatened
litigation to which the Company or any Subsidiary is or may become a party;
(iii) within five (5) days of the Company's receipt thereof, notice of any
default or event of default with respect to any material agreement to which the
Company or any Subsidiary is a party; (iv) within five (5) days of the filing
thereof, copies of all material filings made by or on behalf of the Company or
any Subsidiary with any governmental regulatory agency; and (v) such other
information as either AT&T or JWC may reasonably request from time to time.
(c) Within thirty (30) days after the end of each calendar
month, the Company will deliver to each of AT&T and JWC monthly and year-to-date
summaries, in a form and to the same extent prepared by the Company management
on a consolidated basis broken down for each market in which the Company or any
Subsidiary operates any System compared on a monthly and year-to-date basis to
the Company's Budget, of the following: (a) number of POPs, (b) number of
subscribers, (c) gross activations, (d) net activations, (e) deactivations (and
setting forth the reason therefor), (f) acquisition cost per gross activation,
(g) average monthly revenue per subscriber, (h) total number of roaming minutes,
(i) total roaming revenue and (j) any other reasonable information which either
AT&T or JWC may request from time to time.
ARTICLE 7.
EXCLUSIVITY
7.1 EXCLUSIVITY. Prior to the earlier of December 23, 2003 or the date
on which the relevant Cash Equity Investor Beneficially Owns less than 50% of
the Common Stock it Beneficially Owns as of the Amendment and Restatement Date
on an "as-if converted" basis, none of the Stockholders or their respective
Affiliates will provide or resell, or act as the agent for any Person offering,
within the Territory, mobile wireless telecommunications services that compete
with those provided by the Company using wireless technologies and frequencies
licensed by the FCC without the Company's prior written consent. Nothing in this
Article 7 shall (i) prohibit JWC or its Affiliates from providing such services
in any part of the Territory in which the Company did not provide such services
at the time that JWC or its Affiliates initially began providing them or (ii)
restrict the ability of limited partners of any of JWC or its Affiliates to
invest in Persons engaged, directly or indirectly, in the mobile wireless
telecommunications industry. Anything to the contrary herein, the terms of this
Section 7.1 shall not apply to AT&T and its Affiliates (but nothing in this
proviso shall relieve AT&T's assigns and transferees that are not Affiliates of
AT&T from the operation of
<PAGE>
this Section 7.1).
ARTICLE 8.
AFTER-ACQUIRED SHARES; RECAPITALIZATION; INVESTMENT AND TRANSACTION AGREEMENT
8.1 AFTER ACQUIRED SHARES; RECAPITALIZATION; INVESTMENT AND
TRANSACTION AGREEMENT.
(a) Except as expressly set forth herein, all of the
provisions of this Agreement shall apply to all of the shares of Company Stock
now owned or hereafter issued or transferred to a Stockholder or to his, her or
its Affiliated Successors as a consequence of any additional issuance,
conversion, purchase, exchange or reclassification of shares of Company Stock,
corporate reorganization, or any other form of recapitalization, or
consolidation, or merger, or share split, or share dividend, or which are
acquired by a Stockholder or its Affiliated Successors in any other manner.
(b) Whenever the number of outstanding shares of Company Stock
is changed by reason of a stock dividend or a subdivision or combination of
shares effected by a reclassification of shares, each specified number of shares
referred to in this Agreement shall be adjusted accordingly.
8.2 AMENDMENT OF RESTATED CERTIFICATE. Whenever the number of shares
of authorized Common Stock is not sufficient in order to issue shares of Common
Stock upon conversion of Class D Preferred Stock and Class G Preferred Stock or
upon exercise of the Class F Preferred Stock Warrants in accordance with the
Restated Certificate and the Certificates of Designation, (i) the Company shall
promptly amend the Restated Certificate in order to authorize a sufficient
number of shares of Common Stock, and (ii) each Stockholder agrees to vote its
shares of Preferred Stock and Common Stock in favor of such amendment.
8.3 INVESTMENT AND TRANSACTION AGREEMENT. Each of the parties to the
Investment and Transaction Agreement hereby amend such Agreement by terminating
and deleting Articles V and VI thereof and all sections therein.
ARTICLE 9.
SHARE CERTIFICATES
9.1 RESTRICTIVE ENDORSEMENTS; REPLACEMENT CERTIFICATES. (a) Each
certificate representing the shares of Company Stock now or hereafter held by a
Stockholder
<PAGE>
(including any such certificate delivered upon conversion of the
Preferred Stock) or delivered in substitution or exchange for any of the
foregoing certificates shall be stamped with legends in substantially the
following form:
The shares represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended (the "Act"), or under any state securities or "Blue
Sky" laws. Said securities may not be sold, transferred, assigned,
pledged, hypothecated or otherwise disposed of, unless and until
registered under the Act and the rules and regulations thereunder and
all applicable state securities or "Blue Sky" laws or exempted
therefrom under the Act and all applicable state securities or "Blue
Sky" laws.
The shares represented by this Certificate are also subject to a
Stockholder and Investor Rights Agreement, a copy of which is on file
at the offices of the Company and will be furnished by the Company to
the holder hereof upon written request. Such Stockholder and Investor
Rights Agreement provides, among other things, for the granting of
certain restrictions on the sale, transfer, pledge hypothecation or
other disposition of the shares represented by this Certificate, and
that under certain circumstances, the holder hereof may be required to
sell the shares represented by this Certificate. By acceptance of this
Certificate, each holder hereof agrees to be bound by the provisions of
such Stockholder and Investor Rights Agreement. The Company reserves
the rights to refuse to transfer the shares represented by this
Certificate unless and until the conditions to transfer set forth in
such Stockholder and Investor Rights Agreement have been fulfilled.
Each Stockholder agrees that he, she or it will deliver all
certificates for shares of Company Stock owned by him, her or it to the Company
for the purpose of affixing such legends thereto.
(b) Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificate
representing shares of Company Stock subject to this Agreement and of a bond or
other indemnity reasonably satisfactory to the Company, and upon reimbursement
to the Company of all reasonable expenses incident thereto, and upon surrender
of such certificate, if mutilated, the Company will make and deliver a new
certificate of like tenor in lieu of such lost, stolen, destroyed or mutilated
certificate.
<PAGE>
ARTICLE 10.
EQUITABLE RELIEF
10.1 EQUITABLE RELIEF. The parties hereto agree and declare that legal
remedies may be inadequate to enforce the provisions of this Agreement and that,
in addition to being entitled to exercise all of the rights provided herein or
in the Restated Certificate or granted by law, including recovery of damages,
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
ARTICLE 11.
STOCKHOLDER CALL RIGHT
11.1 STOCKHOLDER CALL RIGHT. The Dobson Partnership and the other
Stockholders (other than JWC, JWC Group Stockholders and AT&T) (including
optionholders under the New Company Stock Option Plan at closing under the
Investment and Transaction Agreement) and their respective assignees will have
the right to call on a pro rata basis from the holders thereof up to 35% of the
Class D Preferred Stock held as of the Amendment and Restatement Date (and/or
Class A Common Stock, Class E Preferred Stock, Logix Communications Stock or
other capital stock, issued upon conversion, exchange, as a distribution or
otherwise in respect of the Class D Preferred Stock and the Class E Preferred
Stock, other than the JWC Common Stock) on a Fully Diluted basis, together, in
each case, with all accrued and unpaid dividends thereon (collectively, the
"Equity Investor Package") at (i) a price payable by wire transfer of
immediately available funds to an account designated by the relevant Stockholder
or the JWC Representative, in the case of the JWC Group Stockholders (other
than AT&T), equal to 35% times the following valuations (each, the "Clawback
Exercise Price"), (A) at any time prior to the twenty-fourth month anniversary
of the date of issuance of the Class D Preferred Stock at a valuation which is
equal to three times the original purchase of the Class D Preferred Stock, and
(B) at any time following the twenty-fourth month anniversary of the date of
issuance of such shares and prior to the sixtieth- month anniversary thereof,
at a valuation which is equal to an amount equal to the sum of (x) three times
the original purchase price of the Class D Preferred Stock, plus (y) one times
such original purchase price multiplied by a fraction, the numerator of which
is the number of quarterly periods elapsed after such twenty-fourth month
anniversary of their date of issuance (measured from the commencement of such
twenty-fifth month anniversary), up to 12 quarterly periods, and the denominator
of which is 12. Schedule V set forth an illustrative example for this Article
11, PROVIDED, HOWEVER, that in the case of any conflict between such
illustration and this Article 11, this Article 11 shall govern. In the event of
a sale or sales by JWC or AT&T of any portion of the final 35% of their
respective investment in Logix Communications Common Stock as of the date of the
Logix Communications Spin-off
<PAGE>
(calculated with reference only to shares of Logix Communications issued with
respect to the Class D Preferred Stock (or any Class A Common Stock or other
capital stock issued in respect thereto other than the JWC Common Stock) held
as of the Amendment and Restatement Date), then the Clawback Exercise Price
with respect to such selling stockholder's Company Stock shall, if applicable,
be reduced by the aggregate amount of the net proceeds of such sales, PROVIDED
that proceeds received by JWC or AT&T, as the case may be, from the exercise by
the Company of its purchase right under Section 6.4 shall not so reduce the
Clawback Exercise Price.
This call right may only be exercised in respect of the entire
part of the Equity Investor Package subject thereto and the initial
determination whether to exercise this call right will be made by the Dobson
Partnership on behalf of all the Stockholders, PROVIDED that after such
determination, each Stockholder will make its own determination whether to
consummate the call right. This call right shall terminate upon the earlier of
the occurrence of (A) the IPO Date, (B) the fifth anniversary of issuance of
the Class D Preferred Stock, (C) a Change of Control or (D) the exercise in
full of this call right, PROVIDED, that this call right may be exercised in
connection and concurrently with an IPO and the proceeds resulting from such
public offering may be applied by the Company in payment of the Clawback
Exercise Price. Except pursuant to Sections 4.2, 4.5 and Article 12 of
this Agreement, each Cash Equity Investor will agree not to sell or transfer the
securities included in their Equity Investor Package (excluding Logix
Communications Common Stock) until the call right expires if, after such sale or
transfer, such Cash Equity Investor would hold less than 35% of (x) the Class D
Preferred Stock it held as of the Amendment and Restatement Date, (y) any class
of securities issued in respect of the Class D Preferred Stock (other than Logix
Communication Stock), or (z) each class of securities included in the Equity
Investor Package (excluding Logix Communications Common Stock).
ARTICLE 12.
PUT RIGHTS
12.1 CLASS D AND CLASS E PREFERRED STOCK PUT RIGHT. At any time after
the earliest to occur of (i) December 23, 2005, (ii) a Change of Control, or
(iii) the consummation of an IPO, each of JWC and AT&T shall have the right to
sell all of the Class D Preferred Stock or Class E Preferred Stock held by such
party to the Company (the "Preferred Stock Put Right") and the Company shall
have the obligation to purchase the shares as to which the Preferred Stock Put
Rights are exercised. Subject to Section 12.3, the Company shall, within 120
days of the exercise by JWC or AT&T of its Preferred Stock Put Right (or
immediately in the case of a Change of Control) pay (A) in the case of a put of
Class D Preferred Stock a cash amount per share equal to the then current
Liquidation Preference thereon plus the number of shares of Class A
<PAGE>
Common Stock that the holder of such Class D Preferred Stock would have
received upon conversion immediately prior to such put and (B) in the case of
Class E Preferred Stock a cash amount per share held by such Stockholder equal
to its Liquidation Preference. Notwithstanding the foregoing, the Company shall
not redeem any shares pursuant to this Section 12.1 unless such redemption is
made pro-rata amongst all the parties who have exercised their Preferred Stock
Put Rights pursuant to this Section 12.1 on the date of any redemption. The
closing of any redemption pursuant to this Section 12.1 shall take place at the
Company's offices or at such reasonable other location as the Company may notify
the other parties in writing. Notwithstanding anything in this section to the
contrary, neither AT&T nor JWC shall be bound to transfer its Preferred Stock
upon the exercise by the other party of its Preferred Stock Put Right and in the
event that AT&T or JWC elects not to so transfer its Preferred Stock, such party
shall retain the right to exercise the Preferred Stock Put Right with respect to
its Preferred Stock. In the event that AT&T or JWC exercises its Preferred Stock
Put Right and the other party does not elect to exercise its Preferred Stock Put
Right within 20 days of such exercise, then such other party may not exercise
its Preferred Stock Put Right until 120 days following such initial exercise.
12.2 CONFLICT EVENTS. (a) (i) Either AT&T or the Company may give
notice (a "Conflict Notice") to the other parties hereto, if it becomes aware of
the existence of a Conflict or enters into an agreement that would give rise to
a Conflict, or reasonably believes that a Conflict is likely to occur as a
result of pending transactions or other proposed actions, which notice shall
describe the Conflict in reasonable detail.
(ii) In the event that a party gives a Conflict Notice, the Company and
AT&T shall use their commercially reasonable best efforts to determine whether a
Conflict exists (or will exist after giving effect to pending transactions or
other proposed actions) and, if so, will use their commercially reasonable
efforts to agree in principle, within 60 days of receipt of such Conflict Notice
by the recipient thereof, as to a course of action (including a framework of
time within which to execute binding definitive agreements or to consummate and
complete the transaction contemplated by such agreements) to cure such Conflict
to the reasonable satisfaction of each of the Company and AT&T (an "Agreement in
Principle"). In the event the parties fail to (x) agree in principle as to such
course of action within such 60-day period, or (y) execute such binding
definitive agreements or consummate and complete the transactions contemplated
by such binding definitive agreements, in each case in accordance with the
Agreement in Principle then the provisions of Section 12.2(b) shall be
applicable.
(b) In the event that a Conflict Notice is given with respect to
either a Competitive Conflict or a Regulatory Conflict, and the provisions of
Section 12.2(b) are applicable pursuant to Section 12.2(a), then:
(i) In the case of the occurrence (without the prior written
consent of
<PAGE>
AT&T) of a Company Competitive Conflict or a Company Regulatory
Conflict, AT&T shall have the right to send a notice (a "Conflict Put Notice")
to the other parties hereto, which notice triggers the terms of Section 12.2(c).
(ii) In the case of the occurrence (without the prior written
consent of the Company) of an AT&T Competitive Conflict or an AT&T Regulatory
Conflict, the Company shall have the right to send a notice (a "Conflict
Non-Voting Notice") to AT&T, which notice triggers the terms of Section 12.2(d).
(iii) In the case of a Conflict resulting solely from a Change
of Law, then the parties agree to address such Conflict and the remedies
appropriate to resolve such conflict in good faith and a reasonable manner, at
the time such Conflict occurs.
(c) If AT&T sends a Conflict Put Notice in accordance with
Section 12.2(b)(i), the Company shall have the obligation to purchase all of the
shares of Company Stock (other than any stock of Logix Communications from and
after the Logix Communications Spin-Off) then held by AT&T or its Affiliates.
Subject to Section 12.3, the purchase price therefor shall be payable in cash
and shall equal: (i) in the case of Class D Preferred Stock, an amount per share
equal to the then-current Liquidation Preference thereof, plus the Market Price
of the number of shares of Class A Common Stock that would have been received
upon conversion thereof on the date of the purchase; (ii) in the case of Class E
Preferred Stock, an amount per share equal to the then current Liquidation
Preference thereof; and (iii) in the case of any other class of Common Stock, an
amount per share equal to the Market Price thereof. The closing of any purchase
pursuant to this Section 12.2(c) shall take place within 120 business days after
the date of the Conflict Put Notice (or such longer period as may be necessary
under the Appraisal Procedure) at the Company's offices or such other location
or time as to which AT&T and the Company agree.
(d) If the Company sends a Conflict Non-Voting Notice to AT&T in
accordance with Section 12.2(b)(ii) or AT&T sends a Conflict Non-Voting Notice,
in its sole discretion at any time, then (i) AT&T shall cause the director
designated by it pursuant to Section 3.1(a)(ii) to resign (or the parties shall
cause the removal of such director) from the Company's Board of Directors,
within 10 business days of the date of the Conflict Non-Voting Notice and AT&T
will relinquish its director designation right in accordance with Section
3.1(b), (ii) the parties shall negotiate in good faith, and promptly implement,
steps appropriate to eliminate the voting rights of any Company Stock then owned
by AT&T or its Affiliates (E.G., by AT&T exchanging its shares of Class D
Preferred Stock for an equal number of shares of a new class of preferred stock
having no voting rights and convertible into common stock having no voting
rights, except in each case to the extent required by law, or AT&T agreeing to
vote all of its shares in the same proportion as all other shares of Company
Stock are voted) and, to the extent necessary to eliminate a Regulatory
Conflict, to eliminate any
<PAGE>
consent, approval, veto or similar rights AT&T enjoys pursuant to the terms of
this Agreement and (iii) the parties will otherwise proceed reasonably and in
good faith to resolve the circumstances giving rise to the Conflict Non-Voting
Notice; PROVIDED that and except as set forth in this Agreement no party shall
be required to agree to any change, modification or supplement that adversely
affects such party in any material respect, and nothing in this Agreement shall
be construed to require any party to agree to divest or hold separate any of
its assets or otherwise take or commit to take any action that limits its
freedom of action in any material respect with respect to any of its
businesses, product lines or assets. Notwithstanding the foregoing, if a
Conflict Non-Voting Notice shall be sent, and AT&T shall subsequently Transfer
any Company Stock, then the voting rights of such Company Stock to be
transferred shall be immediately reinstated and the transferee shall be
transferred Company Stock with full voting rights. The parties hereby
acknowledge and agree that any procedures effected pursuant to this Section
12.2(d) shall remain in effect until the Conflict giving rise to the Conflict
Non-Voting Notice no longer exists.
(e) The parties agree that Section 12.2(b) will be inapplicable to any
Regulatory Conflict existing on the date hereof, and that the parties will
proceed in good faith to resolve or cure such Conflicts; AT&T further agrees
that it will not exercise its right to select a director pursuant to Section
3.1(a)(ii) until each of the Company and AT&T are satisfied that no Regulatory
Conflict exists as of the date hereof or any such Regulatory Conflict has been
cured or the appropriate Governmental Authorities have furnished a waiver with
respect thereto.
(f) Notwithstanding anything in this Agreement to the contrary
(including, without limitation, Section 12.2(a)) AT&T shall have 30 days from
the date of receipt of a Conflict Notice within which to either confirm or deny
that a Conflict may exist upon consummation of the transactions referred to in
the Conflict Notice. If AT&T either fails to respond to such Conflict Notice or
informs the Company that no Conflict may exist upon consummation of the
transactions referred to in the Conflict Notice and the parties subsequently
learn that a Conflict did in fact arise, AT&T shall be precluded from asserting
its rights under Section 12.2(b)(i) in respect of such Conflict.
(g) Nothing in this Agreement shall be construed to require AT&T or
any of its Subsidiaries to take any action, including without limitation
divesting any of their respective properties or other assets, other than in
respect of shares of Company Stock Beneficially Owned by them or their rights
under this Agreement or other rights arising from ownership of such Company
Stock or agreements with the Company.
(h) The Company may deliver a notice to AT&T requesting that AT&T
confirm or deny that a Conflict exists, or may exist upon completion of a
transaction or transactions that have been publicly announced by AT&T, (i) at
any time the Company reasonably believes that AT&T has engaged in a transaction
or transactions that may
<PAGE>
create a Conflict, and (ii) once during any calendar year (without regard to any
notices given pursuant to clause (i) of this sentence). Such notice shall
include a list of the Licenses held by the Company and its Subsidiaries. AT&T
shall respond to such notice within 15 days stating whether or not it is aware,
to the best of its knowledge, that a Conflict exists. Any such notice or
information given by AT&T will be deemed to be Confidential Information subject
to Section 6.3 of this Agreement.
12.3 PAYMENT; RESTRICTIONS ON PAYMENT. Upon the surrender of the
certificate or certificates evidencing the shares of stock to be repurchased by
the Company pursuant to the Put Rights in Section 12.1 or 12.2(c), the
repurchase price in respect of such shares shall be paid to the order of the
Person whose name appears on such certificate or certificates in cash by wire
transfer of immediately available funds, PROVIDED, that if there is no Available
Cash under the Financing Agreements and consistent with the limitations set
forth in Section 12.4, the Company shall arrange additional credit facilities or
borrowing availability to obtain cash to meet its obligations upon the exercise
of the Put Right. If the Company cannot, within the time periods stated in
Sections 12.1 and 12.2(c), obtain cash to meet its obligations upon the exercise
of the Put Right, then the Company shall issue to the Cash Equity Investor
exercising the Put Right a Subordinated Put Note, dated as of the date of
exercise of the Put Right, which shall rank senior to each class of Preferred
Stock existing on the date hereof other than the Senior PIK Preferred Stock and
the Sygnet PIK Preferred Stock. Each surrendered certificate shall be canceled
and/or retired. In the event that a Cash Equity Investor receives a Subordinated
Put Note, such Cash Equity Investors shall be entitled to all of the rights of
the holders of Class D Preferred Stock hereunder as if such Cash Equity
Investors were holders of Class D Preferred Stock until the Subordinated Put
Notes are paid in full. In the event that Subordinated Put Notes are issued, all
such Subordinated Put Notes will rank pari passu and shall share pro rata in any
Available Cash, PROVIDED, HOWEVER, that in the event that any Subordinated Put
Note shall have matured, such Subordinated Put Note shall rank senior to any
Subordinated Put Note which has not yet matured.
12.4 RESTRICTIONS ON PAYMENTS BY THE COMPANY. Notwithstanding anything
to the contrary contained in this Agreement, the payment of cash upon exercise
of a Put Right and pursuant to any Subordinated Put Notes pursuant to this
Article shall be subject to (i) applicable restrictions contained in any
applicable law, including the availability of adequate capital and surplus for
corporate law purposes and (ii) restrictions contained in the Financing
Agreements (other than the Class F Preferred Stock Documents) each as refinanced
or amended and in effect from time to time in accordance with Section 12.6, and
restrictions contained in any Senior Indebtedness. If any such restrictions or
unavailability prohibit the repurchase of Securities or other capital stock of
the Company hereunder which the Company is otherwise entitled or required to
make, the Company shall make such repurchases as soon as it is permitted to do
so under such restrictions.
<PAGE>
12.5 PAYMENT OF CASH. Notwithstanding anything else in this
Article 12 to the contrary (including Sections 12.3 and 12.4), in the event of a
Change of Control, and in each case in which Stockholders receive cash, cash
equivalents or marketable securities for the sale or transfer of the Company's
Voting Securities, then the holders of the Class D Preferred Stock and Class E
Preferred Stock shall be paid cash upon exercise of a Put Right and shall not be
issued Subordinated Put Notes in lieu of cash.
12.6 FINANCING AGREEMENTS; INDEBTEDNESS. The Class D Preferred Stock
and Class E Preferred Stock, including any redemptions (except as set forth
below), puts and calls and any Subordinated Put Notes issued pursuant to such
puts, are subject to the terms and restrictions contained in the Financing
Agreements. The Company will be permitted to refinance or replace (whether or
not with new lenders) any Financing Agreement and/or incur additional
indebtedness in connection with acquisitions and capital projects at any time
prior to the issuance of any Subordinated Put Note issued in connection with a
Put Right, so long as the Company has used commercially reasonable efforts to
negotiate standard covenant flexibility with regard to permitting payment of the
Put Right and such refinancing, replacement or additional indebtedness (i) is
not more restrictive with respect to the Preferred Stock than the Financing
Agreements and (ii) specifically permits the payment of amounts owing by the
Company upon exercise of such Preferred Stock Put Right or to the holder of any
such Subordinated Put Note if after giving pro forma effect to any such payment,
the Consolidated Leverage Ratio would be less than 8 to 1. Following the
issuance of any Subordinated Put Note issued in connection with a Put Right, the
Company may not undertake any refinancing or replacement (but shall be free to
obtain waivers from the holders of existing indebtedness) or incur additional
financing indebtedness in excess of $1,000,000, in the aggregate, without the
prior written consent of the holder of such Subordinated Put Note. Nothing
herein shall limit the right of the Company to incur indebtedness in order to
discharge all amounts owing under any such outstanding Subordinated Put Notes.
No refinancing replacement or additional financing indebtedness shall adversely
affect, and shall be expressly subordinate to, the redemption rights of the
Class D Preferred Stock and Class E Preferred Stock set forth in the
Certificates of Designation of the Class D Preferred Stock and Class E Preferred
Stock. The Cash Equity Investors shall deliver acknowledgments of the foregoing
to the Company's creditors under the Financing Agreements upon the request of
the Company.
ARTICLE 13.
COMPANY CALL RIGHT
13.1 COMPANY RIGHT TO CALL AGAINST CASH EQUITY INVESTORS. On or
immediately prior to an IPO, the Company or its assignees shall have the right
to purchase on a pro rata basis from the holders thereof all or any portion of
the outstanding shares of Class
<PAGE>
D Preferred Stock held by a Cash Equity Investor and upon the exercise of such
right, each Cash Equity Investor shall have the obligation to sell such shares
of Class D Preferred Stock held by such Cash Equity Investor to the Company.
The call purchase price for each share of Class D Preferred Stock shall be the
Liquidation Preference thereof plus the number of shares of Class A Common
Stock that would have been received by the holder of such Class D Preferred
Stock had such Class D Preferred Stock been converted immediately prior to the
exercise of the call. Notwithstanding anything herein to the contrary, a holder
of Class D Preferred Stock may upon receiving a Call Notice (as defined below)
elect to convert his Class D Preferred Stock into Class E Preferred Stock and
Class A Common Stock, in which event the Company's right pursuant to this
Article 13 will apply to such Class E Preferred Stock. The call purchase price
of any such Class E Preferred Stock shall be the Liquidation Preference thereof.
13.2 PROCEDURE. The Company may exercise the Call Rights by providing
to the Cash Equity Investors a written notice (a "Call Notice") that the Company
will repurchase the shares of Company Stock described in Section 13.1. The
Company shall within thirty (30) days after the determination of the relevant
call price, and the notification of the Cash Equity Investors and in any event
no later than the receipt by the Company of the proceeds of the IPO, redeem the
shares held by the Stockholders to whom the Company provided a Call Notice by
paying to such Stockholders an amount for each share held by such Stockholder
equal to the relevant call price by wire transfer of immediately available
funds. The closing of the repurchase of the shares pursuant to this Article 13
shall take place at the office of the Company, or at such other reasonable
location, as it shall notify the relevant party to whom the Call Notice was
sent.
13.3 PAYMENT. Upon the surrender of the certificate or certificates
evidencing the shares of Class D Preferred Stock or Class E Preferred Stock to
be repurchased by the Company pursuant to this Article 13, the applicable call
price in respect of such shares shall be paid by wire transfer of immediately
available funds to the order of the Person whose name appears on such
certificate or certificates in cash in immediately available funds (which shall
include any accrued and unpaid dividends to the date of repurchase of such
shares of Class D Preferred Stock or Class E Preferred Stock). Each surrendered
certificate evidencing the shares of Class D Preferred Stock or Class E
Preferred Stock being repurchased shall be canceled and/or retired.
ARTICLE 14.
MISCELLANEOUS
14.1 JWC GROUP STOCKHOLDER REPRESENTATIVE. (a) Each JWC Group
<PAGE>
Stockholder hereby designates and irrevocably appoints Dana L. Schmaltz, as his
attorney-in-fact with full power of substitution (the "JWC Group Stockholder
Representative"), to serve as the representative of each such JWC Group
Stockholder to (i) perform all such acts as are required, authorized or
contemplated by this Agreement to be performed by such JWC Group Stockholder
(other than AT&T) and (ii) exercise such rights, power and authority as are
incidental to this Agreement and hereby acknowledges that the JWC Group
Stockholder Representative shall be the only person authorized to take any
action so required, authorized or contemplated by this Agreement by each such
person. Any such actions taken, exercises of rights, power or authority and any
decision or determination made by the JWC Group Stockholder Representative
consistent therewith, shall be absolutely and irrevocably binding on each JWC
Group Stockholder (other than AT&T) as if such JWC Group Stockholder (other than
AT&T) personally had taken such action, exercised such rights, power or
authority or made such decision or determination in such Stockholder's
individual capacity. Each such JWC Group Stockholder (other than AT&T) further
acknowledges that the foregoing appointment and designation shall be deemed to
be coupled with an interest and shall survive the death or incapacity of such
JWC Group Stockholder (other than AT&T). The other parties hereto are and will
be entitled to rely on any action taken or any notice given by the JWC Group
Stockholder Representative and are and will be entitled and authorized to give
notices only to the JWC Group Stockholder Representative for any notice
contemplated by this Agreement to be given to any such person. A successor to
the JWC Group Stockholder Representative may be chosen by a majority in interest
of the JWC Group Stockholders (other than AT&T), PROVIDED that notice thereof is
given by the new JWC Group Stockholder Representative to the Company.
(b) The JWC Group Stockholder Representative shall not be
liable to the JWC Group Stockholders for the performance of any act or the
failure to act under or in connection with this Agreement so long as he acted or
failed to act in good faith in what he believed to be the scope of his authority
and for a purpose which he believed to be in the best interests of the JWC Group
Stockholders (other than AT&T). Each of the JWC Group Stockholders (other than
AT&T) will indemnify the JWC Group Stockholder Representative, from and against
any loss, liability, damage, deficiency, cost and expense (including without
limitation reasonable expenses of investigation and reasonable attorney's fees
incurred in connection with any claim, suit or proceeding brought against him)
incurred or sustained by him as a result of his individual acts or omissions in
connection with this Agreement, so long as he acted or failed to act in good
faith.
14.2 NOTICES. All notices or other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by facsimile transmission, or by registered or
certified mail (return receipt requested), postage prepaid, with an
acknowledgment of receipt signed by the
<PAGE>
addressee or an authorized representative thereof, addressed as follows (or to
such other address for a party as shall be specified by like notice; PROVIDED
that notice of a change of address shall be effective only upon receipt thereof:
If to JWC, to:
J. W. Childs Associates, L.P.
One Federal Street
Twenty-First Floor
Boston, MA 02110
Telephone: (617) 753-1100
Facsimile: (617) 753-1101
Attention: Dana L. Schmaltz
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Facsimile: (617) 573-4822
Telephone: (617) 573-4800
Attention: Louis Goodman
If to AT&T, to:
AT&T Wireless Services, Inc.
7277 164th Ave., N.E.
Redmond, WA 98052
Facsimile: (425) 580-8405
Telephone: (425) 580-8416
Attention: William W. Hague
With a copy to:
AT&T Wireless Services, Inc.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Telephone: (908) 221-2000
Attention: General Counsel
With a copy to:
<PAGE>
Friedman Kaplan & Seiler, LLP
875 Third Avenue
New York, New York 10022-6225
Telephone: (212) 833-1100
Facsimile: (212) 355-6401
Attention: Daniel M. Taitz, Esq.
If to the Company, to it:
Dobson Communications Corporation
13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114
Facsimile: (405) 391-8515
Telephone: (405) 391-8305
Attention: Everett R. Dobson, President
With a copy to the Company at the same address to:
Attention: Ron Ripley, Senior Corporate Counsel
Facsimile: (405) 391-8765
Telephone: (405) 391-8500
With a further copy to:
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
Telephone: (212) 506-2515
Facsimile: (212) 262-1910
Attention: James B. Carlson
14.3 ENTIRE AGREEMENT; AMENDMENT; CONSENTS.
(a) This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof, including, without
limitation, the Former Shareholders' Agreement.
(b) No change or modification of this Agreement shall be
valid, binding or enforceable unless the same shall be in writing and signed by
the Company, the Dobson Partnership, the holders of a majority of the shares of
each class of Common
<PAGE>
Stock and Preferred Stock and each of JWC and AT&T so long as they hold their
respective Relevant Percentage Interests; PROVIDED, HOWEVER, that in the event
any party hereto shall cease to own any shares of Company Stock such party
hereto shall cease to be a party to this Agreement and the rights and
obligations of such party hereunder shall terminate.
(c) Whenever in this Agreement the consent or approval of a
Stockholder is required, except as expressly provided herein, such consent or
approval may be given or withheld in the sole and absolute discretion of each
Stockholder.
14.4 TERM.
(a) This Agreement shall terminate upon the earliest to occur
of any of the following events and PROVIDED that no Subordinated Put Notes are
outstanding:
(i) The consent in writing of all of the parties hereto; or
(ii) December 23, 2010; or
(iii) One Stockholder shall Beneficially Own all of the
Common Stock.
(b) In the event that JWC shall Beneficially Own less than 35%
of shares of Common Stock or Class E Preferred Stock received from conversion of
the original Class D Preferred Stock investment (in each case on an
"as-if-converted" basis) Beneficially Owned by JWC on the Amendment and
Restatement Date, the provisions of Section 3.1(a)(i) shall terminate. In the
event the provisions of Section 3.1(a)(i) are terminated pursuant to this
Section 14.3(b), the director designated by JWC pursuant to Section 3.1(a)(i),
shall resign (or the other directors or Stockholders shall remove such director
from the Board of Directors) and the remaining directors shall take such action
so that the number of directors constituting the entire Board of Directors is
accordingly reduced.
(c) In the event that AT&T shall Beneficially Own less than
50% of shares of Common Stock or Class E Preferred Stock received from
conversion of the original Class D Preferred Stock investment (in each case on
an "as-if-converted" basis) Beneficially Owned by AT&T on the Amendment and
Restatement Date, the provisions of Section 3.1(a)(ii) shall terminate. In the
event the provisions of Section 3.1(a)(ii) are terminated pursuant to this
Section 14.3(c), the director designated by AT&T pursuant to Section 3.1(a)(ii),
shall resign (or the other directors or Stockholders shall remove such director
from the Board of Directors) and the remaining directors shall take such action
so that the number of directors constituting the entire Board of Directors is
accordingly reduced.
<PAGE>
Notwithstanding anything in this Agreement to the contrary,
the holder of any Subordinated Put Note shall be entitled to all of the rights
and benefits of the Cash Equity Investors hereunder and under the Certificate of
Designations for the Class D Preferred Stock and the Investment and Transaction
Agreement, as if such holder still held the shares of Class D Preferred Stock
for which such Subordinated Put Note was issued until such Subordinated Put Note
has been paid in full.
14.5 SURVIVAL. Nothing contained in Section 14.5 shall impair any
rights or obligations of any party hereto arising prior to the time of the
termination of this Agreement, or which may arise by an event causing the
termination of this Agreement. The provisions of Article 5 shall survive any
termination of this Agreement and shall continue in full force and effect until
December 23, 2018. The provisions of Section 6.3 and Section 14 shall survive
the termination of this Agreement.
14.6 WAIVER. No failure or delay on the part of any Stockholder in
exercising any right, power or privilege hereunder, nor any course of dealing
between the Company and any Stockholder shall operate as a waiver thereof nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the simultaneous or later exercise of any other right, power or
privilege. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights and remedies which any Stockholder would otherwise
have. No notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Stockholders or any of
them to take any other or further action in any circumstances without notice or
demand.
14.7 OBLIGATIONS SEVERAL. The obligations of each Stockholder under
this Agreement shall be several with respect to each such Stockholder.
14.8 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the law of the State of New York without reference to the
conflicts of law principles thereof.
14.9 DISPUTE RESOLUTION; WAIVER OF JURY TRIAL.
(a) The parties shall use and strictly adhere to the following
dispute resolution processes, except as otherwise expressly provided in this
Section 14.9, to resolve any and all disputes, controversies or claims, whether
based on contract, tort, statute, fraud, misrepresentation or any other legal or
equitable theory (hereinafter, "Dispute(s)"), arising out of or relating to this
Agreement (and any prior agreement this Agreement supersedes), including without
limitation, its making, termination, non-renewal, its alleged breach and the
subject matter of this Agreement (E.G., products or services furnished hereunder
or those related to those furnished):
<PAGE>
(b) The parties shall first attempt to settle each Dispute
through good faith negotiations. The aggrieved party shall initiate such
negotiations by giving the other party(ies) written notice of the existence and
nature of the Dispute. The other party(ies) shall in a writing to the aggrieved
party acknowledge such notice of Dispute within ten (10) business days. Such
acknowledgment may also set forth any Dispute that the acknowledging party
desires to have resolved in accordance with this Section.
(c) Thereafter, if any Dispute is not resolved by the parties
through negotiation within thirty (30) calendar days of the date of the notice
of acknowledgment, either party may terminate informal negotiations with respect
to that Dispute and have the right, by delivery of written notice thereof (the
"Arbitration Notice") to the other party, to submit the matter to be finally
settled by arbitration in accordance with the Commercial Arbitration Rules then
in effect of the American Arbitration Association, as modified herein (the "AAA
Rules"). The place of arbitration shall be Oklahoma City, Oklahoma. All matters
so submitted to arbitration shall be settled by three arbitrators. The disputing
party and the Company shall each designate one arbitrator within 20 days of the
delivery of the Arbitration Notice. If either the disputing party or the Company
fails so to timely designate an arbitrator, the matter shall be resolved by the
one arbitrator timely designated. The disputing party and the Company shall
cause the designated arbitrators to mutually agree upon and to designate a third
arbitrator, PROVIDED, HOWEVER, that failing such agreement within 45 days of
delivery of the Arbitration Notice, the third arbitrator shall be appointed in
accordance with the AAA Rules. The disputing party and the Company, shall be
responsible for the payment of the fees and expenses of their respectively
designated arbitrators and shall bear equally the fees and expenses of the third
arbitrator. The disputing party and the Company, shall cause the arbitrators to
decide the matter to be arbitrated pursuant hereto within 60 days after the
appointment of the last arbitrator. The arbitral tribunal is not empowered to
award damages in excess of compensatory damages and each party hereby
irrevocably waives any right to recover punitive, exemplary or similar damages
with respect to any Dispute. The final decision of the majority of the
arbitrators shall be furnished to the disputing party and the Company and each
of the Stockholders in writing and shall constitute a conclusive determination
of the matter in question, binding upon JWC, the Company and the Stockholders
and shall not be contested by any of them. Such decision may be used in a
court of law only for the purpose of seeking enforcement of the arbitrators'
award. Any arbitration proceeding, decision or award rendered hereunder and the
validity, effect and interpretation of this arbitration agreement shall be
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16, and judgment
upon any award may be entered in any court of competent jurisdiction.
(d) The Company and each of the Stockholders hereby
irrevocably consents to the exclusive jurisdiction of the state or federal
courts in the State of New York, and all state or federal courts competent to
hear appeals therefrom, over any
<PAGE>
actions which may be commenced against any of them under or in connection with
this Agreement. The Company and each Stockholder hereby irrevocably waive, to
the fullest extent permitted by applicable law, any objection which any of them
may now or hereafter have to the laying of venue of any such dispute brought in
such court or any defense of inconvenient forum for the maintenance of such
dispute in the Southern District of New York and New York County. The Company
and each Stockholder hereby agree that a judgment in any such dispute may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The Company and each Stockholder hereby consent to process
being served by any party to this Agreement in any actions by the transmittal of
a copy thereof in accordance with the provisions of Section 14.2.
(e)EACH OF THE PARTIES HERETO, AFTER CONSULTING WITH COUNSEL
WAIVE THEIR RIGHTS, IF ANY, TO JURY TRIAL IN RESPECT TO ANY DISPUTE OR CLAIMS
BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS
AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY
COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION ANY CLAIM UNDER THE SECURITIES ACT, THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, ANY OTHER STATE OR FEDERAL LAW RELATING TO
SECURITIES OR FRAUD OR BOTH, THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT, AS AMENDED, OR FEDERAL OR STATE COMMON LAW.
14.10 BENEFIT AND BINDING EFFECT; SEVERABILITY. This Agreement shall
be binding upon and shall inure to the benefit of the Company, its successors
and assigns, and each of the Stockholders and their respective executors,
administrators and personal representatives and heirs and permitted assigns.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any law or public policy or any listing
requirement applicable to the Common Stock, all other terms and provisions of
this Agreement shall nevertheless remain in full force and effect. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto affected by such
determination in any material respect shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner in order that the provisions hereof are
given effect as originally contemplated to the greatest extent possible.
14.11 AMENDMENT OF BY-LAWS. The Stockholders agree that the terms of
this Agreement shall supersede any inconsistent provision that is contained in
the Restated By-Laws and, to the extent required by Oklahoma law or the Restated
By-Laws, this Agreement shall be deemed to constitute a written action taken by
the Stockholders of the Company and shall be deemed an amendment of the Restated
By-Laws.
<PAGE>
14.12 FCC AND REGULATORY APPROVALS. Notwithstanding anything contained
in this Agreement to the contrary, no transaction or action contemplated herein
shall be consummated and no interests or rights transferred, converted or
exchanged prior to receiving FCC approvals with respect thereto to the extent
such FCC approvals are necessary.
14.13 EXPENSES. All attorneys' fees incurred by the Stockholders in
connection with this Agreement (including, without limitation, in the
preparation of notices (and responses thereto) and consents) shall be borne by
the Stockholder(s) incurring such fees.
14.14 ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
14.15 HEADINGS. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
14.16 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed or consent this
Agreement to be executed by its duly authorized officers as of the date first
written above.
COMPANY:
DOBSON COMMUNICATIONS CORPORATION
By:
-------------------------------------
Name: Everett Dobson
Title: President
CASH EQUITY INVESTORS:
DOBSON CC LIMITED PARTNERSHIP
By: RLD, Inc., its General Partner
By:
--------------------------------------
Name: Everett Dobson
Title: President
DOBSON OPERATING COMPANY
By:
---------------------------------------
Name: Everett Dobson
Title: Chief Executive Officer
<PAGE>
J.W. CHILDS EQUITY PARTNERS II, L.P.
By: J.W. Childs Advisors II, L.P.,
its general partner
By: J.W. Childs Associates, L.P.,
its general partner
By: J.W. Childs Associates, Inc.,
its general partner
By:
---------------------------------------
Name: Dana L. Schmaltz
Title: Vice President
---------------------------------------
Dana L. Schmaltz, as agent and
attorney-in-fact for the JWC Group
Stockholders under Purchaser
Appointment of Agent and Power of
Attorney and not in his individual
capacity
AT&T WIRELESS SERVICES, INC.
By:
---------------------------------------
Name:
Title:
<PAGE>
Schedule I
CASH EQUITY INVESTORS:
Dobson CC Limited Partnership
c/o Dobson Communications Corporation
13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114
Telephone: (405) 391-8500
Attention: Senior Corporate Counsel
Dobson Operating Company
c/o Dobson Communications Corporation
13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114
Telephone: (405) 391-8500
Attention: Senior Corporate Counsel
J.W. Childs Equity Partners II, L.P.
One Federal Street
Twenty-First Floor
Boston, MA 02110
Telephone: (617) 753-1100
Attention: Dana Schmaltz
JWC Group Stockholders:
(See attached sheet)
AT&T Wireless Services, Inc.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Telephone: (908) 221-2000
Attention: General Counsel
<PAGE>
Schedule II
CAPITALIZATION
<PAGE>
Schedule III
NEW DIRECTORS
Everett R. Dobson
Russell L. Dobson
Stephen T. Dobson
Albert W. Pharis
Dana L. Schmaltz
Justin L. Jaschke
[AT&T Designee](*)
- ----------------------------
Subject to Section 3.1(d).
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE 1. Definitions
1.1 Certain Defined Terms 2
1.2 Other Definitional Provisions 18
ARTICLE 2. Stockholder Approval
2.1 Organizational Documents 18
2.2 Approval of Stock Option Plans 18
2.3 Logix Communications Spin-Off 18
ARTICLE 3. Management of the Company
3.1 Board of Directors 19
3.2 Removal; Filling of Vacancies 21
3.3 Directors 21
3.4 Compensation and Reimbursement 21
3.5 Business of the Company 21
3.6 Required Votes 22
3.7 Transactions between the Company and the Stockholders or
their Affiliates 22
3.8 Board Committees 22
3.9 Other Actions 22
ARTICLE 4. Transfers of Shares
4.1 General 23
4.2 Tag-Along Rights 24
4.3 Additional Conditions to Permitted Transfers 26
4.4 Stop-Transfer 27
4.5 Drag Along Rights 27
4.6 Redemption Rights 28
4.7 Right of First Refusal for New Securities; Capital Raising 28
ARTICLE 5. Registration Rights
(a) Demand Registration Rights 29
(b) Piggyback Registration Rights 31
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
(c) Selection of Underwriters 32
(d) Registration Procedures 32
(e) Indemnification 37
(f) Contribution 40
(g) Registration Expenses 40
(h) Participation in Underwritten Registrations 41
(i) Holdback Agreements 41
(j) Public Information Reporting 42
ARTICLE 6. Additional Rights and Covenants
6.1 Wholly-Owned Subsidiaries 42
6.2 Amendments of the Restated Certificate and By-Laws 42
6.3 Confidentiality 43
6.4 Sale of Logix Communications Stock 43
6.5 Class Protection 44
6.6 New Securities 44
6.7 Logix Communications Spin-Off 45
6.8 Regulation M 45
6.9 (a) Pooling of Interests 45
6.10 Other Tax Matters 45
6.11 Class A Preferred Stock Transfer Restriction 46
6.12 Additional Covenants 46
6.12.1 Records and Accounts 46
6.12.2 Existence; Related Securities; Maintenance of
Properties 46
6.12.3 Insurance 46
6.12.4 Taxes 47
6.12.5 Inspection of Properties and Books 47
6.12.6 Compliance with Laws, Contracts, Licenses and Permits 47
6.12.7 Employee Benefit Plans 47
6.12.8 Distributions 48
6.12.9 Merger, Consolidation, Sale of Assets or Other
Dispositions 48
6.12.10 Sale and Leaseback of Property 49
6.12.11 Investments 49
6.12.12 Merger, Consolidation or Other Acquisitions 50
6.13 Information Covenants 50
6.13.1 Annual Statements 50
6.13.2 Quarterly Statements 50
<PAGE>
TABLE OF CONTENTS
(continued)
SECTION PAGE
6.13.3 Budgets and Other Reports 50
ARTICLE 7. Exclusivity
7.1 Exclusivity 51
ARTICLE 8. After-Acquired Shares; Recapitalization; Investment and Transaction
Agreement
8.1 After Acquired Shares; Recapitalization; Investment and
Transaction Agreement 52
8.2 Amendment of Restated Certificate 52
8.3 Investment and Transaction Agreement 52
ARTICLE 9. Share Certificates
9.1 Restrictive Endorsements; Replacement Certificates 52
ARTICLE 10. Equitable Relief
10.1 Equitable Relief 53
ARTICLE 11. Stockholder Call Right
11.1 Stockholder Call Right 54
ARTICLE 12. Put Rights
12.1 Class D and Class E Preferred Stock Put Right 55
12.2 Conflict Events 56
12.3 Payment; Restrictions on Payment 58
12.4 Restrictions on Payments by the Company 58
12.5 Payment of Cash 58
12.6 Financing Agreements; Indebtedness 59
ARTICLE 13. Company Call Right
13.1 Company Right to Call Against Cash Equity Investors 59
13.2 Procedure 60
13.3 Payment 60
<PAGE>
ARTICLE 14. Miscellaneous
14.1 JWC Group Stockholder Representative 60
14.2 Notices 61
14.3 Entire Agreement; Amendment; Consents 63
14.4 Term 64
14.5 Survival 64
14.6 Waiver 64
14.7 Obligations Several 65
14.8 Governing Law 65
14.9 Dispute Resolution; Waiver of Jury Trial 65
14.10 Benefit and Binding Effect; Severability 66
14.11 Amendment of By-Laws 67
14.12 FCC and Regulatory Approvals 67
14.13 Expenses 67
14.14 Attorneys' Fees 67
14.15 Headings 67
14.16 Counterparts 67
SCHEDULES
Schedule I -- Cash Equity Investors
Schedule II -- Capitalization
Schedule III -- New Directors
EXHIBITS
Exhibit A -- Form of Restated Certificate
Exhibit B-1 -- Form of Class A Preferred Stock Certificate of Designation
Exhibit B-2 -- Form of Class D Preferred Stock Certificate of Designation
Exhibit B-3 -- Form of Class E Preferred Stock Certificate of Designation
Exhibit B-4 -- Form of Class F Preferred Stock Certificate of Designation
Exhibit B-5 -- Form of Class G Preferred Stock Certificate of Designation
Exhibit B-6 -- Form of Class H Preferred Stock Certificate of Designation
Exhibit C -- Form of Restated By-Laws
Exhibit D -- Form of Subordinated Put Note
Exhibit E -- Logix Spin-Off Dilution Protection Example
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of Dobson Communications
Corporation (and all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
April 29, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 27, 1997, with respect to the combined
financial statements of The Cellular Telephone Business of Selected Systems of
Horizon Cellular Telephone Company, L.P. included in Amendment No. 3 to the
Registration Statement (Form S-4 file No. 333-71633) and related Prospectus of
Dobson Communications Corporation for the registration of 67,146 shares of its
12 1/4% Senior Exchangeable Preferred Stock.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
April 29, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) as it relates to Gila River Cellular
General Partnership included in or made a part of this registration statement.
It should be noted that we have not audited any financial statements of Gila
River Cellular General Partnership subsequent to December 31, 1996 or performed
any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 29, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 13, 1998, on the financial statements of Cellular 2000 (A
Partnership) (and all references to our Firm) included in Amendment No. 3 to the
Registration Statement on Form S-4, No. 333-71633 and related Prospectus of
Dobson Communications Corporation for the registration of up to 67,146 shares of
its 12 1/4% Senior Preferred Stock.
HOLLIDAY, LEMONS & COX, P.C.
(formerly Holliday, Lemons, Thomas &
Cox, P.C.)
Texarkana, Texas
April 29, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 5, 1999, with respect to the consolidated
financial statements of Sygnet Wireless, Inc. included in Amendment No. 3 to the
Registration Statement (Form S-4 File No. 333-71633) and related prospectus of
Dobson Communications Corporation for the registration of 67,146 shares of its
12 1/4% Senior Exchangeable Preferred Stock.
/s/ Ernst & Young LLP
Cleveland, Ohio
April 29, 1999
