<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
DOBSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OKLAHOMA 4812 73-1513309
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------
13439 NORTH BROADWAY EXTENSION, SUITE 200
OKLAHOMA CITY, OKLAHOMA 73114
(405) 529-8500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
BRUCE R. KNOOIHUIZEN
13439 NORTH BROADWAY EXTENSION
SUITE 200
OKLAHOMA CITY, OKLAHOMA 73114
(405) 529-8500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
THEODORE M. ELAM, ESQ. JEREMY W. DICKENS, ESQ.
MCAFEE & TAFT A PROFESSIONAL CORPORATION WEIL, GOTSHAL & MANGES LLP
TENTH FLOOR, TWO LEADERSHIP SQUARE 767 FIFTH AVENUE
211 NORTH ROBINSON NEW YORK, NEW YORK 10153
OKLAHOMA CITY, OKLAHOMA 73102-7103 (212) 310-8000
(405) 235-9621
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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 statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement 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 number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, par value $.001 per share............. $664,840,000 $175,518(1)(3)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(o).
(2) Includes amounts attributable to shares which the underwriters will have
the option to purchase to cover over-allotments and shares to be sold in a
concurrent offering.
(3) Previously paid.
------------------------------
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(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two separate prospectuses. The first
prospectus relates to an underwritten public offering of an aggregate of
25,000,000 shares of Class A common stock, plus up to 3,750,000 shares subject
to the underwriters' over-allotment option. The second prospectus relates to a
concurrent offering to AT&T Wireless Services, Inc., one of our existing
stockholders, of up to 1,470,000 shares of Class A common stock. The
prospectuses for each of the underwritten offering and the AT&T Wireless
offering will be identical in all material respects, except for an alternate
front cover page and an alternate "Plan of Distribution" section in place of the
"Underwriting" section for the underwritten offering prospectus. Additional
non-substantive conforming changes will also be made to the AT&T Wireless
offering prospectus to reflect that the initial public offering is being made by
separate prospectus. The alternate pages appear in this registration statement
immediately following the complete prospectus for the underwritten offering.
Final forms of each prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b).
<PAGE>
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 it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 27, 2000
PROSPECTUS
25,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
------------------
This is our initial public offering of Class A common stock. We are offering
25,000,000 shares of our Class A common stock.
Following this offering, we will have Class A common stock and Class B
common stock outstanding and our Class B common stock will represent
approximately 96.1% of the total combined voting power of our outstanding common
stock.
We have applied for quotation of our Class A common stock on the Nasdaq
National Market under the symbol "DCEL." We expect the initial public offering
price to be between $20 and $22 per share.
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE
8.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Dobson Communications Corporation............... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to an
aggregate of 293,059 additional shares of Class A common stock and the
shareholders listed on page 90 have granted the underwriters a 30-day option to
purchase up to an aggregate of 3,456,941 additional shares of Class A common
stock, each on the same terms and conditions set forth above solely to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The underwriters expect to deliver the shares of Class A common stock on or
about , 2000.
------------------------
LEHMAN BROTHERS BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 8
Use of Proceeds........................ 15
Dividend Policy........................ 15
Dilution............................... 16
Capitalization......................... 17
The American Cellular Acquisition...... 19
Unaudited Pro Forma Consolidated
Financial Data....................... 23
Selected Consolidated Financial and
Other Data........................... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
Industry Overview...................... 52
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Business............................... 54
Management............................. 75
Certain Transactions................... 84
Principal and Selling Shareholders..... 89
The Recapitalization................... 92
Description of Capital Stock........... 94
Shares Eligible for Future Sale........ 102
Federal Income Tax Considerations...... 104
Underwriting........................... 107
Legal Matters.......................... 112
Experts................................ 113
Where You Can Find More Information.... 114
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
WHO WE ARE
We are a leading provider of rural and suburban cellular telephone services.
Our systems cover a total population of approximately 5.9 million and, as of
September 30, 1999 we had approximately 424,000 subscribers with an aggregate
market penetration of approximately 7.2%. We serve markets in portions of
Arizona, California, Kansas, Maryland, Missouri, New York, Ohio, Oklahoma,
Pennsylvania, Texas and West Virginia. For the nine months ended September 30,
1999, we had total revenues of $235.1 million and a net loss from continuing
operations before extraordinary items of $47.1 million.
We began providing cellular telephone service in 1990 in Oklahoma and the
Texas Panhandle. We have since expanded our cellular operations, primarily
through the acquisition of cellular systems and licenses located in
underdeveloped rural and suburban markets that are adjacent to major
metropolitan areas. Our markets tend to have a high concentration of expressway
corridors and roaming activity. Since 1996, we have completed 14 acquisitions,
increasing the total population we serve by approximately 5.7 million and
expanding the geographic scope of our operations. We have upgraded substantially
all of our systems to digital technology and we now offer digital voice and
digital feature services to approximately 90% of our covered population. At
September 30, 1999, we had approximately $1.1 billion of consolidated
indebtedness and a consolidated stockholders' deficit of approximately
$296.2 million. We expect to incur significant additional indebtedness to fund
our capital needs in the future as we continue to acquire, develop and construct
our cellular systems and grow our subscriber base.
We have a strategic relationship with AT&T Wireless Services, Inc.,
including a coast-to-coast roaming agreement that allows our customers to
utilize wireless systems owned by AT&T Wireless, and customers of AT&T Wireless
to utilize our cellular systems. We also have roaming agreements with AirTouch
Communications, Inc., Southwestern Bell Mobile Systems, Inc. and other wireless
providers. We have entered into an equally-owned joint venture with AT&T
Wireless to acquire American Cellular Corporation for approximately
$2.4 billion, including fees and expenses. American Cellular is one of the
largest independent rural cellular telephone operators in the United States.
American Cellular's systems cover a total population of approximately
4.8 million and, as of September 30, 1999 it had approximately
398,000 subscribers with an aggregate market penetration of approximately 8.3%.
American Cellular serves markets in portions of Kentucky, Michigan, Minnesota,
New York, Ohio, Pennsylvania, Tennessee, West Virginia and Wisconsin. The
closing of this offering is not contingent on the completion of the American
Cellular acquisition, which we expect to occur in the first quarter of 2000.
OUR STRATEGY
Our strategy is to continue to acquire, develop and operate rural and
suburban cellular systems. The principal elements of our strategy include:
- acquiring and integrating additional cellular systems and licenses in
rural and suburban areas located adjacent to major metropolitan areas
served by operators with whom we have or expect to establish strategic
relationships;
- further increasing the capacity and coverage of our cellular systems and
those we acquire and capitalizing on our service quality, local sales
presence and commitment to the community to attract additional
subscribers, increase the use of our systems by existing subscribers,
increase roaming activity and further enhance the overall efficiency of
our network; and
- capitalizing on our strategic relationship with AT&T Wireless and entering
into roaming agreements with other operators to allow our subscribers to
use the wireless systems of operators in neighboring metropolitan areas
and rural areas at favorable rates.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered By This
Prospectus................................ 25,000,000 shares
Class A Common Stock Offered By Separate
Prospectus to
AT&T Wireless............................. 1,470,000 shares
Common Stock To Be Outstanding
After This Offering and The Concurrent
Offering to AT&T Wireless................. 26,470,000 shares of Class A common stock
64,523,450 shares of Class B common stock
90,993,450 total shares of common stock
Voting Rights............................. The Class A common stock and the Class B common stock
generally will vote together as a single class on all
matters submitted to a vote of shareholders, except as
required by law. Each share of Class A common stock is
entitled to one vote and each share of Class B common
stock is entitled to ten votes, except that each share
of Class B common stock is entitled to only one vote
with respect to any "going private" transaction. We will
also have authorized Class C common stock and Class D
common stock, which have no voting rights, except as
required by law.
Use of Proceeds........................... We intend to use the net proceeds of this offering and
the concurrent offering to AT&T Wireless as follows:
- $372.5 million as a capital contribution to our joint
venture with AT&T Wireless to acquire American Cellular;
- up to $74.2 million to redeem all outstanding shares
of our Class E preferred stock, which will be
outstanding following our recapitalization, held by
John W. Childs and entities which he owns or controls
and their co-investors; and
- the balance for working capital and other general
corporate purposes.
See "Use of Proceeds" and "The Recapitalization". We
will not receive any proceeds from the sale of Class A
common stock by the selling shareholders pursuant to the
over-allotment option.
Proposed Nasdaq National Market
Symbol.................................. DCEL
</TABLE>
------------------------
We were incorporated in Oklahoma on February 3, 1997, although our
predecessors have been engaged in the telecommunications business since 1936.
Our principal executive offices are located at Suite 200, 13439 North Broadway
Extension, Oklahoma City, Oklahoma 73114. Our telephone number is (405) 529-8500
and our internet address is WWW.DOBSON.NET. Information contained on our website
is not a part of this prospectus.
2
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain historical consolidated financial and
other data for:
- us as of and for each of the three years in the period ended December 31,
1998 and as of and for the nine month periods ended September 30, 1998 and
September 30, 1999;
- American Cellular as of and for the period from February 26, 1998 through
December 31, 1998, as of and for the period from February 26, 1998 through
September 30, 1998, and as of and for the nine months ended September 30,
1999; and
- American Cellular's predecessor, PriCellular Corporation, as of and for
each of the two years in the period ended December 31, 1997 and as of and
for the six months ended June 30, 1998.
We derived our summary historical consolidated financial data for each of
the three years in the period ended December 31, 1998, and as of and for the
nine months ended September 30, 1999 from our audited consolidated financial
statements included elsewhere in this prospectus. We derived our summary
historical consolidated financial data for the nine months ended September 30,
1998 from our unaudited consolidated financial statements included elsewhere in
this prospectus which, in our opinion, reflect all adjustments, consisting only
of normal recurring accruals, necessary to present fairly the data presented for
such period.
We derived American Cellular's summary historical consolidated financial
data for the period from February 26, 1998 through December 31, 1998 and for the
nine months ended September 30, 1999 from its audited consolidated financial
statements included elsewhere in this prospectus. We derived the summary
historical consolidated financial data for American Cellular's predecessor,
PriCellular, for the six months ended June 30, 1998 and for each of the two
years in the period ended December 31, 1997 from its audited consolidated
financial statements included elsewhere in this prospectus. We derived American
Cellular's summary historical condensed consolidated financial data for the
period from February 26, 1998 through September 30, 1998 from its unaudited
condensed consolidated financial statements included elsewhere in this
prospectus, which, in the opinion of American Cellular's management, reflect all
adjustments, consisting only of normal recurring accruals considered necessary
for a fair presentation of the results for the interim period.
Our operating results and those of American Cellular for the periods ended
September 30, 1999, September 30, 1998 and June 30, 1998 are not necessarily
indicative of results that may be expected for a full year. American Cellular
was formed on February 26, 1998, but it did not have operations until it
acquired PriCellular on June 25, 1998. You should read the following historical
consolidated financial data in conjunction with "Capitalization," "Selected
Consolidated Financial and Other 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.
In the following tables, our EBITDA, before other income and minority
interests, represents earnings (loss) from continuing operations before interest
income, interest expense, income taxes, depreciation, amortization, and other
income and minority interests in income of subsidiaries. American Cellular's
EBITDA, before other income and nonrecurring charges, represents earnings (loss)
from continuing operations before interest income, interest expense, income
taxes, depreciation, amortization, and other income and nonrecurring charges. We
believe that EBITDA provides meaningful additional information concerning a
company's operating results and its ability to service its long-term debt and
other fixed obligations and to fund its continued growth. Many financial
analysts consider EBITDA to be a meaningful indicator of an entity's ability to
meet its future financial obligations, and they consider growth in EBITDA to be
an indicator of future profitability, especially in a capital-intensive industry
such as wireless telecommunications. You should not construe EBITDA as an
alternative to operating income (loss) as determined in accordance with GAAP, as
an alternative to cash flows from operating activities as determined in
accordance with GAAP or as a measure of liquidity. Because EBITDA is not
calculated in the same manner by all companies, it may not be comparable to
other similarly titled measures of other companies. See our consolidated
statement of cash flows in our consolidated financial statements included
elsewhere in this prospectus.
We determine market penetration by dividing our total subscribers at the end
of the period by our estimated total population. We calculate average monthly
cellular churn rates based on the number of cellular subscriber cancellations
during the period as a percentage of the weighted average total cellular
subscribers for the period. Average monthly revenues per cellular subscriber
exclude equipment sales and other revenues. For a more complete description of
the calculation of average monthly revenue per cellular subscriber, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Revenues."
3
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Service revenues............................. $ 17,593 $ 38,410 $ 69,402 $ 47,769 $ 117,892
Roaming revenues............................. 7,852 26,263 66,479 45,916 107,296
Equipment sales and other revenues........... 1,494 2,041 4,154 2,661 9,952
----------- ------------ ------------ ------------ ------------
Total operating revenues................... 26,939 66,714 140,035 96,346 235,140
----------- ------------ ------------ ------------ ------------
Operating expenses:
Cost of service.............................. 6,119 16,431 33,267 22,603 35,762
Cost of equipment............................ 2,571 4,046 8,360 5,166 18,562
Marketing and selling........................ 4,462 10,669 22,393 14,856 34,957
General and administrative................... 3,902 11,555 26,051 16,219 40,795
Depreciation and amortization................ 5,241 16,798 47,110 29,714 100,020
----------- ------------ ------------ ------------ ------------
Total operating expenses................... 22,295 59,499 137,181 88,558 230,096
----------- ------------ ------------ ------------ ------------
Operating income............................... 4,644 7,215 2,854 7,788 5,044
Interest expense............................... (4,284) (27,640) (38,979) (25,039) (82,365)
Other income (expense), net.................... (1,503) 2,777 3,858 3,304 3,411
Minority interests in income of subsidiaries... (675) (1,693) (2,487) (1,963) (2,125)
Income tax benefit............................. 593 3,625 11,469 4,864 28,892
----------- ------------ ------------ ------------ ------------
Loss from continuing operations before
extraordinary items.......................... (1,225) (15,716) (23,285) (11,046) (47,143)
----------- ------------ ------------ ------------ ------------
Income (loss) from discontinued operations..... 331 332 (27,110) (17,185) (41,811)
Extraordinary items............................ (527) (1,350) (2,166) (2,644) --
----------- ------------ ------------ ------------ ------------
Net loss....................................... (1,421) (16,734) (52,561) (30,875) (88,954)
Dividends on preferred stock................... (849) (2,603) (23,955) (16,749) (50,513)
----------- ------------ ------------ ------------ ------------
Net loss applicable to common stockholders..... $ (2,270) $ (19,337) $ (76,516) $ (47,624) $ (139,467)
=========== ============ ============ ============ ============
Net loss applicable to common stockholders per
common share................................. $ (4.80) $ (40.87) $ (161.57) $ (100.65) $ (283.50)
=========== ============ ============ ============ ============
Weighted average common shares outstanding..... 473,152 473,152 473,564 473,152 491,954
=========== ============ ============ ============ ============
Net loss applicable to common stockholders per
common share, after recapitalization......... $ (0.04) $ (0.37) $ (1.45) $ (0.90) $ (2.54)
=========== ============ ============ ============ ============
Weighted average common shares outstanding,
after the recapitalization and stock split... 52,728,059 52,728,059 52,773,972 52,728,059 54,823,354
=========== ============ ============ ============ ============
OTHER FINANCIAL DATA:
Cash flows provided by operating activities.... $ 5,239 $ 6,908 $ 28,024 $ 10,257 $ 11,527
Cash flows used in investing activities........ (43,894) (217,640) (999,063) (293,209) (93,380)
Cash flows provided by financing activities.... 38,904 212,505 990,610 285,240 59,869
EBITDA, before other income and minority
interests.................................... 9,885 24,013 49,964 37,502 105,064
EBITDA, before other income and minority
interests, as a percentage of total
revenue...................................... 36.7% 36.0% 35.7% 38.9% 44.7%
Capital expenditures........................... $ 13,536 $ 17,773 $ 55,289 $ 23,793 $ 40,174
OTHER DATA:
Cellular subscribers (at period end)........... 34,000 100,000 352,000 163,000 424,000
Cellular penetration (at period end)........... 5.8% 6.1% 6.8% 5.8% 7.2%
Average monthly cellular churn rates........... 1.8% 1.9% 2.0% 1.9% 1.9%
Average monthly revenues per cellular
subscriber, excluding roaming revenues....... $ 48 $ 41 $ 40 $ 40 $ 34
Average monthly revenues per cellular
subscriber, including roaming revenues....... $ 70 $ 69 $ 79 $ 80 $ 65
Cell sites (at period end)..................... 67 135 414 210 459
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1999
----------------
($ IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 339
Net fixed assets.......................................... 187,291
Total assets.............................................. 1,666,383
Total debt................................................ 1,059,458
Mandatorily redeemable preferred stock.................... 525,797
Stockholders' deficit..................................... (296,249)
</TABLE>
4
<PAGE>
AMERICAN CELLULAR CORPORATION
<TABLE>
<CAPTION>
PRICELLULAR
(THE PREDECESSOR COMPANY) AMERICAN CELLULAR
---------------------------------- ----------------------------------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED SIX MONTHS FEBRUARY 26, 1998 FEBRUARY 26, 1998 NINE MONTHS
DECEMBER 31, ENDED (DATE OF FORMATION) (DATE OF FORMATION) ENDED
-------------------- JUNE 30, THROUGH THROUGH SEPTEMBER 30,
1996 1997 1998 DECEMBER 31, 1998 SEPTEMBER 30, 1998 1999
--------- -------- ----------- ------------------- ------------------- --------------
($ IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......... $ 112,616 $181,000 $108,670 $ 122,409 $ 61,105 $212,069
Operating expenses:
Cost of service.......... 29,571 48,691 20,911 10,917 4,922 18,154
Cost of equipment........ 10,073 12,841 5,365 7,271 3,246 13,128
Selling, general and
administrative......... 34,502 53,485 30,230 37,625 16,384 54,537
Depreciation and
amortization........... 19,537 28,759 17,553 45,569 22,506 72,607
Nonrecurring charges..... -- -- 4,889 4,355 4,154 --
--------- -------- -------- ----------- ----------- --------
Total operating
expenses............... 93,683 143,776 78,948 105,737 51,212 158,426
--------- -------- -------- ----------- ----------- --------
Operating income........... $ 18,933 $ 37,224 $ 29,722 $ 16,672 $ 9,893 $ 53,643
========= ======== ======== =========== =========== ========
OTHER FINANCIAL DATA:
Cash flows provided by
operating activities..... $ 39,371 $ 49,026 $ 11,665 $ 35,295 $ 33,555 $ 43,128
Cash flows used in
investing activities..... (200,969) (36,284) (80,327) (1,512,745) (1,507,978) (31,394)
Cash flows provided by
(used in) financing
activities............... 138,518 (51,749) 58,765 1,511,465 1,511,465 (2,419)
EBITDA, before other income
and nonrecurring
charges.................. 38,470 65,983 52,164 66,596 36,553 126,250
EBITDA, before other income
and nonrecurring charges,
as a percentage of total
revenue.................. 34.2% 36.5% 48.0% 54.4% 59.8% 59.5%
Capital expenditures....... $ 29,470 $ 25,717 $ 20,517 $ 24,260 $ 6,625 $ 43,581
OTHER DATA:
Cellular subscribers (at
period end).............. 139,800 243,700 286,000 334,500 305,100 398,000
Cellular penetration (at
period end).............. 3.6% 5.3% 5.9% 6.8% 6.2% 8.3%
Average monthly cellular
churn rates.............. 1.6% 1.8% 1.4% 1.8% 1.8% 1.7%
</TABLE>
5
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
We derived the following summary unaudited pro forma consolidated financial
data from the unaudited pro forma consolidated financial statements included
elsewhere in this prospectus. The summary unaudited pro forma consolidated
financial data are based on currently available information and assumptions that
we believe are reasonable. The summary unaudited pro forma consolidated
financial data do not purport to represent what our results of operations would
have been if the pro forma transactions had been completed on the dates
indicated, nor do they purport to indicate our future financial position or
results of operations. The summary unaudited pro forma consolidated financial
data give effect to the particular transactions, as of the dates, described in
"Unaudited Pro Forma Consolidated Financial Data." You should read the summary
unaudited pro forma consolidated financial data in conjunction with
"Capitalization," "Unaudited Pro Forma Consolidated Financial Data," "Selected
Consolidated Financial and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "The Recapitalization" and the
financial statements and related notes that we include elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
--------------------------- ---------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Service revenues........................................ $ 69,402 $ 134,188 $117,892 $ 117,892
Roaming revenues........................................ 66,479 94,514 107,296 107,296
Equipment sales and other revenues...................... 4,154 11,601 9,952 9,952
--------- ----------- -------- -----------
Total operating revenues.............................. 140,035 240,303 235,140 235,140
--------- ----------- -------- -----------
Operating costs and expenses:
Cost of services........................................ 33,267 43,532 35,762 35,762
Cost of equipment....................................... 8,360 18,804 18,562 18,562
Marketing and selling................................... 22,393 37,323 34,957 34,957
General and administrative.............................. 26,051 42,412 40,795 40,795
Depreciation and amortization........................... 47,110 117,916 100,020 100,020
--------- ----------- -------- -----------
Total operating expenses.............................. 137,181 259,987 230,096 230,096
--------- ----------- -------- -----------
Operating income (loss)................................... 2,854 (19,684) 5,044 5,044
Interest expense.......................................... (38,979) (86,473) (82,365) (73,314)
Equity in loss of unconsolidated subsidiary............... -- (59,146) -- (39,253)
Other income, net......................................... 3,858 3,539 3,411 3,411
--------- ----------- -------- -----------
Loss before minority interests and taxes.................. (32,267) (161,764) (73,910) (104,112)
Minority interests in income of subsidiaries.............. (2,487) (2,487) (2,125) (2,125)
Income tax benefit........................................ 11,469 39,914 28,892 25,400
--------- ----------- -------- -----------
Loss from continuing operations........................... (23,285) (124,337) (47,143) (80,837)
Dividends on preferred stock.............................. (23,955) (57,962) (50,513) (47,122)
--------- ----------- -------- -----------
Loss from continuing operations applicable to
common stockholders....................................... $ (47,240) $ (182,299) $(97,656) $ (127,959)
========= =========== ======== ===========
Loss from continuing operations applicable to common
stockholders per common share............................. $ (99.75) $ (2.00) $(198.51) $ (1.41)
========= =========== ======== ===========
Weighted average common shares outstanding................ 473,564 90,993,450 491,954 90,993,450
========= =========== ======== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
--------------------------- ---------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OTHER DATA:
Cellular subscribers (at period end)...................... 352,000 352,000 424,000 424,000
Cellular penetration (at period end)...................... 6.8% 6.8% 7.2% 7.2%
Average monthly cellular churn rates...................... 2.0% 1.7% 1.9% 1.9%
Average monthly revenues per cellular subscriber,
excluding roaming revenues.............................. $ 40 $ 36 $ 34 $ 34
Average monthly revenues per cellular subscriber,
including roaming revenues.............................. $ 79 $ 61 $ 65 $ 65
Cell sites (at period end)................................ 414 414 459 459
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
------------------------
HISTORICAL PRO FORMA
---------- -----------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 339 $ 339
Net fixed assets.......................................... 187,291 187,291
Total assets.............................................. 1,666,383 2,046,137
Total debt................................................ 1,059,458 1,027,189
Mandatorily redeemable preferred stock.................... 525,797 440,797
Stockholders' equity (deficit)............................ (296,249) 259,602
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
BEFORE YOU DECIDE TO BUY OUR CLASS A COMMON STOCK.
RISKS RELATED TO OUR ACQUISITION STRATEGY
IF WE ARE UNABLE TO COMPLETE THE AMERICAN CELLULAR ACQUISITION, WE MAY BE LIABLE
FOR SUBSTANTIAL DAMAGES AND THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE SUBSTANTIALLY.
The closing of this offering is not contingent upon completion of the
American Cellular acquisition, which is not expected to occur until after we
complete this offering. The American Cellular acquisition is subject to a number
of closing conditions. If we are unable to complete the American Cellular
acquisition, we would not receive any of the benefits or synergies we expect to
receive from that acquisition. If the joint venture defaults in its obligation
to close the American Cellular acquisition, we will be required to pay our share
of any damages suffered by American Cellular based on our level of fault up to a
maximum of $500.0 million, or $100 million if the joint venture's default
results from the refusal of its bank lenders to provide funds under the joint
venture's credit facility other than as a result of the joint venture's fault.
See "The American Cellular Acquisition." If we have to pay substantial damages,
our results of operations and financial conditions could be adversely affected.
Moreover, the trading price of our common stock could decline substantially, and
you could lose all or part of your investment.
WE WILL NOT CONTROL THE AMERICAN CELLULAR JOINT VENTURE AND WE AND AT&T WIRELESS
COULD DISAGREE ABOUT ITS OPERATION AND STRATEGIC DIRECTION. IF THE JOINT
VENTURE IS UNSUCCESSFUL, IT COULD BE COSTLY AND DISRUPTIVE TO SEPARATE ANY OF
OUR OPERATIONS THAT HAD BEEN INTEGRATED WITH IT.
We and AT&T Wireless will each own a 50% interest in the joint venture that
will own American Cellular. A management committee of four persons, two selected
by us and two by AT&T Wireless, will govern the joint venture. The management
committee will act by a majority vote except for specified matters, which will
require unanimous consent. We will be responsible for the day-to-day operation
of American Cellular. However, the approval requirements imposed by the joint
venture agreement may limit our flexibility and ability to implement strategies
and tactics that we believe are in our and the joint venture's best interests.
In the event the joint venture is unsuccessful, we may be required to unwind
those of our operations that had been integrated with American Cellular, which
could be costly and adversely affect our business and results of operations.
WE ARE STILL NEGOTIATING THE DEFINITIVE AGREEMENTS RELATING TO OUR JOINT VENTURE
WITH AT&T WIRELESS. THE TERMS OF THOSE AGREEMENTS MAY NOT BE THE SAME AS THOSE
WE DESCRIBE IN THIS PROSPECTUS, AND MAY BE LESS FAVORABLE TO US THAN WE
ANTICIPATE.
We have not completed the negotiations with AT&T Wireless with respect to:
- our agreement to manage American Cellular following its acquisition by the
American Cellular joint venture; or
- AT&T Wireless' roaming agreement with respect to the American Cellular
joint venture.
While we have a term sheet with AT&T Wireless with respect to these
agreements, which we describe in this prospectus, the final terms of these
agreements may vary in a manner that may be less favorable to us than as
provided in our term sheet.
8
<PAGE>
WE MAY NEED TO CONTRIBUTE ADDITIONAL FUNDS TO THE AMERICAN CELLULAR JOINT
VENTURE TO PROTECT OUR INVESTMENT IN IT, WHICH COULD STRAIN OUR FINANCIAL
RESOURCES AND LIMIT OUR ABILITY TO PURSUE OTHER BUSINESS OPPORTUNITIES.
American Cellular has required, and will likely continue to require,
substantial capital to develop, expand and upgrade its cellular systems. The
American Cellular joint venture has preliminarily budgeted approximately
$70.0 million for capital expenditures in 2000. We cannot be certain that the
American Cellular joint venture will generate sufficient cash flows from
operations or otherwise have sufficient access to capital to meet all of its
debt service, capital expenditure, working capital or other operating needs. If
it does not, we may be required to fund our 50% share of any capital needs of
the American Cellular joint venture in order to protect our substantial
investment in it. The need to provide additional funding to the joint venture
may adversely affect our financial condition and limit our ability to pursue
other business opportunities that may be advantageous to us.
THE NUMBER OF CELLULAR SYSTEMS AND BUSINESSES AVAILABLE FOR ACQUISITION IS
LIMITED. MOREOVER, OUR ACQUISITION OF CELLULAR SYSTEMS MAY BE UNSUCCESSFUL,
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR GROWTH.
A substantial part of our growth has been and is expected to continue to be
from acquisitions of cellular systems or licenses. There is substantial
competition for the types of cellular systems we target. To the extent
securities analysts and investors anticipate that we will continue to grow
through acquisitions and we do not do so, our stock price could decline, perhaps
substantially. Moreover, we could expend a substantial amount of time and
capital pursuing acquisitions we do not consummate, which could adversely affect
our business, financial condition and results of operations.
The expansion of our operations, including through the American Cellular
acquisition, 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. The
integration of acquired cellular systems and businesses may 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 and therefore must be replaced. 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 integrate successfully the cellular systems or
businesses we may acquire, including American Cellular.
RISKS RELATED TO OUR BUSINESS
WE HAVE HISTORY OF NET LOSSES. WE EXPECT TO INCUR SIGNIFICANT ADDITIONAL LOSSES
IN THE FUTURE AND OUR OPERATING RESULTS COULD FLUCTUATE SIGNIFICANTLY ON A
QUARTERLY AND ANNUAL BASIS. AS A RESULT, OUR STOCK PRICE COULD FALL
SUBSTANTIALLY AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
We sustained net losses from continuing operations before extraordinary
items of $47.1 million for the nine months ended September 30, 1999,
$23.3 million in 1998, $15.7 million in 1997 and $1.2 million in 1996. On a pro
forma basis after giving effect to the transactions described in our unaudited
pro forma consolidated financial data appearing elsewhere in this prospectus, we
would have incurred a loss from continuing operations of $80.8 million for the
nine months ended September 30, 1999 and $124.3 million for 1998. We expect to
incur significant additional losses during the next several years while we
continue to acquire, develop and construct our cellular systems and grow our
subscriber base. Similarly, we expect American Cellular to generate net losses
over the next several years, and we will record our proportionate share of those
losses in the line item entitled "Investment in unconsolidated subsidiary" in
our balance sheet and "Equity in income (loss) of unconsolidated subsidiary" in
our statement of operations. Moreover, we have a significant amount of
amortization
9
<PAGE>
costs relating to license acquisition costs from our past acquisitions. We
expect that the losses we will recognize from our investment in American
Cellular and the amortization of our license acquisition costs, together with
our substantial interest expense and preferred stock dividend requirements, will
cause us to continue to experience net losses for the foreseeable future.
In addition, we believe that our future operating results and cash flows
will be subject to quarterly and annual fluctuations due to many factors,
several of which are outside our control. These factors include increased costs
we may incur in connection with the buildout of our networks and the further
development, expansion and upgrade of our cellular systems and those we may
acquire and fluctuations in the demand for our services. We cannot assure you
that we will achieve or sustain profitability. To the extent our quarterly or
annual results of operations fluctuate significantly and do not meet the
expectations of investors and securities analysts, our stock price could fall
substantially and you could lose all or part of your investment.
OUR CURRENT STOCKHOLDERS WILL CONTINUE TO CONTROL US AFTER THIS OFFERING AND
COULD PROHIBIT A FUTURE CHANGE OF CONTROL TRANSACTION THAT YOU MIGHT CONSIDER
BENEFICIAL TO YOU.
Immediately following this offering, our current shareholders, including
Everett R. Dobson, our Chairman of the Board and Chief Executive Officer;
Russell L. Dobson, one of our directors and Everett Dobson's father; John W.
Childs and entities which he owns or controls and their co-investors; and AT&T
Wireless will beneficially own an aggregate of 64,523,450 shares of our Class B
common stock, representing approximately 96.1% of the total voting power of our
outstanding common stock or 95.5% if the underwriters exercise their
over-allotment option in full. Everett R. Dobson will beneficially own
53,164,368 shares of our Class B common stock, representing approximately 79.1%
of the total voting power of our outstanding common stock, immediately following
this offering. Investors purchasing Class A common stock in this offering will
lack meaningful voting power in approving decisions of the board of directors or
influencing our strategic direction. Without the approval of the holders of our
Class B common stock, we will be unable to consummate transactions involving an
actual or potential change of control, including transactions in which you might
otherwise receive a premium for your shares over then current market prices.
WE HAVE A HISTORY OF ENTERING INTO SIGNIFICANT TRANSACTIONS WITH OUR CONTROLLING
STOCKHOLDERS AND WE MAY DO SO IN THE FUTURE, POSSIBLY ON TERMS THAT YOU MAY
CONSIDER DISADVANTAGEOUS TO US.
In the past, we have entered into significant transactions with Everett R.
Dobson, Russell L. Dobson, and affiliates of John W. Childs. These transactions
have included investments in or loans to us by our affiliates and the sale of
assets by us to, or to us by, some of these parties. We describe these
transactions under "Certain Transactions." In addition, before this offering, we
will be transferring our wireline telephone subsidiary to our stockholders
through a stock dividend. It is possible that we will enter into future
transactions with some or all of these affiliates. Although we expect that any
future transactions will be on terms at least as favorable to us as those we
could obtain from an unaffiliated third party, we cannot assure you that this
will be the case or that you will consider the terms we obtain to be
advantageous.
WE DEPEND ON OUR ROAMING AGREEMENTS WITH AT&T WIRELESS AND OUR OTHER ROAMING
PARTNERS FOR A SUBSTANTIAL PORTION OF OUR REVENUES. IF AT&T WIRELESS WERE TO
TERMINATE ITS AGREEMENT WITH US, OUR RESULTS OF OPERATIONS WOULD BE HARMED
SUBSTANTIALLY.
Roaming revenues accounted for approximately 46% of our total revenues for
the nine months ended September 30, 1999. AT&T Wireless's customers accounted
for approximately 37% of our roaming revenues, or approximately 17% of our total
revenues, in that period. The roaming rates under our roaming agreements with
AT&T Wireless and our other roaming partners will decline over the next several
years. As a result, if we are unable to lower our operating costs or increase
roaming call volume, our operating income may decline. Moreover, our roaming
agreement with AT&T Wireless
10
<PAGE>
expires in January 2003, and AT&T Wireless may terminate that agreement earlier
if we breach any of its material terms.
OUR ROAMING PARTNERS, INCLUDING AT&T WIRELESS, ARE NOT PROHIBITED FROM COMPETING
WITH US IN MANY OF OUR MARKETS. OUR LICENSES DO NOT PRECLUDE OTHER OPERATORS
FROM OFFERING COMPETING CELLULAR OR WIRELESS SERVICES IN OUR MARKETS.
Our roaming agreements with AT&T Wireless and others generally do not
prevent them from acquiring licenses to provide competing services in our
markets. If any of our roaming partners were to acquire the required licenses
and buildout personal communications services networks in our markets, we could
lose a substantial portion of our roaming revenues in those markets. Although
AT&T Wireless has generally agreed not to build out personal communications
service networks in any of American Cellular's current markets for five years
after our joint venture acquires American Cellular, AT&T Wireless is not
contractually prohibited from building out a competing personal communications
service network in our markets.
We operate our cellular systems under licenses granted by the Federal
Communications Commission. However, the FCC currently authorizes substantial
competition in our markets from holders of other cellular, personal
communications service or enhanced specialized mobile radio licenses. Some of
our current or future competitors have or may have greater financial, personnel,
technical, marketing, sales and distribution resources than us.
WE HAVE A SIGNIFICANT AMOUNT OF INDEBTEDNESS. A SUBSTANTIAL PORTION OF OUR
OPERATING CASH FLOWS WILL BE DEDICATED TO DEBT SERVICE AND THIS COULD MAKE IT
DIFFICULT FOR US TO SURVIVE A DOWNTURN IN OUR BUSINESS.
We have a significant amount of indebtedness and we expect that we will
incur significant additional indebtedness in the future as a result of the
buildout and upgrade of our networks and future acquisitions. At September 30,
1999, on a pro forma basis after giving effect to the transactions described
elsewhere in this prospectus, we would have had approximately $1.0 billion of
consolidated indebtedness, approximately $440.8 million aggregate liquidation
preference of senior preferred stock and consolidated stockholders' equity of
approximately $259.6 million. Our current and future levels of debt could have
important consequences to you. For example, we will need to dedicate a
substantial portion of our operating cash flows to debt service, which will
reduce the internally generated funds available for working capital, capital
expenditures and other general corporate purposes. Moreover, because of our high
level of debt, it may be difficult for us to borrow additional funds for any of
those purposes or to finance future acquisitions or other business
opportunities.
THE RESTRICTIVE COVENANTS IN OUR DEBT AND SENIOR PREFERRED STOCK INSTRUMENTS MAY
LIMIT OUR OPERATING FLEXIBILITY. IF WE FAIL TO COMPLY WITH THESE COVENANTS OUR
LENDERS COULD DECLARE A DEFAULT UNDER OUR INDEBTEDNESS EVEN THOUGH WE MAY BE
ABLE TO MEET OUR DEBT SERVICE AND DIVIDEND OBLIGATIONS.
The instruments governing our indebtedness, including the credit facilities
of our subsidiaries, and the certificates of designation governing our senior
preferred stock, impose significant operating and financial restrictions on us.
These restrictions significantly limit, among other things, our ability and that
of our subsidiaries to incur additional indebtedness, pay dividends, repay
junior indebtedness, sell assets, make investments, engage in transactions with
affiliates, create liens and engage in some types of mergers or acquisitions. In
addition, our credit facilities require us to maintain specified financial
ratios and substantially all our assets are subject to liens securing our credit
facilities. These restrictions could limit our ability 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 to comply with these restrictions could lead to a
default under the terms of the relevant indebtedness even though we are able to
meet debt service and dividend obligations.
11
<PAGE>
IF OUR LENDERS ACCELERATE ANY OF OUR DEBT, WE MAY NOT HAVE THE RESOURCES TO
REPAY THAT DEBT. AN EVENT OF DEFAULT UNDER ANY OF OUR MATERIAL DEBT
INSTRUMENTS WOULD HARM OUR BUSINESS AND FINANCIAL CONDITION AND COULD CAUSE
THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE SIGNIFICANTLY.
If there were an event of a default under our credit facilities or other
indebtedness, the holders of the affected indebtedness could elect to declare
all of that indebtedness to be due and payable immediately, which, in turn,
could cause all of our other indebtedness to become due and payable. We cannot
assure you that we and our subsidiaries would have sufficient funds available,
or that we would have access to sufficient capital from other sources, to repay
any accelerated debt. Even if we could obtain additional financing, we cannot
assure you that the terms would be favorable to us. If the amounts outstanding
under our credit facilities were accelerated, our lenders could foreclose on
their liens on our assets and the stock of our subsidiaries. As a result, any
event of default could have a material adverse effect on our business and
financial condition, and could cause our stock price to decline substantially.
IF WE CANNOT OBTAIN THE ADDITIONAL FINANCING WE NEED TO CONTINUE EXPANDING OUR
SYSTEMS, OUR BUSINESS WOULD BE HARMED SUBSTANTIALLY.
We have required, and will likely continue to require, substantial capital
to further develop, expand and upgrade our cellular systems and those we may
acquire. We made capital expenditures of approximately $40.2 million during the
first nine months of 1999 and we expect our capital expenditures for the last
three months of 1999 to be approximately $50.0 million, excluding acquisitions.
We have budgeted approximately $90.0 million to $100.0 million for capital
expenditures in 2000. We may also require additional financing for future
acquisitions and to refinance our debt at its final maturities and to meet the
mandatory redemption provisions of our senior preferred stock. Our sources of
additional capital may include public and private equity and debt financings,
including vendor financing. The extent of the additional financing that we may
require will depend on the success of our operations. We may not be able to
obtain additional financing on terms acceptable to us and within the limitations
contained in the instruments governing our indebtedness and our senior preferred
stock, or any future financing arrangements. Moreover, our issuance of
additional equity securities may be dilutive to our stockholders. If we cannot
raise sufficient funds to meet our planned growth or debt and senior preferred
stock repayment obligations, including upon a change in control, we may delay or
abandon some or all of our planned expansion or seek to sell assets to raise
additional funds, which could materially limit our ability to compete in the
cellular industry and adversely affect the trading price for our Class A common
stock.
ON JANUARY 24, 2000 WE DISTRIBUTED THE STOCK OF OUR SUBSIDIARY, LOGIX, TO OUR
CURRENT STOCKHOLDERS. THE DISTRIBUTION OF THE LOGIX STOCK COULD HAVE ADVERSE
TAX CONSEQUENCES TO US.
We distributed the stock of our wireline telephone subsidiary, Logix
Communications Enterprises, to the current holders of our old Class A common
stock and our Class D preferred stock, effective January 24, 2000. We did not
seek a ruling from the Internal Revenue Service regarding the tax consequences
to us as a result of the distribution of Logix stock. While this distribution
was not conditioned on a favorable tax ruling, we did receive an opinion from
our independent public accountants, Arthur Andersen LLP, that this distribution
should not cause us to realize taxable income. That opinion, however, is not be
binding on the Internal Revenue Service. In addition, the nontaxable status of
the distribution may be adversely affected if the Dobson CC Limited Partnership
and Russell Dobson, and the distributees as a group, fail to retain a certain
percentage of the vote and value of the Logix stock for at least two years
following the distribution. If the distribution were taxable to us, we could
realize taxable income equal to the amount by which the value of Logix at the
time of the distribution exceeded our tax basis in Logix. To the extent our
accumulated net operating losses are not sufficient to offset the amount of
additional taxable income, we would be required to pay income tax based upon the
amount by which any additional taxable income exceeded our available net
12
<PAGE>
operating losses, plus any applicable penalties and interest. In this event our
ability to utilize net operating losses to offset future taxable income, if any,
would be diminished or eliminated.
WE DEPEND ON THIRD-PARTY SERVICE MARKS TO MARKET OUR PRODUCTS AND SERVICES. THE
LOSS OF THE RIGHT TO USE THESE SERVICE MARKS OR THE DIMINISHED MARKETING
APPEAL OF THESE 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
many of our license areas. American Cellular uses the registered service mark
CELLULAR ONE-Registered Trademark- for all of its services. We have agreements
with Cellular One Group and Vodafone AirTouch PLC that govern our use of the
CELLULAR ONE-Registered Trademark- and AIRTOUCH-TM-
CELLULAR-Registered Trademark- service marks, respectively. Under these
agreements, we must meet specified operating and service quality standards for
our systems. If the owners of these service marks terminate our license
agreements because we fail to meet the applicable operating or service quality
standards, or if the names CELLULAR ONE-Registered Trademark- or AIRTOUCH-TM-
CELLULAR-Registered Trademark- were to suffer diminished marketing appeal, our
ability both to attract new subscribers and to retain existing subscribers in
the applicable markets could be materially impaired.
OUR BUSINESS DEPENDS ON THE EFFORTS OF OUR KEY PERSONNEL. THE LOSS OF KEY
PERSONNEL IN A COMPETITIVE EMPLOYMENT ENVIRONMENT COULD AFFECT OUR GROWTH AND
FUTURE SUCCESS.
Our success depends on the continued employment of Everett R. Dobson, our
chief executive officer, G. Edward Evans, our president, and Bruce R.
Knooihuizen, our chief financial officer, any of whom may terminate their
employment with us at any time. We have no formal employment agreements with any
of our key employees. There is intense competition for qualified personnel in
our industry and the limited availability of qualified individuals could become
an issue of increasing concern in the future. Our financial condition depends
upon qualified personnel implementing a successful business plan. The loss of
any of the individuals listed above could adversely affect our business.
OUR BUSINESS IS REGULATED AND THERE IS POTENTIAL FOR ADVERSE REGULATORY CHANGE.
WE MAY BE UNABLE TO OBTAIN REGULATORY APPROVALS WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR OPERATIONS AND THE TRADING PRICE OF OUR COMMON STOCK.
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. We have experienced
substantial growth through acquisitions, each of which required review by the
FCC. If FCC approvals of any of our future acquisitions were substantially
delayed or denied, we may experience a substantial reduction in the growth of
our future revenues and results of operations and the trading price of our
common stock could decline. 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 and the trading price of our common
stock. In addition, some aspects of the Telecommunications Act of 1996 place
additional burdens upon us or subject us to increased competition and increase
our costs of doing business. All of our cellular licenses are subject to renewal
upon expiration of each license's initial ten-year term. Grants of cellular
renewals are based upon FCC rules establishing a presumption in favor of
licensees that have complied with their regulatory obligations during the
ten-year license period. However, we cannot assure you that the FCC will grant
us any renewal applications or that our future applications will be free from
challenge.
Several states have proposed or enacted legislation that would limit or
prohibit the use or possession of mobile phones while driving an automobile. If
adopted, this legislation could reduce the minutes of use by our customers which
could adversely affect our operating revenue and cash flow from operating
activities.
13
<PAGE>
RISKS RELATED TO THIS OFFERING
THERE MAY NOT BE AN ACTIVE MARKET FOR OUR CLASS A COMMON STOCK AND ANY FUTURE
TRADING PRICE OF OUR COMMON STOCK MAY DECLINE, MAKING IT DIFFICULT FOR YOU TO
SELL YOUR STOCK.
This is our initial public offering, which means that there is no current
market for our Class A common stock. We cannot assure you that after this
offering our stock will be traded actively. An illiquid market for our stock may
result in price volatility and poor execution of buy and sell orders for
investors.
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This market volatility
could depress the price of our Class A common stock without regard to our
operating performance. In addition, our operating results may be below the
expectations of public market analysts and investors. If this were to occur, the
market price of our common stock could decrease, perhaps significantly.
FUTURE SALES OF OUR CLASS A COMMON STOCK COULD ADVERSELY AFFECT ITS MARKET PRICE
AND IMPEDE OUR ABILITY TO RAISE CAPITAL THROUGH FUTURE ISSUANCES OF EQUITY
SECURITIES.
Sales of substantial amounts of our common stock in the public market
following this offering, or the appearance that a large number of shares is
available for sale, could adversely affect the market price for our Class A
common stock. The number of shares of our common stock available for sale in the
public market will be limited by 180-day lock-up agreements with the holders of
all of our currently outstanding shares of common stock and options. However,
Lehman Brothers Inc. and Banc of America Securities LLC may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. In addition to the adverse effect a
price decline could have on holders of our common stock, that decline would
likely impede our ability to raise capital through the issuance of additional
shares of common stock or other equity securities. See "Shares Eligible for
Future Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION OF APPROXIMATELY $26.72 PER
SHARE.
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding Class A common stock
immediately after this offering. Accordingly, if you purchase our Class A common
stock in this offering, you will pay a price per share that substantially
exceeds the book value of our tangible assets after subtracting our liabilities
and you will contribute more dollars per share than did our stockholders. As a
result, you will incur immediate and substantial dilution of $26.72 in the net
tangible book value per share of the common stock from the price you pay for our
Class A common stock in this offering.
THERE ARE RISKS THAT MAY MAKE IT DIFFICULT FOR US TO ACHIEVE THE OUTCOMES
PREDICTED IN OUR FORWARD-LOOKING STATEMENTS.
Many of the statements included in this prospectus, including the
description of our plans, strategies, capital expenditures, Year 2000
preparedness, pending or possible acquisitions, anticipated cost savings and
financing plans 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 by the use of terminology such as
"may," "will," "expect," "intend," "plan," "estimate," "anticipate," "believe,"
or similar phrases. Our actual future performance could differ materially from
these forward-looking statements. These forward-looking statements involve a
number of risks and uncertainties. Important factors that could cause actual
results to differ materially from our expectations include those risks
identified in the foregoing "Risk Factors," as well as other matters not yet
known to us or not currently considered material by us.
We caution you not to place undue reliance on these forward-looking
statements. All written and oral forward-looking statements attributable to us
or persons acting on our behalf are qualified in their entirety by these
cautionary statements.
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 25,000,000 shares of Class A common
stock in this offering and 1,470,000 shares of Class A common stock in the
concurrent offering to AT&T Wireless will be approximately $518.9 million, or
$529.7 million if the underwriters exercise their over-allotment option in full,
at an assumed initial public offering price of $21 per share in this offering
and an assumed offering price of $19.79 per share in the concurrent offering to
AT&T Wireless, and after deducting underwriting discounts and commissions and
estimated offering expenses. We will not receive any proceeds from the sale of
Class A common stock by the selling shareholders pursuant to the underwriters'
over-allotment option.
We intend to use $372.5 million of the net proceeds of this offering as a
capital contribution to our joint venture with AT&T Wireless. The joint venture
will use these proceeds, together with an equivalent contribution to the joint
venture by AT&T Wireless and proceeds from the joint venture's bank credit
facility, to acquire American Cellular. We intend to use up to $74.2 million of
the net proceeds of this offering to redeem all outstanding shares of our
Class E preferred stock, which will be outstanding following our
recapitalization, held by John W. Childs and entities which he owns or controls
and their co-investors. To the extent the net proceeds of this offering are
insufficient to complete our capital contribution to our joint venture with AT&T
Wireless and redeem our Class D and Class E preferred stock, we will use funds
available to us from our credit facilities and other sources. We intend to use
any remaining net proceeds for working capital and other general corporate
purposes.
The closing of this offering is not contingent upon completion of the
American Cellular acquisition. If we do not complete that acquisition, we intend
to use the net proceeds otherwise allocated for that purpose:
- to reduce our outstanding indebtedness and, potentially, to redeem a
portion of our senior preferred stock;
- to pay our share of any damages to American Cellular that may arise under
the American Cellular merger agreement; and
- for working capital and other general corporate purposes.
See "The Recapitalization" for a discussion of the shares of Class E
preferred stock that will be issued and redeemed pursuant to the
recapitalization. We intend to invest the net proceeds of this offering and our
concurrent offering to AT&T Wireless in short-term, interest bearing, investment
grade securities pending their use as described above. See "The American
Cellular Acquisition."
DIVIDEND POLICY
We paid cash dividends of approximately $7.6 million to our common
stockholders in 1997. Since then, we have not paid any cash dividends to our
common stockholders. See "Certain Transactions." We currently intend to retain
all of our earnings to finance our operations, repay indebtedness and fund
future growth. We do not expect to pay any dividends on our common stock for the
foreseeable future. In addition, covenants contained in the instruments
governing our bank credit facilities and our outstanding preferred stock limit
our ability to pay cash dividends on our common stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources" and "Description of Capital
Stock--Preferred Stock."
15
<PAGE>
DILUTION
At September 30, 1999, we had a deficit in net tangible book value of
approximately $(1.0) billion, or $(16.11) per share of Class A common stock. Net
tangible book value per share of Class A common stock at any date represents the
amount of our total tangible assets minus total liabilities divided by the total
number of our outstanding shares of Class A common stock after giving effect to
our recapitalization. After giving effect to the sale of the shares of Class A
common stock in this offering at an assumed initial public offering price of $21
per share (the midpoint of the range shown on the cover page of this prospectus)
and the concurrent offering to AT&T Wireless at an assumed offering price of
$19.79 per share, and the application of the estimated net proceeds as described
in "Use of Proceeds," our pro forma deficit in net tangible book value would
have been approximately $(520.3) million, or $(5.72) per share. Thus, under
these assumptions, purchasers of our Class A common stock offered by this
prospectus will pay $21 per share and will receive shares with a net tangible
book value per share of Class A common stock of $(5.72), which represents an
immediate dilution of $26.72 per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $ 21.00
------------
Net tangible book value per share of Class A common stock at
September 30, 1999........................................ (16.11)
Increase in pro forma net tangible book value per share of
Class A common stock attributable to new investors........ 10.39
------------
Pro forma net tangible book value per share of Class A
common stock after this offering.......................... (5.72)
------------
Dilution per share of Class A common stock to new
investors................................................. $ 26.72
============
</TABLE>
The foregoing computation of dilution does not include:
- shares of Class C common stock and Class D common stock that we have
reserved for issuance upon the exercise of options granted under our 1996
stock option plan; or
- shares of Class A common stock that we have reserved for issuance upon the
exercise of options that may be granted under our 2000 stock incentive
plan.
See "Capitalization" and "The Recapitalization."
16
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 1999 adjusted to reflect our recapitalization described in "The
Recapitalization", and on a pro forma basis to reflect:
- the consummation of this offering of 25,000,000 shares of Class A common
stock at an assumed initial public offering price of $21 per share and the
concurrent offering of 1,470,000 shares of Class A common stock to AT&T
Wireless at an assumed offering price of $19.79 per share;
- our acquisition of a 50% interest in the American Cellular joint venture
and its acquisition of American Cellular;
- the redemption of all of our outstanding Class E preferred stock;
- the establishment of a new credit facility to replace the existing credit
facilities of our subsidiaries, Dobson Operating Company and Dobson
Cellular Operations Company;
- the purchase of $159.6 million aggregate principal amount of our 11 3/4%
senior notes using proceeds provided by our new bank credit facility; and
- the distribution, prior to the consummation of this offering, of all of
the outstanding capital stock of our subsidiary, Logix, to our current
shareholders.
You should read this table together with "Selected Consolidated Financial
and Other Data," "Unaudited Pro Forma Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto included
elsewhere in this prospectus.
If our joint venture with AT&T Wireless does not complete the American
Cellular acquisition, cash and cash equivalents on a pro forma basis would
increase by $372.5 million. In that event, we intend to use the net proceeds
allocated for the American Cellular joint venture as discussed under "Use of
Proceeds."
The term "restricted investments" includes securities that we have pledged
to secure interest payments on our Dobson/Sygnet 12 1/4% senior notes. The
September 30, 1999 pro forma information does not reflect the consummation of
our pending acquisitions, which have an aggregate purchase price of
$284.0 million, including expected costs associated with the acquisitions. We
expect to fund these acquisitions by drawing on our bank facilities.
In addition, certain of our existing stockholders and optionholders have the
right to acquire shares of our Class D preferred stock from the remaining
stockholders. The following table does not reflect the exercise of this option.
See "The Recapitalization" for a description of how the exercise of this option
would affect our capitalization.
The following table does not include:
- 4,226 shares of Class C common stock that we have reserved for issuance
upon the exercise of options granted under our 1996 stock option plan;
- 33,000 shares of Class D common stock that we have reserved for issuance
upon the exercise of options granted under our 1996 stock option plan; or
- 4,000,000 shares of Class A common stock that we have reserved for
issuance upon the exercise of options that may be granted under our
2000 stock incentive plan.
Shares of Class C common stock and Class D common stock are convertible into
shares of our Class A common stock at the rate of 111.44 shares of Class A
common stock for each share of Class C common stock or Class D common stock,
subject to adjustment for stock splits or similar events.
17
<PAGE>
Assuming the offering had been completed on December 31, 1999, we would have
had outstanding options to purchase an aggregate of:
- 4,226 shares of our Class C common stock, which would have been
convertible into 470,945 shares of Class A common stock at a weighted
average exercise price of approximately $3.72 per Class A common stock
equivalent; and
- 32,904.88 shares of our Class D common stock, which would have been
convertible into 3,666,920 shares of Class A common stock, at a weighted
average exercise price of approximately $1.37 per Class A common stock
equivalent.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------
AS ADJUSTED
FOR RECAPITALIZATION PRO FORMA
-------------------- ----------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 339 $ 339
Restricted investments...................................... 57,771 57,771
---------- ----------
Total cash and restricted investments..................... $ 58,110 $ 58,110
========== ==========
Long term debt, including current maturities:
Credit facilities:
Existing Dobson Operating Company and Dobson Cellular
Operations Company credit facilities.................. $ 272,000 $ --
New credit facility..................................... -- 399,371
Existing Dobson/Sygnet credit facility.................. 406,000 406,000
Dobson/Sygnet notes....................................... 200,000 200,000
Senior notes.............................................. 160,000 360
Other long-term debt...................................... 3,958 3,958
---------- ----------
Total long-term debt.................................... 1,041,958 1,009,689
---------- ----------
Minority interests.......................................... 27,110 27,110
---------- ----------
12 1/4% senior preferred stock, $1.00 par value, 734,000
shares authorized, 278,872 shares issued and outstanding
on an as adjusted and pro forma basis, net of discount.... 265,395 265,395
13% senior preferred stock, $1.00 par value, 500,000 shares
authorized, 175,402 shares issued and outstanding on an as
adjusted and pro forma basis.............................. 175,402 175,402
Class E preferred stock, $1.00 par value, 85,000 shares
authorized, 75,093.7 shares issued and outstanding on an
as adjusted basis and none authorized, issued or
outstanding on a pro forma basis.......................... 85,000 --
Stockholders' equity:
Preferred stock, $1.00 par value, 6,000,000 shares
authorized, no shares issued and outstanding on an as
adjusted or a pro forma basis........................... -- --
Class A common stock, $.001 par value, 175,000,000 shares
authorized, no shares issued and outstanding on an as
adjusted basis, and 26,470,000 shares issued and
outstanding on a pro forma basis........................ -- 26
Class B common stock, $.001 par value, 70,000,000 shares
authorized, 64,523,450 shares issued and outstanding on
an as adjusted and pro forma basis...................... 65 65
Class C common stock, $.001 par value, 4,226 shares
authorized, no shares issued and outstanding on an as
adjusted or a pro forma basis........................... -- --
Class D common stock, $.001 par value, 33,000 shares
authorized, no shares issued and outstanding on an as
adjusted or a pro forma basis........................... -- --
Paid-in capital........................................... 18,548 561,475
Retained deficit.......................................... (314,862) (301,964)
---------- ----------
Total stockholders' (deficit) equity.................... (296,249) 259,602
---------- ----------
Total capitalization.................................. $1,298,616 $1,737,198
========== ==========
</TABLE>
18
<PAGE>
THE AMERICAN CELLULAR ACQUISITION
OVERVIEW
In October 1999, we entered into an equally-owned joint venture with AT&T
Wireless to acquire, own and operate American Cellular. The aggregate
acquisition price for American Cellular is $2.4 billion, including fees and
expenses. American Cellular is one of the largest independent rural cellular
telephone operators in the United States, with cellular telephone systems
located primarily in rural areas of the midwestern and eastern United States.
The financing for the American Cellular acquisition will come from a combination
of equity contributions of $372.5 million by each of AT&T Wireless and us, and
by borrowings under the joint venture's proposed new $1.75 billion credit
facility.
THE ACQUISITION
The purchase price for American Cellular will bear interest at an annual
rate of 8% from January 1, 2000 until paid. If the joint venture defaults in its
obligations to close the American Cellular acquisition, the joint venture will
be required to pay up to $500.0 million of any damages suffered by American
Cellular. However, the joint venture will only be required to pay
$100.0 million of liquidated damages to American Cellular if the joint venture's
default results from the refusal of its bank lenders to provide funds under the
joint venture's credit facility for reasons other than:
- the joint venture's breach of its obligations to the bank lenders;
- the joint venture's failure to satisfy funding conditions that are within
its control; or
- the joint venture's inability to reach a definitive loan agreement with
its bank lenders.
Pursuant to our term sheet with AT&T Wireless for the American Cellular
joint venture, AT&T Wireless and we will be required to pay our share of any
damages to American Cellular based on our relative level of fault. We are still
negotiating certain definitive agreements relating to our joint venture with
AT&T Wireless. We cannot assure you that the terms of those agreements will be
the same as those we anticipate and describe in this prospectus.
The merger agreement contains several standard representations and
warranties of the parties and completion of the American Cellular acquisition is
subject to the satisfaction of several standard mutual conditions, including,
among others:
- the receipt of an FCC "final order" consenting to the change of control of
American Cellular, which is expected to be issued on February 24, 2000;
- the expiration or termination of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which occurred on
November 24, 1999; and
- the receipt of any other necessary federal or state regulatory approvals.
In addition, the joint venture's obligation to complete the acquisition is
subject to satisfaction of, among others, the following conditions:
- the continuing approval of the transaction by American Cellular's
shareholders;
- not more than 5% of the holders of the outstanding Class A common stock of
American Cellular shall have demanded appraisal rights for their shares;
- the repayment of certain indebtedness owed by American Cellular's senior
management to American Cellular; and
- the absence of any material impairment in American Cellular's ability to
consummate the American Cellular merger.
19
<PAGE>
There are no material conditions to be satisfied by the joint venture other
than the payment by the joint venture of the merger consideration.
Either American Cellular or the joint venture may terminate the merger
agreement if the American Cellular acquisition has not been completed by
April 5, 2000. This date will be extended to October 5, 2000 if the only
unsatisfied closing condition remaining on April 5, 2000 is the approval of the
merger by regulatory authorities.
In addition, the joint venture may terminate the merger agreement if
American Cellular's Class A stockholders do not approve the transaction. The
holders of at least 70% of American Cellular's Class A common stock have entered
into a voting agreement with the joint venture under which they have agreed to
vote their shares in favor of the merger.
THE JOINT VENTURE AGREEMENT
We are still negotiating the definitive agreements relating to our joint
venture with AT&T Wireless. The following discussion is based on our term sheet
with AT&T Wireless for the American Cellular joint venture. We cannot assure you
that the terms of the definitive agreements will be the same as those we
anticipate and describe in this prospectus. See "Risk Factors--Risks Related to
Our Acquisition Strategy--We are still negotiating the definitive agreements
relating to our joint venture with AT&T Wireless. The terms of those agreements
may not be the same as those we describe in this prospectus, and may be less
favorable to us than we anticipate."
Our joint venture with AT&T Wireless will be in the form of an equally-owned
limited liability company. We and AT&T Wireless have agreed to each contribute
$372.5 million in cash to the joint venture to provide a portion of the funds to
be used to consummate the American Cellular acquisition. In the event the
proceeds of this offering are insufficient to permit us to fund our entire
investment in the joint venture, our principal shareholder, the Dobson CC
Limited Partnership has agreed to invest up to $200.0 million in us to the
extent necessary to enable us to meet our commitment to the joint venture.
Under the terms of our term sheet, the joint venture intends to enter into a
management agreement with AT&T Wireless pursuant to which management of the
joint venture will be vested in a four-person management committee, two members
designated by AT&T Wireless and two designated by us. We have agreed with AT&T
Wireless to be responsible for the day-to-day operation of American Cellular. If
we experience a change of control and either AT&T Wireless and its affiliates
retain at least 80% of their initial economic interest in the joint venture, or
if the joint venture has converted to a corporation and AT&T Wireless and its
affiliates retain at least 50% of their initial economic interest in the joint
venture, then AT&T Wireless and its affiliates will have the right to initiate a
buy/sell procedure in which AT&T Wireless may offer to purchase our interest in
the joint venture, or sell us its interest in the joint venture, at a price
established by AT&T Wireless in its sole and unlimited discretion.
Alternatively, AT&T Wireless can require that we establish the price on their
behalf. If this offer is made, we must either agree to sell our interest to AT&T
Wireless at the established price or purchase the joint venture interest of AT&T
Wireless at the same price. If AT&T Wireless initiates this procedure, we have
no right to negotiate the price offered by it. In addition, we will lose our
right to 50% representation on the management committee and our power to approve
all significant matters. If AT&T Wireless chooses not to initiate the buy/sell
procedure upon a change of control, we will have the right, subject to certain
conditions, to initiate the buy/sell procedure. Either we or AT&T Wireless may
initiate a buy/sell procedure on the same terms described above after the fifth
anniversary of the joint venture. AT&T Wireless may also initiate a buy/sell
procedure if the joint venture offers to service areas covering more than 15% of
its total population, commercial mobile radio services other than wireless
telecommunications services using time division multiple access technology or
analog
20
<PAGE>
technology, and AT&T Wireless is offering, or intends to offer, these services
in American Cellular's service areas. This offering will not constitute a change
of control under the joint venture agreement.
Before the third anniversary of the American Cellular acquisition, neither
AT&T Wireless nor we may transfer any interest in the joint venture without the
consent of the other. Following the third anniversary of the American Cellular
acquisition, each of AT&T Wireless and we have the right to transfer up to 20%
of our economic interest in the joint venture, subject to a pro rata tag-along
right in favor of the other party. Any transfers above that 20% threshold will
be subject to a right of first refusal in favor of the other party. After the
fifth anniversary of the American Cellular acquisition, either AT&T Wireless or
we may elect to cause the joint venture to convert to a corporation and to
conduct an underwritten initial public offering of up to 20% of the common stock
of the corporate joint venture.
OPERATING ARRANGEMENTS
The following discussion is based on our term sheet with AT&T Wireless for
the American Cellular joint venture. We are still negotiating the definitive
operating agreements relating to our American Cellular joint venture. We cannot
assure you that the terms of those definitive agreements will be the same as
those we anticipate and describe in this prospectus. See "Risk Factors--Risks
Related to Our Acquisition Strategy--We are still negotiating the definitive
agreements relating to our joint venture with AT&T Wireless. The terms of those
agreements may not be the same as those we describe in this prospectus, and may
be less favorable to us than we anticipate."
In connection with our joint venture, AT&T Wireless will enter into a
20-year operating agreement with the joint venture. In addition, so long as
American Cellular continues to meet quality standards applicable generally to
wireless systems using the digital technology chosen by AT&T PCS and its
affiliates for cellular systems which they own and operate, AT&T Wireless has
agreed not to construct, own or acquire a controlling interest in, or manage a
communications system that provides mobile wireless services in areas in which
American Cellular operates its cellular systems for a period of five years
following the closing of the American Cellular acquisition. We believe that
American Cellular will be able to meet these quality standards as currently in
effect. However, AT&T Wireless may:
- resell communications services provided by American Cellular;
- act as American Cellular's agent for the sale of American Cellular's
communications services;
- continue to provide wireless services to customers of AT&T Wireless in
American Cellular's territory;
- provide or resell wireless telecommunications services to or from specific
locations; and
- act as an agent for other carriers who provide cellular products and
services to national account customers of AT&T Wireless in the geographic
areas in which American Cellular operates.
We do not believe that AT&T Wireless' continuing ability to compete with the
joint venture on these terms is materially detrimental to the joint venture's
business.
For five years following the consummation of the American Cellular
acquisition,
- we will be the preferred provider of roaming services for American
Cellular's subscribers who roam in our markets;
- AT&T Wireless will be the preferred provider of roaming services for
American Cellular's subscribers who roam in AT&T Wireless' markets; and
- American Cellular will be the preferred provider of roaming services for
our subscribers and AT&T Wireless' subscribers who roam in American
Cellular's markets.
21
<PAGE>
AT&T Wireless has the right to terminate the roaming preferences described
above upon a merger, consolidation, asset acquisition or other business
combination of AT&T Wireless with a business that:
- has annual telecommunication revenues in excess of $5.0 billion;
- derives less from one-third of its aggregate revenues from wireless
services; and
- owns FCC licenses to offer, and does offer, mobile wireless services
serving more than 25% of the population in the American Cellular markets.
JOINT VENTURE CREDIT FACILITY
The following discussion is based on a commitment letter from the Banc of
America to the American Cellular joint venture for the joint venture's new
credit facility. We are still negotiating the definitive agreements relating to
the joint venture's new credit facility with the Banc of America. We cannot
assure you that the terms of the definitive agreements will be the same as those
we anticipate and describe in this prospectus. See "Risk Factors--Risks Related
to Our Acquisition Strategy--We are still negotiating the definitive agreements
relating to our joint venture with AT&T Wireless. The terms of those agreements
may not be the same as those we describe in this prospectus, and may be less
favorable to us than we anticipate."
The joint venture has received a commitment from Banc of America Securities
LLC and its affiliate, Bank of America, N.A., on behalf of a group of banks to
provide a $1.75 billion credit facility to the joint venture, the proceeds of
which will be used primarily to consummate the American Cellular acquisition.
Based on this commitment, we expect that this credit facility will consist of a
$300.0 million revolving credit facility and three term loan facilities. The
revolving credit facility will mature in 2007. Term loan A, which will mature in
2007, will be a $700.0 million facility; term loan B, which will mature in 2008,
will be a $350.0 million facility; and term loan C, which will mature in 2009,
will be a $400.0 million facility.
Borrowing under these credit facilities will bear interest at variable
rates, subject to reductions based on the joint venture's financial leverage.
Assuming the American Cellular acquisition occurs on or prior to March 31, 2000,
we expect that all these term loan facilities will be fully drawn and that the
joint venture will borrow an aggregate principal amount of $1.67 billion under
this credit facility. The joint venture's obligations under the credit facility
will be secured by a pledge of the stock of American Cellular and its
subsidiaries, and liens on all of the assets of the joint venture and of
American Cellular except its FCC licenses.
The joint venture will be required to amortize the term loan facilities
quarterly in amounts ranging from $42.5 million in 2001 to $196.0 million in
2009. In addition, the joint venture will be required to make prepayments of
amounts received from asset sales, excess cash flows and proceeds from new
borrowings or the sale of equity. The joint venture will have the right to
prepay the credit facility in total or in part at any time subject to the
payment of certain fees.
The credit facility will contain restrictive covenants that, among other
things, will limit the ability of the joint venture to incur additional
indebtedness, create liens and pay dividends. In addition, the joint venture
will be required to maintain certain financial ratios, including a ratio of
total indebtedness to the joint venture's EBITDA of 9.5 to 1; a ratio of the
joint venture's EBITDA to debt service requirements of 1.10 to 1; an interest
coverage ratio of at least 1.25 to 1; and a ratio of the joint venture's EBITDA
minus capital expenditures to debt service requirements of greater than 1.0 to
1.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The accompanying unaudited pro forma balance sheet as of September 30, 1999
gives effect to the following transactions as if they had occurred on
September 30, 1999:
- the consummation of the recapitalization;
- the consummation of this offering of 25,000,000 shares of Class A common
stock at an assumed initial public offering price of $21 per share and the
concurrent offering of 1,470,000 shares of Class A common stock to
AT&T Wireless at an assumed offering price of $19.79 per share;
- our acquisition of a 50% interest in the American Cellular joint venture
and its acquisition of American Cellular;
- the redemption of all of our outstanding Class E preferred stock;
- the establishment of a new credit facility to replace the existing credit
facilities of our subsidiaries, Dobson Operating Company and Dobson
Cellular Operations Company;
- the purchase of $159.6 million principal aggregate amount of our 11 3/4%
senior notes using proceeds provided by our new bank credit facility; and
- the distribution, prior to the consummation of this offering, of all of
the outstanding capital stock of our subsidiary, Logix, to our current
stockholders.
In addition, the accompanying unaudited pro forma statements of operations
give effect to the above transactions and the following transactions as if each
had occurred on January 1, 1998:
- our second quarter 1999 issuance of $170.0 million aggregate liquidation
amount of our 13% senior preferred stock and the utilization of the net
proceeds from that issuance to redeem all our Class F and G preferred
stock and to reduce our bank debt; and
- for purposes of the unaudited pro forma statement of operations for the
year ended December 31, 1998, our December 1998 acquisition of Sygnet and
the related financing transactions.
As discussed under "Use of Proceeds," the closing of this offering is not
contingent on the completion of the American Cellular acquisition. If our joint
venture with AT&T Wireless does not complete the American Cellular acquisition,
cash and cash equivalents on a pro forma basis would increase by
$372.5 million. In that event, we intend to use the net proceeds allocated to
the American Cellular joint venture as discussed under "Use of Proceeds." If the
American Cellular acquisition is not completed because of the American Cellular
joint venture's fault, the joint venture will be required to pay up to
$500.0 million of any damages suffered by American Cellular. However, the joint
venture is only required to pay $100.0 million of liquidated damages to American
Cellular if the joint venture's default results from the refusal of its bank
lenders to provide funds under the joint venture's credit facility other than as
a result of the joint venture's fault. Pursuant to our term sheet with AT&T
Wireless for the American Cellular joint venture, we will be required to pay our
share of any damages to American Cellular based on our relative level of fault.
For further information regarding this provision of the American Cellular
acquisition agreement, see "The American Cellular Acquisition--The Acquisition."
We provide the following unaudited pro forma consolidated financial
statements and the related notes for informational purposes only. The unaudited
pro forma consolidated financial statements are based upon currently available
information and assumptions that we believe are reasonable. The accompanying
data do not purport to represent what our results of operations would have been
if the pro forma transactions had been completed on the dates indicated, nor do
they purport to indicate our future financial position or results of operations.
You should read the unaudited pro forma consolidated financial statements and
notes thereto in conjunction with "Capitalization," "Selected Consolidated
Financial and Other Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "The Recapitalization," and the historical
financial statements and related notes that we include elsewhere in this
prospectus.
23
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DOBSON
COMMUNICATIONS AMERICAN CELLULAR
CORPORATION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS TOTAL
-------------- ----------- ---------- ----------------- -------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Service revenues................. $ 117,892 $ -- $ 117,892 $ -- $ 117,892
Roaming revenues................. 107,296 -- 107,296 -- 107,296
Equipment sales and other
revenues....................... 9,952 -- 9,952 -- 9,952
--------- ---------- ---------- ----------- -------------
Total operating revenues....... 235,140 -- 235,140 -- 235,140
--------- ---------- ---------- ----------- -------------
Operating expenses:
Cost of services................. 35,762 35,762 -- 35,762
Cost of equipment................ 18,562 -- 18,562 -- 18,562
Marketing and selling............ 34,957 -- 34,957 -- 34,957
General and administrative....... 40,795 -- 40,795 -- 40,795
Depreciation and amortization.... 100,020 100,020 -- 100,020
--------- ---------- ---------- ----------- -------------
Total operating expenses....... 230,096 230,096 -- 230,096
--------- ---------- ---------- ----------- -------------
Operating income................... 5,044 5,044 -- 5,044
--------- ---------- ---------- ----------- -------------
Interest expense................... (82,365) 9,051 (1) (73,314) -- (73,314)
Equity in loss of unconsolidated
subsidiary....................... -- -- -- (39,253)(4) (39,253)
Other income, net.................. 3,411 -- 3,411 -- 3,411
--------- ---------- ---------- ----------- -------------
Loss before minority interests and
income taxes..................... (73,910) 9,051 (64,859) (39,253) (104,112)
Minority interests in income of
subsidiaries..................... (2,125) -- (2,125) -- (2,125)
--------- ---------- ---------- ----------- -------------
Loss from continuing operations
before income taxes.............. (76,035) 9,051 (66,984) (39,253) (106,237)
Income tax benefit................. 28,892 (3,492)(2) 25,400 -- 25,400
--------- ---------- ---------- ----------- -------------
Loss from continuing operations.... (47,143) 5,559 (41,584) (39,253) (80,837)
Dividends on preferred stock....... (50,513) 3,391 (3) (47,122) -- (47,122)
--------- ---------- ---------- ----------- -------------
Loss from continuing operations
applicable to common
stockholders..................... $ (97,656) $ 8,950 $ (88,706) $ (39,253) $ (127,959)
========= ========== ========== =========== =============
Loss from continuing operations
applicable to common stockholders
per share........................ $ (198.51) $ (.97) $ (1.41)
========= ========== =============
Supplemental loss from continuing
operations attributable to common
stockholders per share........... $ (2.04)(5)
=============
Weighted average shares
outstanding...................... 491,954 90,993,450 90,993,450
========= ========== =============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statement of
operations.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(1) This reflects:
- the elimination of $2.9 million of interest expense as a result of the
redemption of $159.6 million aggregate principal amount of our 11 3/4%
senior notes with proceeds from our new credit facility having an assumed
weighted average interest rate of 8% per annum (each 1/8% increase in the
assumed weighted average interest rate would increase interest expense by
$0.2 million for the nine month period presented);
- the elimination of $2.9 million of interest expense associated with the
repayment of $100.0 million of bank debt from a portion of the proceeds of
the sale of our 13% senior preferred stock;
- the addition of $1.2 million of amortization of deferred financing costs
related to the new credit facility;
- the elimination of $2.8 million of interest expense as a result of the
repayment of $46.4 million of long-term debt with proceeds from this
offering; and
- the elimination of $1.7 million of interest expense as a result of the
repayment of $29.1 million of long-term debt with the proceeds from the
concurrent stock offering to AT&T Wireless.
(2) This reflects the tax impact of the pro forma adjustments.
(3) This reflects:
- the elimination of $9.6 million of accrued dividends on our Class D
preferred stock associated with the conversion of our Class D preferred
stock into shares of our old Class A common stock and Class E preferred
stock and the redemption of our Class E preferred stock;
- the elimination of $3.1 million of preferred stock dividends associated
with the redemption of our Class F and G preferred stock; and
- the addition of $9.3 million of non-cash preferred stock dividend
requirements related to the issuance of our 13% senior preferred stock in
May 1999.
(4) The funding of the purchase price for the American Cellular acquisition will
come from a combination of equity contributions of $372.5 million by each of
AT&T Wireless and us, and by borrowings under the joint venture's proposed
new $1.75 billion credit facility. The purchase price for American Cellular
of approximately $2.4 billion, including fees and expenses, is preliminarily
allocated as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
($ IN MILLIONS)
<S> <C>
Working capital........................................... $ 50.0
Property, plant and equipment............................. 175.0
Cellular license acquisition costs........................ 1,200.0
Goodwill.................................................. 900.0
Customer list............................................. 50.0
Other assets.............................................. 25.0
--------
Total purchase price.................................... $2,400.0
========
</TABLE>
Cellular license acquisition costs and goodwill are being amortized over 20
years. Our customer list is being amortized over five years.
25
<PAGE>
This adjustment reflects our 50% interest in the pro forma net loss of the
American Cellular joint venture. The reconciliation from the historical results
of operations for American Cellular to the pro forma loss is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Historical net loss of American Cellular.................... $(27,485)
Additional depreciation and amortization from purchase
price allocation...................................... (64,703)
Additional interest expense due to the increase in debt
incurred by the joint venture......................... (19,880)
Additional income tax benefit due to the increase in
losses................................................ 33,562
--------
Pro forma net loss of American Cellular..................... $(78,506)
--------
50% of the pro forma net loss of American Cellular.......... $(39,253)
========
</TABLE>
(5) Upon the conversion of our Class D preferred stock into old Class A common
stock and Class E preferred stock and the redemption of all of the then
outstanding Class E preferred stock, we will recognize a dividend on the
Class E preferred stock of approximately $57.5 million. Had we reflected
this dividend in the accompanying unaudited pro forma consolidated financial
statements for the nine months ended September 30, 1999, the loss from
continuing operations applicable to common stockholders would have been
($185.5 million) or ($2.04) per share.
26
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DOBSON AMERICAN
COMMUNICATIONS CELLULAR
CORPORATION SYGNET ADJUSTMENTS SUB-TOTAL ADJUSTMENTS TOTAL
--------------- -------- ----------- ---------- ----------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Service revenues............................ $ 69,402 $ 64,786 $ -- $ 134,188 $ -- $ 134,188
Roaming revenues............................ 66,479 28,035 -- 94,514 -- 94,514
Equipment sales and other revenues.......... 4,154 7,447 -- 11,601 -- 11,601
-------- -------- -------- ---------- -------- ----------
Total operating revenues.................. 140,035 100,268 -- 240,303 -- 240,303
-------- -------- -------- ---------- -------- ----------
Operating expenses:
Cost of services............................ 33,267 9,433 832 (1) 43,532 -- 43,532
Cost of equipment........................... 8,360 10,444 -- 18,804 -- 18,804
Marketing and selling....................... 22,393 12,327 2,603 (1) 37,323 -- 37,323
General and administrative.................. 26,051 19,796 (3,435)(1) 42,412 -- 42,412
Merger related costs........................ -- 1,884 (1,884)(2) -- -- --
Depreciation and amortization............... 47,110 27,498 43,308 (3) 117,916 -- 117,916
-------- -------- -------- ---------- -------- ----------
Total operating expenses.................. 137,181 81,382 41,424 259,987 -- 259,987
-------- -------- -------- ---------- -------- ----------
Operating income (loss)....................... 2,854 18,886 (41,424) (19,684) -- (19,684)
-------- -------- -------- ---------- -------- ----------
Interest expense.............................. (38,979) (27,895) (19,599)(4) (86,473) (86,473)
Merger related costs.......................... -- (5,206) 5,206 (2) -- -- --
Equity in loss of unconsolidated subsidiary... -- -- -- -- (59,146)(7) (59,146)
Other income, net............................. 3,858 (319) -- 3,539 -- 3,539
-------- -------- -------- ---------- -------- ----------
Loss before minority interests and income
taxes....................................... (32,267) (14,534) (55,817) (102,618) (59,146) (161,764)
Minority interests in income of
subsidiaries................................ (2,487) -- -- (2,487) -- (2,487)
-------- -------- -------- ---------- -------- ----------
Loss from continuing operations before income
taxes....................................... (34,754) (14,534) (55,817) (105,105) (59,146) (164,251)
Income tax benefit............................ 11,469 -- 28,445 (5) 39,914 -- 39,914
-------- -------- -------- ---------- -------- ----------
Loss from continuing operations............... (23,285) (14,534) (27,372) (65,191) (59,146) (124,337)
Dividends on preferred stock.................. (23,955) -- (34,007)(6) (57,962) -- (57,962)
-------- -------- -------- ---------- -------- ----------
Loss from continuing operations applicable to
common stockholders......................... $(47,240) $(14,534) $(61,379) $ (123,153) $(59,146) $ (182,299)
======== ======== ======== ========== ======== ==========
Loss from continuing operations applicable to
common stockholders per share............... $ (99.75) $ (1.35) $ (2.00)
======== ========== ==========
Supplemental loss from continuing operations
attributable to common stockholders per
share....................................... $ (2.64)(8)
==========
Weighted average shares outstanding........... 473,564 90,993,450 90,993,450
======== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated statement of
operations.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(1) This reclassifies certain operating expenses of Sygnet to conform with our
historical presentation.
(2) This eliminates costs that Sygnet incurred related to the consummation of
our acquisition of Sygnet.
(3) This reflects the additional depreciation and amortization resulting from
the allocation of the purchase price attributable to the Sygnet acquisition
of property and equipment, cellular license acquisition costs and intangible
assets.
(4) This reflects:
- the elimination of $27.9 million of interest expense associated with
Sygnet's senior notes and Sygnet's bank facility that we repaid as part of
our acquisition of Sygnet;
- the addition of $64.4 million of interest expense and amortization of
deferred financing costs relating to the Sygnet acquisition;
- the elimination of $8.7 million of interest expense associated with the
repayment of existing bank debt from the proceeds of our May 1999 offering
of 13% senior preferred stock;
- the elimination of $3.8 million of interest expense as a result of the
redemption of $159.6 million aggregate principal amount of our 11 3/4%
senior notes with proceeds from our new credit facility having an assumed
interest rate of 8% per annum (each 1/8% increase in the assumed weighted
average interest rate would increase interest expense by $0.2 million per
annum);
- the addition of $1.6 million of amortization of deferred financing costs
related to the new credit facility;
- the elimination of $3.7 million of interest expense as a result of the
repayment of $46.4 million of long-term debt with proceeds from this
offering; and
- the elimination of $2.3 million of interest expense as a result of the
repayment of $29.1 million of long-term debt with proceeds from the
concurrent stock offering to AT&T Wireless.
(5) This reflects the tax impact of the pro forma adjustments.
(6) This reflects adjustments to dividends resulting from our offerings and
redemption of preferred stock, including the amortization of the issuance
costs and the accretion of discounts with respect thereto, as follows:
- the addition of $23.8 million for our 13% senior preferred stock that we
offered in May 1999;
- the addition of $10.1 million for our 12 1/4% senior preferred stock that
we offered in December 1998;
- the addition of $0.9 million for our senior preferred stock that we
offered in January 1998; and
- the elimination of $0.8 million of dividends on the Class B and C
preferred stock that we redeemed in December 1998.
28
<PAGE>
(7) This adjustment reflects our 50% interest in the pro forma net loss of the
American Cellular joint venture. The reconciliation from the historical
results of operations for American Cellular to the pro forma loss is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Historical net loss of American Cellular.................... $ (40,399)
Historical net loss of PriCellular.......................... (6,286)
Additional depreciation and amortization from purchase
price allocation........................................ (86,270)
Additional interest expense due to increase debt borrowed
by the joint venture.................................... (33,568)
Additional income tax benefit due to the increase in
losses.................................................. 48,231
---------
Pro forma net loss of American Cellular..................... $(118,292)
---------
50% of the pro forma net loss of American Cellular.......... $ (59,146)
=========
</TABLE>
(8) Upon the conversion of our Class D preferred stock into old Class A common
stock and Class E preferred stock and the redemption of all of the then
outstanding Class E preferred stock, we will recognize a dividend on the
Class E preferred stock of approximately $57.5 million. Had we reflected
this dividend in the accompanying unaudited pro forma consolidated financial
statements for the twelve months ended December 31, 1998, the loss from
continuing operations applicable to common stockholders would have been
($239.8 million) or ($2.64) per share.
29
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DOBSON AMERICAN
COMMUNICATIONS CELLULAR
CORPORATION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS TOTAL
-------------- ----------- ---------- ----------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets, net of
restricted investments...... $ 64,575 $ 372,500 (1) $ 437,075 $ (372,500)(4) $ 64,575
Restricted investments........ 57,771 -- 57,771 -- 57,771
Property, plant and
equipment................... 187,291 187,291 -- 187,291
Receivable--affiliate......... 8,200 -- 8,200 -- 8,200
Cellular license acquisition
cost........................ 1,227,579 1,227,579 -- 1,227,579
Deferred financing costs...... 69,017 7,254 (2) 76,271 -- 76,271
Other intangibles............. 48,139 -- 48,139 -- 48,139
Investment in unconsolidated
subsidiary.................. -- -- -- 372,500 (4) 372,500
Other assets.................. 3,811 -- 3,811 -- 3,811
---------- --------- ---------- ----------- ----------
Total assets.............. $1,666,383 $ 379,754 $2,046,137 $ -- $2,046,137
========== ========= ========== =========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities........... $ 104,474 $ (9,984)(1) $ 94,490 $ -- $ 94,490
Net liabilities of
discontinued operations..... 48,844 (48,844)(3) -- -- --
Long-term debt, net of current
portion..................... 1,039,844 (75,469)(1)
43,200 (2) 1,007,575 -- 1,007,575
Deferred credits.............. 216,563 -- 216,563 -- 216,563
Minority interests............ 27,110 -- 27,110 -- 27,110
Preferred stock............... 525,797 (85,000)(1) 440,797 -- 440,797
Stockholders' (deficit)
equity...................... (296,249) 542,953 (1)
(35,946)(2)
48,844 (3) 259,602 -- 259,602
---------- --------- ---------- ----------- ----------
Total liabilities and
stockholders' (deficit)
equity.................... $1,666,383 $ 379,754 $2,046,137 $ -- $2,046,137
========== ========= ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated condensed balance
sheet.
30
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(1) This reflects:
- this offering of Class A common stock;
- the concurrent offering of Class A common stock to AT&T Wireless;
- the interim increase in cash that would occur if we do not complete the
American Cellular acquisition (see "Use of Proceeds" for a discussion of
how we intend to use the net proceeds from this offering if we do not
complete the American Cellular acquisition);
- the conversion of each share of our Class D preferred stock into one share
of our old Class A common stock and one share of our Class E preferred
stock, the redemption of our Class E preferred stock, and the recognition
of the estimated dividend on the Class E preferred stock of approximately
$57.5 million;
- the reduction of long-term debt that will be repaid with proceeds from
this offering; and
- the reduction of long-term debt that will be repaid with proceeds from the
concurrent stock offering to AT&T Wireless.
(2) This reflects:
- the net impact of the elimination of deferred financing costs and our
tender premium associated with the retirement of $159.6 million aggregate
principal amount of our 11 3/4% senior notes with funds borrowed under our
new bank credit facility;
- the elimination of $8.7 million of deferred financing costs associated
with the refinancing of the credit facilities of our subsidiaries, Dobson
Operating Company and Dobson Cellular Operations Company, and our senior
notes; and
- the capitalization of $16.0 million of costs related to our new credit
facility.
(3) This reflects the distribution of all of the outstanding capital stock of
Logix to our current shareholders.
(4) This reflects our purchase of a 50% interest in the American Cellular joint
venture.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain of our historical consolidated
financial and other data as of and for each of the five years in the period
ended December 31, 1998 and as of and for each of the nine month periods ended
September 30, 1998 and September 30, 1999. We derived our consolidated financial
data as of December 31, 1997 and December 31, 1998 and for each of the three
years in the period ended December 31, 1998, and as of and for the nine months
ended September 30, 1999, from our consolidated financial statements included
elsewhere in this prospectus, which have been audited by Arthur Andersen LLP. We
derived our consolidated financial data as of December 31, 1994, December 31,
1995 and December 31, 1996 and for each of the two years in the period ended
December 31, 1995 from our consolidated financial statements not included in
this prospectus, which have also been audited by Arthur Andersen LLP. We derived
our consolidated financial data as of and for the nine month period ended
September 30, 1998 from our unaudited consolidated financial statements included
elsewhere in this prospectus, which, in our opinion, reflect all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
data presented for such period.
The following tables also set forth certain historical consolidated
financial data of American Cellular and its predecessor, PriCellular. We derived
American Cellular's consolidated financial data for the periods from
February 26, 1998 through December 31, 1998 and for the nine months ended
September 30, 1999 from its consolidated financial statements included elsewhere
in this prospectus, which have been audited by Ernst & Young LLP. We derived the
consolidated financial data of American Cellular's predecessor, PriCellular, for
the six months ended June 30, 1998 and for each of the two years in the period
ended December 31, 1997 from its predecessor's consolidated financial statements
included elsewhere in this prospectus, which have also been audited by Ernst &
Young LLP. We derived the selected consolidated financial data of American
Cellular's predecessor, PriCellular, as of and for each of the two years in the
period ended December 31, 1995 from its consolidated financial statements not
included in this prospectus, which have also been audited by Ernst & Young LLP.
We derived American Cellular's condensed consolidated financial data for the
period from February 26, 1998 through September 30, 1998 from its unaudited
condensed consolidated financial statements included elsewhere in this
prospectus, which in the opinion of American Cellular's management, reflect all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation of the results for the interim period.
Our historical data for each of the five years in the period ended
December 31, 1998 and for each of the nine month periods ended September 30,
1998 and September 30, 1999 include the operations of acquisitions we made, as
applicable during those years, from the date of each acquisition. These
acquisitions materially affect the comparability of data from one period to
another. Our operating results and those of American Cellular for the periods
ended September 30, 1999, September 30, 1998 and June 30, 1998 are not
necessarily indicative of results that may be expected for a full year. American
Cellular was formed on February 26, 1998, but it did not have operations until
the Company acquired PriCellular on June 25, 1998. You should read the following
historical consolidated financial data in conjunction with "Capitalization,"
"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.
In the following tables, our EBITDA, before other income and minority
interests, represents earnings (loss) from continuing operations before interest
income, interest expense, income taxes, depreciation, amortization, and other
income and minority interests in income of subsidiaries. American Cellular's
EBITDA, before other income and nonrecurring charges, represents earnings (loss)
from continuing operations before interest income, interest expense, income
taxes, depreciation, amortization, and other income and nonrecurring charges. We
believe that EBITDA provides meaningful additional information concerning a
company's operating results and its ability to service its long-term debt and
other fixed obligations and to fund its continued growth. Many financial
analysts
32
<PAGE>
consider EBITDA to be a meaningful indicator of an entity's ability to meet its
future financial obligations, and they consider growth in EBITDA to be an
indicator of future profitability, especially in a capital-intensive industry
such as wireless telecommunications. You should not construe EBITDA as an
alternative to operating income (loss) as determined in accordance with GAAP, as
an alternative to cash flows from operating activities as determined in
accordance with GAAP or as a measure of liquidity. Because EBITDA is not
calculated in the same manner by all companies, it may not be comparable to
other similarly titled measures of other companies. See our consolidated
statements of cash flows in our consolidated financial statements included
elsewhere in this prospectus.
We determine market penetration by dividing our total subscribers at the end
of the period by our estimated total population. We calculate average monthly
cellular churn rates based on the number of cellular subscriber cancellations
during the period as a percentage of the weighted average total cellular
subscribers for the period. Average monthly revenues per cellular subscriber
exclude equipment sales and other revenues. For a more complete description of
the calculation of average monthly revenue per cellular subscriber, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Revenues."
DOBSON COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Service revenues.................. $ 10,922 $ 13,949 $ 17,593 $ 38,410 $ 69,402 $ 47,769 $ 117,892
Roaming revenues.................. 3,231 4,370 7,852 26,263 66,479 45,916 107,296
Equipment sales and other
revenues........................ 1,222 1,364 1,494 2,041 4,154 2,661 9,952
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating revenues........ 15,375 19,683 26,939 66,714 140,035 96,346 235,140
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of service................... 2,991 4,654 6,119 16,431 33,267 22,603 35,762
Cost of equipment................. 1,502 2,013 2,571 4,046 8,360 5,166 18,562
Marketing and selling............. 3,098 3,103 4,462 10,669 22,393 14,856 34,957
General and administrative........ 3,193 3,035 3,902 11,555 26,051 16,219 40,795
Depreciation and amortization..... 1,885 2,529 5,241 16,798 47,110 29,714 100,020
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses........ 12,669 15,334 22,295 59,499 137,181 88,558 230,096
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income.................... 2,706 4,349 4,644 7,215 2,854 7,788 5,044
Interest expense.................... (1,195) (1,854) (4,284) (27,640) (38,979) (25,039) (82,365)
Other income (expense), net......... 106 (210) (1,503) 2,777 3,858 3,304 3,411
Minority interests in income of
subsidiaries...................... (1,105) (1,334) (675) (1,693) (2,487) (1,963) (2,125)
Income tax (provision) benefit...... (168) (347) 593 3,625 11,469 4,864 28,892
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before
extraordinary items............... 344 604 (1,225) (15,716) (23,285) (11,046) (47,143)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from discontinued
operations........................ (110) 500 331 332 (27,110) (17,185) (41,811)
Extraordinary items................. 228 -- (527) (1,350) (2,166) (2,644) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................... 462 1,104 (1,421) (16,734) (52,561) (30,875) (88,954)
Dividends on preferred stock........ (83) (591) (849) (2,603) (23,955) (16,749) (50,513)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common stockholders............... $ 379 $ 513 $ (2,270) $ (19,337) $ (76,516) $ (47,624) $ (139,467)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) applicable to
common stockholders per common
share............................. $ 0.80 $ 1.08 $ (4.80) $ (40.87) $ (161.57) $ (100.65) $ (283.50)
========== ========== ========== ========== ========== ========== ==========
Weighted average common shares
outstanding....................... 473,152 473,152 473,152 473,152 473,564 473,152 491,954
========== ========== ========== ========== ========== ========== ==========
Net income (loss) applicable to
common stockholders per common
share, after giving effect to the
recapitalization and stock
split............................. $ 0.01 $ 0.01 $ (0.04) $ (0.37) $ (1.45) $ (0.90) $ (2.54)
========== ========== ========== ========== ========== ========== ==========
Weighted average common shares
outstanding, after giving effect
to the stock-split................ 52,728,059 52,728,059 52,728,059 52,278,059 52,773,972 52,728,059 54,823,354
========== ========== ========== ========== ========== ========== ==========
</TABLE>
33
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
OTHER FINANCIAL DATA:
Cash flows provided by operating
activities..................... $ 2,529 $ 4,634 $ 5,239 $ 6,908 $ 28,024 $ 10,257 $ 11,527
Cash flows provided by (used in)
investing activities........... 22 (6,538) (43,894) (217,640) (999,063) (293,209) (93,380)
Cash flows provided by (used in)
financing activities........... (2,985) 2,029 38,904 212,505 990,610 285,240 59,869
EBITDA, before other income and
minority interests............. 4,591 6,878 9,885 24,013 49,964 37,502 105,064
EBITDA, before other income and
minority interests, as a
percentage of total revenue.... 29.9% 34.9% 36.7% 36.0% 35.7% 38.9% 44.7%
Capital expenditures............. $ 5,267 $ 3,925 $ 13,536 $ 17,773 $ 55,289 $ 23,793 $ 40,174
OTHER DATA:
Cellular subscribers (at period
end)........................... 21,500 26,600 34,000 100,000 352,000 163,000 424,000
Cellular penetration (at period
end)........................... 6.5% 8.0% 5.8% 6.1% 6.8% 5.8% 7.2%
Average monthly cellular churn
rates.......................... 0.9% 1.5% 1.8% 1.9% 2.0% 1.9% 1.9%
Average monthly revenues per
cellular subscriber, excluding
roaming revenues............... $ 50 $ 50 $ 48 $ 41 $ 40 $ 40 $ 34
Average monthly revenues per
cellular subscriber, including
roaming revenues............... $ 65 $ 66 $ 70 $ 69 $ 79 $ 80 $ 65
Cellular cell sites (at period
end)........................... 36 46 67 135 414 210 459
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 607 $ 732 $ 981 $ 2,752 $ 22,324 $ 339
Net fixed assets................................... 11,590 11,414 26,794 52,374 173,054 187,291
Total assets....................................... 33,111 37,711 95,376 359,645 1,703,427 1,666,383
Total debt......................................... 20,661 24,319 75,750 335,570 1,121,556 1,059,458
Mandatorily redeemable preferred stock............. -- 5,913 10,000 11,623 381,320 525,797
Stockholders' equity (deficit)..................... 28 (6,971) (9,802) (36,673) (156,783) (296,249)
</TABLE>
34
<PAGE>
AMERICAN CELLULAR CORPORATION
<TABLE>
<CAPTION>
PRICELLULAR (THE PREDECESSOR COMPANY) AMERICAN CELLULAR
--------------------------------------------------------- -------------------
PERIOD FROM
SIX MONTHS FEBRUARY 26, 1998
YEAR ENDED DECEMBER 31, ENDED (DATE OF FORMATION)
-------------------------------------------- JUNE 30, THROUGH
1994 1995 1996 1997 1998 DECEMBER 31, 1998
--------- --------- --------- -------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Total operating
revenues........... $ 5,209 $ 41,504 $ 112,616 $181,000 $108,670 $ 122,409
--------- --------- --------- -------- -------- -----------
Operating expenses:
Cost of service.... 1,892 10,694 29,571 48,691 20,911 10,917
Cost of
equipment........ 814 4,951 10,073 12,841 5,365 7,271
Selling, general
and
administrative... 6,005 16,512 34,502 53,485 30,230 37,625
Depreciation and
amortization..... 2,720 10,337 19,537 28,759 17,553 45,569
Nonrecurring
charges.......... -- -- -- -- 4,889 4,355
--------- --------- --------- -------- -------- -----------
Total operating
expenses....... 11,431 42,494 93,683 143,776 78,948 105,737
--------- --------- --------- -------- -------- -----------
Operating income
(loss)............. (6,222) (990) 18,933 37,224 29,722 16,672
Gain (loss) on sale
of investments in
cellular
operations......... 6,819 11,598 (1,401) 8,423 (133) --
Interest expense..... (2,236) (22,953) (47,076) (67,392) (38,955) (61,477)
Other income net..... 199 4,634 6,501 8,114 3,080 4,936
Income tax
provision.......... -- -- -- -- -- (530)
--------- --------- --------- -------- -------- -----------
Net loss............. (1,440) (7,711) (23,043) (13,631) (6,286) (40,399)
Dividends on
preferred stock.... -- -- (6,178) (6,540) (3,357) (21,375)
--------- --------- --------- -------- -------- -----------
Net loss applicable
to common
stockholders....... $ (1,440) $ (7,711) $ (29,221) $(20,171) $ (9,643) $ (61,774)
========= ========= ========= ======== ======== ===========
OTHER FINANCIAL DATA:
Cash flows provided
by (used in)
operating
activities......... $ (831) $ 4,110 $ 39,371 $ 49,026 $ 11,665 $ 35,295
Cash flows used in
investing
activities......... (130,350) (204,353) (200,969) (36,284) (80,327) (1,512,745)
Cash flows provided
by (used in)
financing
activities......... 176,355 278,276 138,518 (51,749) 58,765 1,511,465
EBITDA, before other
income and
nonrecurring
charges............ (3,502) 9,347 38,470 65,983 52,164 66,596
EBITDA, before other
income and
nonrecurring
charges, as a
percentage of total
revenue............ (67.2)% 22.5% 34.2% 36.5% 48.0% 54.4%
Capital
expenditures....... $ 3,013 $ 6,794 $ 29,470 $ 25,717 $ 20,517 $ 24,260
OTHER DATA:
Cellular subscribers
(at period end).... 17,300 73,000 139,800 243,700 286,000 334,500
Cellular penetration
(at period end).... 1.0% 2.0% 3.6% 5.3% 5.9% 6.8%
Average monthly
cellular churn
rates.............. 2.7% 2.0% 1.6% 1.8% 1.4% 1.8%
<CAPTION>
AMERICAN CELLULAR
------------------------------------
PERIOD FROM
FEBRUARY 26, 1998 NINE MONTHS
(DATE OF FORMATION) ENDED
THROUGH SEPTEMBER 30,
SEPTEMBER 30, 1998 1999
------------------- --------------
<S> <C> <C>
($ IN THOUSANDS,
EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS
DATA:
Total operating
revenues........... $ 61,105 $ 212,069
----------- ---------
Operating expenses:
Cost of service.... 4,922 18,154
Cost of
equipment........ 3,246 13,128
Selling, general
and
administrative... 16,384 54,537
Depreciation and
amortization..... 22,506 72,607
Nonrecurring
charges.......... 4,154 --
----------- ---------
Total operating
expenses....... 51,212 158,426
----------- ---------
Operating income
(loss)............. 9,893 53,643
Gain (loss) on sale
of investments in
cellular
operations......... -- --
Interest expense..... (33,864) (80,620)
Other income net..... 3,994 3,536
Income tax
provision.......... -- (4,044)
----------- ---------
Net loss............. (19,977) (27,485)
Dividends on
preferred stock.... (11,069) (32,487)
----------- ---------
Net loss applicable
to common
stockholders....... $ (31,046) $ (59,972)
=========== =========
OTHER FINANCIAL DATA:
Cash flows provided
by (used in)
operating
activities......... $ 33,555 $ 43,128
Cash flows used in
investing
activities......... (1,507,978) (31,394)
Cash flows provided
by (used in)
financing
activities......... 1,511,465 (2,419)
EBITDA, before other
income and
nonrecurring
charges............ 36,553 126,250
EBITDA, before other
income and
nonrecurring
charges, as a
percentage of total
revenue............ 59.8% 59.5%
Capital
expenditures....... $ 6,625 $ 43,581
OTHER DATA:
Cellular subscribers
(at period end).... 305,100 398,000
Cellular penetration
(at period end).... 6.2% 8.3%
Average monthly
cellular churn
rates.............. 1.8% 1.7%
</TABLE>
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA" AND OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION DOES NOT INCLUDE THE RESULTS OF OUR PROPOSED ACQUISITION OF
AMERICAN CELLULAR, WHICH WE WILL ACCOUNT FOR USING THE EQUITY METHOD OF
ACCOUNTING.
OVERVIEW
We provide cellular telephone services in rural and suburban markets. On
October 5, 1999, we and AT&T Wireless entered into an equally-owned joint
venture to acquire, own and operate American Cellular for approximately
$2.4 billion, including fees and expenses. American Cellular is one of the
largest independent rural cellular telephone operators in the United States. As
of September 30, 1999, American Cellular's systems covered a total population of
approximately 4.9 million and it had approximately 398,000 subscribers,
primarily in rural areas of the midwestern and eastern United States.
We will account for our interest in the American Cellular joint venture
using the equity method of accounting. As a result, we will reflect our
proportionate share of the joint venture's equity in a single line item entitled
"Investment in unconsolidated subsidiary" in our balance sheet and we will
reflect our proportionate share of the joint venture's net income or losses in a
single line item entitled "Equity in income (loss) of unconsolidated subsidiary"
in our statement of operations. To the extent that the joint venture incurs
losses in the future, our "Investment in unconsolidated subsidiary" will be
reduced.
We do not expect that the formation of our joint venture with AT&T Wireless
and the joint venture's acquisition of American Cellular will have a significant
adverse impact on our liquidity or capital resource, but we expect to incur
additional losses from continuing operations as a result of the joint venture's
acquisition of American Cellular. American Cellular's management, organization,
billing system, network infrastructure and marketing programs are substantially
similar to ours. We intend to consolidate American Cellular's corporate
functions, including human resources, finance, engineering and information
systems with ours. We do not expect any material disruptions from this
integration; however, we cannot assure you that we will not experience
difficulty integrating American Cellular's operations with ours.
American Cellular has required, and will likely continue to require,
substantial capital to further develop, expand and upgrade its cellular systems.
The joint venture has preliminarily budgeted approximately $70.0 million for
capital expenditures in 2000. Although the joint venture has received a
commitment from Banc of America Securities LLC and its affiliate, Bank of
America, N.A., on behalf of a group of banks to provide a $1.75 billion credit
facility to the joint venture, we expect approximately $75.0 million to be
available for borrowing immediately after the acquisition. We cannot be certain
that the American Cellular joint venture will generate sufficient cash flows
from operations or otherwise have sufficient access to capital to meet all of
its debt service requirements, capital expenditures, working capital or other
operating needs. If it does not, we may be required to fund our 50% share of any
capital needs of the American Cellular joint venture in order to protect our
substantial investment in it. See "Risk Factors--Risks Related to Our
Acquisition Strategy--We may need to contribute additional funds to the American
Cellular joint venture to protect our investment in it, which could strain our
financial resources and limit our ability to pursue other business
opportunities" and "The American Cellular Acquisition--The Joint Venture
Agreement."
If the joint venture defaults on its purchase of American Cellular, the
joint venture will be required to pay actual damages suffered by American
Cellular up to $500.0 million. However, the joint venture is only required to
pay $100.0 million of liquidated damages to American Cellular if the joint
36
<PAGE>
venture's default results from the refusal of its bank lenders to provide funds
under the joint venture's proposed credit facility for reasons other than:
- the joint venture's breach of its obligations to the bank lenders;
- the joint venture's failure to satisfy funding conditions that are within
its control; or
- the joint venture's inability to reach a definitive loan agreement with
its bank lenders.
Our ability to fund our ongoing capital requirements, debt service and working
capital needs are not expected to be materially impacted by the amount, if any,
of damages the joint venture is obligated to pay.
REVENUES
Our cellular revenues consist of service revenues, roaming revenues and
equipment sales and other revenues. There has been an industry trend of
declining average revenues per minute as competition among wireless 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 wireless telecommunications subscribers and the number of
minutes of usage per subscriber. There has also been a broad trend in the
wireless telecommunications industry of declining average revenues per
subscriber. We believe that this downward trend results primarily from the
addition of new lower usage customers who utilize wireless services for personal
convenience, security or as a backup to their traditional landline telephone as
well as declining average revenues per minute.
Roaming revenues are revenues we derive from providing service to
subscribers of other wireless providers when those subscribers "roam" into our
markets and use our systems to carry their calls. Roaming accounted for 29.1%,
39.4%, 47.5%, 47.7% and 45.6% of our cellular revenue for the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September 30,
1998 and 1999, respectively. Roaming revenues typically yield higher average per
minute rates and higher margins than revenues from our subscribers. We achieve
these higher margins because we incur virtually no costs related to equipment,
customer service or collections to earn roaming revenues. See "Risk
Factors--Risks Related to Our Business--We depend on our roaming agreements with
AT&T Wireless and our other roaming partners for a substantial portion of our
operating revenues. If AT&T Wireless were to terminate its roaming agreement
with us, our results of operations would be harmed substantially."
We include any toll, or long-distance, revenues related to our cellular and
roaming services in service revenues and roaming revenues. Our roaming yield,
which is our roaming service revenues, including airtime, toll charges and
surcharges, divided by roaming minutes of use, was $0.70, $0.72, $0.61, $0.62
and $0.50 per minute for the years ended December 31, 1996, 1997, 1998 and for
the nine months ended September 30, 1998 and 1999, respectively. Despite the
decline in our roaming yield, we have seen overall roaming revenues grow due to
growth in roaming minutes of use.
We derive roaming revenues from charges to our subscribers when those
subscribers roam into other wireless providers' markets. Our current accounting
practice is to net those revenues against the associated expenses charged to us
by third-party wireless providers (that is, the fees we pay the other wireless
providers for carrying our subscribers' calls on their network) and to record
the net expense as cost of service. Historically, we have been able to pass
through to our subscribers the majority of the costs charged to us by
third-party wireless providers. Recently, the industry has been moving to
pricing plans that include flat rate pricing and larger home areas. Under these
types of plans, amounts charged to us by other wireless providers may not
necessarily be passed through to our subscribers. Therefore, we are currently
assessing the need to report these revenues and expenses separately in our
statements of operations. If we had reported these revenues and expenses
separately in our statement of operations for the years ended December 31, 1997
and 1998 and the nine months ended September 30,
37
<PAGE>
1998 and 1999, revenues would have been $74.4 million, $150.8 million,
$104.0 million and $266.8 million, respectively, average monthly revenues per
cellular subscriber, excluding roaming revenues, would have been $52, $48, $47
and $43, respectively, and EBITDA margin would have been 32.3%, 33.1%, 36.1% and
39.4%, respectively. Information prior to 1997 is not available.
Our overall cellular penetration rates increased for the nine months ended
September 30, 1998 and 1999 and in each of 1996, 1997 and 1998 due to
incremental penetration gains in our markets. We believe that as our cellular
penetration rates increase, the increase in new subscriber revenues will
continue to exceed the loss of revenues attributable to our cellular churns.
COSTS AND EXPENSES
Our primary operating expense categories include cost of service, cost of
equipment, marketing and selling costs, general and administrative costs, 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 when our
subscribers roam into their markets.
Our cost of equipment represents the costs associated with telephone
equipment and accessories sold to customers. 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 and increased marketing and selling costs per gross additional
subscriber. While we expect to continue these discounts and promotions, we
believe that these promotions will result in increased revenues from increases
in the number of our cellular subscribers.
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. We pay
commissions 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,
including costs for customer support, billing, collections and corporate
administration.
Our depreciation and amortization expense represents the costs associated
with the depreciation of our fixed assets and the amortization of our intangible
assets, primarily cellular license acquisition costs and customer lists.
Since 1996, we have completed 14 acquisitions of cellular licenses and
systems for an aggregate purchase price of $1,196.4 million, increasing the
total population service by our systems by approximately 5.7 million and
expanding the geographical scope of our operations. Although our cash flows from
operations has increased as a result of our acquisitions, the increased
amortization, together with the increased interest expense and dividend
requirements associated with our outstanding indebtedness and preferred stock,
have resulted in increased losses applicable to common stockholders for 1997 and
1998 and for the nine months ended September 30, 1999. We expect that our
interest in the American Cellular joint venture will result in an immediate
increase in our net losses. We expect our net losses to continue until we expand
our acquired systems and increase our subscriber base. Our recent acquisitions
affect the comparability of our historical results of operations for the periods
discussed, therefore these results may not be indicative of future performance.
As part of our recapitalization to be completed immediately prior to the
closing of this offering, the holders of our Class D preferred stock have agreed
to convert all of their Class D preferred shares. Each share of Class D
preferred stock is convertible into one share of old Class A common stock and
38
<PAGE>
one share of Class E preferred stock. As a result of this conversion, we will
allocate the current carrying value of the Class D preferred stock of
$85.0 million to both the old Class A common stock and Class E preferred stock
based on their relative fair market values at the time of conversion. The
redemption of the shares of Class E preferred stock will be accounted for at
their aggregate liquidation value of $85.0 million plus accrued dividends. The
difference between the allocated carrying value of the Class E preferred stock
and their liquidation value will be recognized as a preferred stock dividend at
the date of the redemption.
During the first quarter 2000, we expect to incur an extraordinary pretax
loss of approximately $35.9 million, which includes a $27.2 million premium paid
on the retirement of our 11 3/4% senior notes and an $8.7 million write-off of
previously capitalized financing costs associated with our existing Dobson
Operating Company and Dobson Cellular Operations Company credit facilities and
our senior notes.
RESULTS OF OPERATIONS
In the text below, financial statement numbers have been rounded; however,
the percentage changes are based on our actual financial statements.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
OPERATING REVENUES. For the nine months ended September 30, 1999, our total
operating revenues increased $138.8 million, or 144.1%, to $235.1 million from
$96.3 million for the comparable period in 1998. Our total service revenues,
roaming revenues and equipment sales and other revenues represented 50.1%, 45.6%
and 4.3%, respectively, of our total operating revenues for the nine months
ended September 30, 1999 and 49.6%, 47.7% and 2.7%, respectively, of our total
operating revenues for the nine months ended September 30, 1998.
The following table sets forth the components of our revenues for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
----------- --------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
Operating revenues:
Service revenues..................................... $47,769 $117,892
Roaming revenues..................................... 45,916 107,296
Equipment sales and other revenues................... 2,661 9,952
------- --------
Total.............................................. $96,346 $235,140
======= ========
</TABLE>
For the nine months ended September 30, 1999, service revenues increased
$70.1 million, or 146.8%, to $117.9 million from $47.8 million for the
comparable 1998 period. Of this increase, $56.0 million was attributable to
acquisitions. The remaining $14.1 million was primarily attributable to
increased penetration and usage in our existing markets. Our subscriber base
increased 160.1% to approximately 424,000 at September 30, 1999 from
approximately 163,000 at September 30, 1998. We added approximately 193,800
subscribers since September 30, 1998 as a result of acquisitions. For the nine
months ended September 30, 1999, our average monthly service revenues per
subscriber decreased 17.5% to $33 from $40 for the comparable period in 1998 due
to the addition of new lower rate subscribers in our northern region and
competitive market pressures in all our markets.
For the nine months ended September 30, 1999, roaming revenues increased
$61.4 million, or 133.7%, to $107.3 million from $45.9 million for the
comparable 1998 period. Of this increase, $41.5 million was attributable to
acquisitions. The remaining $19.9 million was primarily attributable to
39
<PAGE>
increased roaming minutes in our existing markets due to expanded coverage
areas, deployment of digital technology in most of our markets and increased
usage in these markets.
For the nine months ended September 30, 1999, equipment sales and other
revenues increased $7.3 million, or 274.0%, to $10.0 million from $2.7 million
for the comparable 1998 period due to increased sales of equipment as a result
of growth in subscribers.
COST OF SERVICE. For the nine months ended September 30, 1999, the total
cost of service increased $13.2 million, or 58.2%, to $35.8 million from
$22.6 million for the comparable 1998 period. Of this increase, $11.3 million
was attributable to acquisitions. The remaining $1.9 million was primarily
attributable to increased subscribers and minutes of use in our existing
markets. As a percentage of service and roaming revenues, our cost of cellular
service decreased to 15.9% for the nine months ended September 30, 1999 from
24.1% for the comparable period of 1998. This decrease was primarily a result of
a reduction in rates charged by third-party wireless providers for the use of
their networks while our customers were roaming in their service areas.
COST OF EQUIPMENT. For the nine months ended September 30, 1999, our cost
of equipment increased $13.4 million, or 259.3%, to $18.6 million from
$5.2 million for the comparable period of 1998, primarily as a result of
increases in the volume of equipment we sold due to the growth in subscribers.
MARKETING AND SELLING COSTS. For the nine months ended September 30, 1999,
our marketing and selling costs increased $20.1 million, or 135.3%, to
$35.0 million from $14.9 million for the comparable period of 1998. The overall
increase was a result of an increase in gross subscriber additions. We added
approximately 121,000 gross subscribers in the nine months ended September 30,
1999 and approximately 48,900 gross subscribers in the nine months ended
September 30, 1998. As a percentage of total operating revenues, marketing and
selling costs decreased to 14.9% for the nine months ended September 30, 1999
from 15.4% for the same period in 1998.
GENERAL AND ADMINISTRATIVE COSTS. For the nine months ended September 30,
1999, our general and administrative costs increased $24.6 million, or 151.5%,
to $40.8 million from $16.2 million for the comparable 1998 period. This
increase was the result of increased infrastructure costs, including customer
service, billing, collections and administrative costs as a result of our
overall growth. Our average monthly general and administrative costs per average
subscriber decreased 14.3% to $12 for the nine months ended September 30, 1999
from $14 for the comparable period of 1998. The decrease in general and
administrative costs per subscriber was primarily the result of efficiencies
gained from the integration of acquired companies.
DEPRECIATION AND AMORTIZATION EXPENSE. For the nine months ended
September 30, 1999, our depreciation and amortization expense increased
$70.3 million, or 236.6%, to $100.0 million from $29.7 million for the
comparable 1998 period. Depreciation and amortization of assets acquired in
acquisitions accounted for substantially all of this increase.
INTEREST EXPENSE. For the nine months ended September 30, 1999, our
interest expense increased $57.4 million, or 228.9%, to $82.4 million from
$25.0 million for the comparable 1998 period. The increase resulted primarily
from our increased borrowings to finance our acquisitions.
OTHER INCOME (EXPENSE), NET. For the nine months ended September 30, 1999,
our other income increased $0.1 million, or 3.3%, to $3.4 million from
$3.3 million for the comparable period of 1998. This increase was primarily the
result of an increase in interest income earned on restricted investments less
expenses that we incurred pursuing acquisitions that were not consummated.
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES. For the nine months ended
September 30, 1999, our minority interests in income of subsidiaries increased
$0.1 million, or 8.2%, to $2.1 million from
40
<PAGE>
$2.0 million for the comparable period of 1998. This increase was attributable
to increased income earned from our subsidiaries in established markets in which
we do not own a 100% interest, which was offset by losses from subsidiaries in
newly-acquired markets in which we do not own a 100% interest.
EXTRAORDINARY EXPENSE. During the first quarter of 1998, we incurred an
extraordinary pretax loss of approximately $3.3 million as a result of writing
off previously capitalized financing costs associated with revolving credit
facilities that were refinanced in March 1998.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. For the nine months ended
September 30, 1999, our loss, net of income tax benefits, from discontinued
operations increased $24.6 million, or 143.3%, to $41.8 million from
$17.2 million for the comparable period of 1998. The increase was a result of
increased losses by Logix, our local exchange carrier subsidiary, that
substantially expanded its operations in 1999. We will distribute the capital
stock of Logix to our current stockholders prior to this offering.
NET INCOME (LOSS). For the nine months ended September 30, 1999, our net
loss was $89.0 million. Our net loss increased $58.1 million, or 188.1%, from
$30.9 million for the comparable 1998 period. The increase in our net loss was
primarily attributable to increased depreciation and amortization expense and
interest expense resulting from our 1998 and 1999 business acquisitions and
related financings, as well as the increase in our loss from discontinued
operations.
DIVIDENDS ON PREFERRED STOCK. For the nine months ended September 30, 1999,
our dividends on preferred stock increased $33.8 million, or 201.6%, to
$50.5 million from $16.7 million for the comparable 1998 period. The increase
was primarily the result of additional dividends on our December 1998 and May
1999 issuances of senior preferred stock.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUES. For the year ended December 31, 1998, our total
operating revenues increased $73.3 million, or 109.9%, to $140.0 million from
$66.7 million for the year ended December 31, 1997. Our total service revenues,
roaming revenues and equipment sales and other revenues represented 49.6%, 47.5%
and 3.0%, respectively, of our total operating revenues for the year ended
December 31, 1998 and 57.6%, 39.4% and 3.1%, respectively, of our total
operating revenues, respectively, for the year ended December 31, 1997.
The following table sets forth the components of our revenues for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1997 1998
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Operating revenues:
Service revenues................................. $ 38,410 $ 69,402
Roaming revenues................................. 26,263 66,479
Equipment sales and other revenues............... 2,041 4,154
-------- --------
Total.......................................... $ 66,714 $140,035
======== ========
</TABLE>
For the year ended December 31, 1998, service revenues increased
$31.0 million, or 80.7%, to $69.4 million from $38.4 million for the year ended
December 31, 1997. Of this 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. We added 220,626 subscribers since December 31, 1997 as a
result of acquisitions. For the year ended December 31, 1998, our average
41
<PAGE>
monthly service revenues per subscriber decreased 2.4% to $40 from $41 for the
year ended December 31, 1997 due to the addition of lower rate subscribers in
our eastern region and competitive market pressures in all our markets.
For the year ended December 31, 1998, roaming revenues increased
$40.2 million, or 153.1%, to $66.5 million from $26.3 million for the year ended
December 31, 1997. Of this increase, $25.0 million was attributable to
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.
For the year ended December 31, 1998, equipment sales and other revenues
increased $2.2 million, or 103.5%, to $4.2 million from $2.0 million for the
year ended December 31, 1997 due to increased sales of equipment 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 year ended December 31, 1997. Of this 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 payments we made to other wireless service providers for the
use of their networks while our customers were roaming in their service areas.
As a percentage of service and roaming revenues, our cost of cellular service
remained constant at 24.5% for the year ended December 31, 1998 and the year
ended December 31, 1997.
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 from $4.0 million
in 1997, primarily as a result of increases in the volume of equipment we sold
due to the growth in subscribers.
MARKETING AND SELLING COSTS. For the year ended December 31, 1998, our
marketing and selling costs increased $11.7 million, or 109.9%, to
$22.4 million from $10.7 million for the year ended December 31, 1997. As a
percentage of total operating revenues, marketing and selling costs remained
constant at 16.0% for the year ended December 31, 1998 and the year ended
December 31, 1997. We added 65,665 gross subscribers in the year ended
December 31, 1998 and 33,354 gross subscribers in the year ended December 31,
1997. Gross subscriber additions do not include subscribers acquired through
business acquisitions.
GENERAL AND ADMINISTRATIVE COSTS. For the year ended December 31, 1998, our
general and administrative costs increased $14.5 million, or 125.5%, to
$26.1 million from $11.6 million for the year ended December 31, 1997. This
increase was the result of increased infrastructure costs, including customer
service, billing, collections and administrative costs as a result of our
overall growth. As a percentage of total operating revenues, general and
administrative costs increased to 18.6% in the year ended December 31, 1998 from
17.3% in the year ended December 31, 1997. The increase as a percentage of total
operating revenues resulted from initial inefficiencies created in our
administrative areas as a result of the fourth quarter 1998 operational split of
our ongoing wireless and our discontinued wireline business segments. In
addition, we experienced higher than expected levels of bad debt expenses in
certain markets in the fourth quarter of 1998.
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 from $16.8 million for 1997. Depreciation and
amortization of assets acquired in acquisitions accounted for $21.1 million of
this increase. The remainder of this increase was from depreciation attributable
to our depreciable assets.
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<PAGE>
INTEREST EXPENSE. For the year ended December 31, 1998, our interest
expense increased $11.3 million, or 41.0%, to $39.0 million from $27.6 million
for the year ended December 31, 1997. The increase resulted primarily from our
increased borrowings in 1998 to finance our 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 from
$2.8 million for the year ended December 31, 1997. Of this increase,
$0.9 million was attributable to increased interest income in 1998. In 1998, we
had higher investment balances than in 1997, primarily related to proceeds from
the sale of securities pending their use and escrow deposits relating to
acquisitions completed in 1998.
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES. For the year ended
December 31, 1998, our minority interests in income of subsidiaries increased
$0.8 million, or 46.9%, to $2.5 million from $1.7 million in 1997. This increase
was attributable to the increased income earned from our subsidiaries in
established markets in which we do not own a 100% interest, which was offset by
losses from subsidiaries in newly-acquired markets in which we do not own a 100%
interest.
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, respectively.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. In the year ended December 31,
1998, we had a loss from discontinued operations of $27.1 million, compared to
income from discontinued operations of $0.3 million in the year ended
December 31, 1997. The loss was the result of increased losses by Logix, our
local exchange carrier subsidiary, that substantially expanded its operations in
1998. We will distribute the capital stock of Logix to our current stockholders
prior to this offering.
NET INCOME (LOSS). For the year ended December 31, 1998, our net loss was
$52.6 million. Our net loss increased $35.9 million, or 214.1%, from
$16.7 million in the year ended December 31, 1997. The increase in our net loss
was primarily attributable to increased depreciation and amortization expense
and interest expense resulting from our 1998 business acquisitions and related
financings and increased losses from discontinued operations.
DIVIDENDS ON PREFERRED STOCK. For the year ended December 31, 1998, our
dividends on preferred stock increased $21.4 million, or 820.2%, to
$24.0 million from $2.6 million in the year ended December 31, 1997. The
increase was primarily the result of additional dividends on our January 1998
issuance of senior preferred stock.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
OPERATING REVENUES. For the year ended December 31, 1997, our total
operating revenues increased $39.8 million, or 147.6%, to $66.7 million from
$26.9 million for the year ended December 31, 1996. Our total service revenues,
roaming revenues and equipment sales and other revenues represented 57.6%, 39.4%
and 3.1% of our total operating revenues, respectively, in the year ended
December 31, 1997 and 65.3%, 29.1% and 5.5% of our total operating revenues,
respectively, in the year ended December 31, 1996.
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<PAGE>
The following table sets forth the components of our revenues for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1996 1997
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Operating revenues:
Service revenues................................... $17,593 $38,410
Roaming revenues................................... 7,852 26,263
Equipment sales and other revenues................. 1,494 2,041
------- -------
Total.......................................... $26,939 $66,714
======= =======
</TABLE>
For the year ended December 31, 1997, our service revenues increased
$20.8 million, or 118.3%, to $38.4 million from $17.6 million for the year ended
December 31, 1996. Of this increase, $15.0 million was attributable to the
acquisitions of our Maryland and Arizona properties in 1997 and the inclusion of
the operations of our 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. We added 42,608 subscribers as a result of the
acquisitions of our east Maryland and west Maryland markets. For the year ended
December 31, 1997, our average monthly service revenues per subscriber decreased
15.0% to $41 from $48 for the year ended December 31, 1996 due to the addition
of lower rate subscribers in our eastern region and competitive market pressures
in all our markets.
For the year ended December 31, 1997, our roaming revenues increased
$18.4 million, or 234.4%, to $26.3 million from $7.9 million for the year ended
December 31, 1996. Of this increase, $15.6 million was attributable to the
acquisitions of our Maryland and Arizona markets in 1997 and the inclusion of
the operations of our Kansas/Missouri markets for all of 1997. The remaining
increase was primarily attributable to increased roaming minutes in our central
region due to expanded coverage areas and increased usage.
For the year ended December 31, 1997, equipment sales and other revenues
increased $0.5 million, or 36.7%, to $2.0 million from $1.5 million in 1996 due
to increased sales of equipment as a result of growth in subscribers.
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
for the year ended December 31, 1996. Of this increase, $8.4 million was
attributable to the acquisitions of our Maryland and Arizona properties in 1997
and the inclusion of the operations of our Kansas/Missouri markets for all of
1997. The remaining increase was primarily the result of increased subscribers
and minutes of use in our Central Region and payments we made to other wireless
service providers for the use of their networks while our customers were roaming
in their service areas. As a percentage of service and roaming revenues, cost of
service increased to 25.4% for the year ended December 31, 1997 from 24.0% for
the year ended December 31, 1996. This increase was primarily due to the
increased payments we made to other wireless service providers for roaming
charges of our subscribers, 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
for the year ended December 31, 1996, primarily as a result of increases in the
volume of equipment we sold due to the growth in subscribers.
MARKETING AND SELLING COSTS. For the year ended December 31, 1997, our
marketing and selling costs increased $6.2 million, or 139.1%, to $10.7 million
from $4.5 million for the year ended December 31, 1996. The increase was
primarily due to the higher level of subscribers we added during 1997. We added
33,354 gross subscribers in 1997 with subscribers added in our eastern region
and in our Arizona 5 license since their acquisitions making up 16,469 and
1,307, respectively, of the gross subscribers added. We added 11,970 gross
subscribers in 1996. Gross subscriber additions do not include subscribers
acquired through business acquisitions.
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<PAGE>
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 year ended December 31, 1996. The
increase was primarily due to our increased billing costs as a result of our
growth in our wireless subscribers, our 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 revenues, 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 our
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 for the year ended December 31, 1996.
Depreciation and amortization expense increased $12.1 million as a result of the
amortization of assets acquired in the acquisitions of our Maryland and Arizona
markets in 1997 and the Kansas/Missouri acquisition in 1996, which was partially
offset by a slight decrease related to our depreciation and amortization of
assets in our 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 for 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
other income increased $4.3 million to $2.8 million from other expense of
$1.5 million in the year ended December 31, 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 our senior notes due
2007.
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES. For the year ended
December 31, 1997, our minority interests in income of subsidiaries increased
$1.0 million, or 150.8%, to $1.7 million from $0.7 million in 1996. This
increase was attributable to the increased income earned from our subsidiaries
in established markets in which we do not own a 100% interest, which was offset
by losses from subsidiaries in newly-acquired markets in which we do not own a
100% interest.
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,
respectively.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. Our loss from discontinued
operations in the year ended December 31, 1997 of $0.3 million remained constant
from the year ended December 31, 1996.
NET INCOME (LOSS). For the year ended December 31, 1997, our net loss was
$16.7 million. Our net loss increased $15.3 million from $1.4 million in the
year ended December 31, 1996. The increase in our net loss is primarily
attributable to increased depreciation and amortization expense and interest
expense resulting from our 1997 business acquisitions and related financings.
DIVIDENDS ON PREFERRED STOCK. For the year ended December 31, 1997, our
dividends on preferred stock increased $1.8 million, or 206.6%, to $2.6 million
from $0.8 million in the year ended December 31 1996. This increase was
primarily the result of additional dividends on our senior preferred stock,
which was outstanding for all of 1997 but only part of 1996.
LIQUIDITY AND CAPITAL RESOURCES
We have required, and will likely continue to require, substantial capital
to further develop, expand and upgrade our cellular systems and and those we may
acquire. We have financed our operations through cash flows from operating
activities, bank debt and the sale of debt and equity securities.
NET CASH FLOW
At September 30, 1999, we had a working capital deficit of $14.0 million, a
ratio of current assets to current liabilities of 0.9:1 and an unrestricted cash
balance of $0.3 million, which compares to
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<PAGE>
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, 1998, and working capital of $15.9 million, a ratio of current
assets to current liabilities of 1.7:1 and an unrestricted cash balance of
$2.8 million at December 31, 1997.
Our net cash provided by operating activities totaled $11.5 million and
$10.3 million for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $1.2 million was primarily due to lower
depreciation and amortization, which was partially offset by a decrease in
deferred credits, an increase in current assets, a decrease in liabilities and
our net loss for the period. Our net cash provided by operating activities
totaled $28.0 million for 1998 compared to $6.9 million for 1997 and
$5.2 million for 1996. The increase of $21.1 million from 1997 to 1998 was
primarily due to lower depreciation and amortization, a decrease in current
assets and an increase in liabilities, which was partially offset by our net
loss for the period. The increase of $1.7 million from 1996 to 1997 was
primarily due to a decrease in current assets, an increase in liabilities, lower
depreciation and amortization and an increase in deferred income taxes, which
was partially offset by our net loss for the period.
Our net cash used in investing activities, which totaled $93.4 million and
$293.2 million for the nine months ended September 30, 1999 and September 30,
1998, respectively, related primarily to acquisitions and capital expenditures
in all periods. Acquisitions and their related costs accounted for $46.4 million
and $200.8 million and capital expenditures were $40.2 million and
$23.8 million for the nine months ended September 30, 1999 and September 30,
1998, respectively. Our cash used in investing activities, which totaled
$999.1 million, $217.6 million and $43.9 million for 1998, 1997 and 1996,
respectively, principally related to acquisitions and capital expenditures in
all periods. Acquisitions accounted for $945.4 million, $190.7 million and
$30.0 million in 1998, 1997 and 1996, respectively, and capital expenditures
were $55.3 million, $17.8 million and $13.5 million in 1998, 1997 and 1996,
respectively.
Net cash provided by financing activities was $59.9 million for the nine
months ended September 30, 1999 compared to $285.2 million for the nine months
ended September 30, 1998. Financing activity sources for the nine months ended
September 30, 1999 consisted primarily of the issuance of $170.0 million of
senior preferred stock, maturities of restricted investments of $19.1 million
and proceeds from long-term debt of $79.0 million, which was partially offset by
the redemption of $55.0 million of our Class F and Class G preferred stock and
repayments of long-term debt totaling $141.1 million. 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. Financing activity sources for 1998 consisted
primarily of $740.0 million of proceeds from bank borrowings, the issuance of
$200.0 million of Dobson/Sygnet senior notes, the issuance of $225.0 million of
senior preferred stock and the issuance of $115.0 million of other preferred
stock. These activities were partially 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 senior
notes and $62.0 million of deferred financing costs relating to new credit
facilities and the financing of our acquisition of Sygnet. Proceeds from
long-term debt borrowings exceeded long-term debt repayments by $768.5 million,
$256.3 million and $39.4 million in 1998, 1997 and 1996, respectively.
The minority partners in 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.
CAPITAL RESOURCES
On January 18, 2000, we obtained a new $800.0 million credit facility under
a credit agreement with Bank of America, N.A., as Administrative Agent and a
group of participating lenders, the proceeds of which were used primarily to
consolidate the indebtedness of our Dobson Cellular
46
<PAGE>
Operations Company subsidiary under a $160.0 million credit facility and our
Dobson Operating Company subsidiary under a $250.0 million senior secured credit
facility and to repurchase $159.6 million outstanding principal amount of our
11 1/4% senior notes due 2007. The proceeds will also be used to pay the cash
portion of the costs of certain of our pending acquisitions. This new credit
facility includes a $300.0 million revolving credit facility and $500.0 million
of term loan facilities consisting of a Term A Facility of $350.0 million and a
Term B Facility of $150.0 million. All of these loans will mature in 2007.
This credit facility is structured as a loan to our subsidiary, Dobson
Operating Co., L.L.C., with guarantees from its restricted subsidiaries and us.
Advances bear interest, at our option, at either (i) a base rate, which is equal
to the higher of the federal funds rate plus 0.5% or the prime rate, plus a
margin from 0.5% to 2% or (ii) LIBOR plus a margin from 1.5% to 3.0%. Our
obligations under the credit facility are secured by a pledge of the membership
interests in the borrower, stock and partnership interests of the borrower's
restricted subsidiaries and by liens on all of the assets of the borrower and
the borrower's restricted subsidiaries including FCC licenses, but only to the
extent such licenses can be pledged under applicable law.
We are required to amortize the Term A Facility with quarterly principal
payments of $5.0 million commencing June 30, 2001, increasing over the term of
the loan to quarterly principal payments of $25.0 million for the four quarters
ending April 30, 2007. We are required to amortize the Term B Facility with
quarterly principal payments of $375,000 from March 31, 2000 through
December 31, 2006 and with quarterly principal payments of $34.9 million during
2007. In addition, we are required to make prepayments of proceeds received from
significant asset sales, new borrowings and sales of equity, other than this
offering, and a portion of excess cash flow. We have the right to prepay the
credit facility in whole or in part at any time.
Our new credit facility imposes a number of restrictive covenants that,
among other things, limit our ability to incur additional indebtedness, create
liens, make capital expenditures and pay dividends. In addition, we are required
to maintain certain financial ratios with respect to the borrower and its
restricted subsidiaries, including a ratio of total indebtedness to Operating
Cash Flow (as defined therein) of initially not more than 7.75 to 1, decreasing
over time to 5.00 to 1; a ratio of Operating Cash Flow to debt service
requirements of initially not less than 1.15 to 1, increasing over time to 1.50
to 1; a ratio of Operating Cash Flow to interest expense of initially not less
than 1.40 to 1, increasing over time to 2.25 to 1; and a ratio of Operating Cash
Flow minus capital expenditures to the sum of debt service requirements and cash
distributions of initially not less than 1.05 to 1, increasing over time to 1.25
to 1.
Our subsidiary, Dobson/Sygnet, is a party to a credit agreement for an
aggregate of $430.0 million, consisting of a $50.0 million revolving credit
facility and $380.0 million of term loan facilities. Interest on the revolving
credit facility and the term loan facilities is based on a prime rate or a LIBOR
formula, and has ranged between 8.3% and 8.9% since inception. As of
September 30, 1999, we had $406.0 million outstanding under the Dobson/Sygnet
credit facilities and we had $24.0 million of availability under the
Dobson/Sygnet credit facilities.
The obligations under the Dobson/Sygnet credit facilities are secured by a
pledge of the capital stock of Dobson/Sygnet's operating subsidiary as well as a
lien on substantially all of the assets of Dobson/Sygnet and its operating
subsidiary. The Dobson/Sygnet credit facilities require that Dobson/ Sygnet and
we maintain certain financial ratios. The failure to maintain these ratios would
constitute an event of default, notwithstanding Dobson/Sygnet's ability to meet
its debt service obligations. The Dobson/Sygnet credit facilities amortize
quarterly beginning on December 31, 2000. The revolving credit facility
terminates on September 23, 2006. The $50.0 million term loan facility
terminates on March 23, 2007 and the $380.0 million term loan facility
terminates on December 23, 2007. The weighted average interest rate on the
Dobson/Sygnet credit facilities was 8.7% as of September 30, 1999.
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<PAGE>
Dobson/Sygnet has outstanding $200.0 million aggregate principal amount of
senior notes that mature in 2008. The Dobson/Sygnet notes bear interest at an
annual rate of 12 1/4%, payable semi-annually on each June 15 and December 15,
beginning June 15, 1999. The Dobson/Sygnet note indenture contains restrictive
covenants that, among other things, limit our ability and that of Dobson/
Sygnet's 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. Of the net
proceeds from the sale of these notes, we used $67.7 million, to purchase
securities we have pledged to secure the first six semi-annual interest payments
on the notes.
On January 18, 2000, we repurchased $159.6 million of our outstanding
$160.0 million aggregate principal amount of senior notes which mature in April
2007 and accrued interest at an annual rate of 11 3/4%, payable semi-annually on
each April 15 and October 15. We repurchased our outstanding senior notes with
funds available under our new credit facility described above.
As of September 30, 1999, we have issued and outstanding 12 1/4% senior
preferred stock and 13% senior preferred stock with aggregate liquidation values
of $286.3 million and $179.1 million, respectively, including accrued stock
dividends. Each of the certificates of designation for our senior preferred
stock contains several restrictive covenants which may limit our ability to
issue indebtedness in the future.
We had capital expenditures of $40.2 million during the first nine months of
1999 and we expect our capital expenditures for the last three months of 1999 to
be approximately $32.0 million, excluding acquisitions. We have budgeted
approximately $115.0 million to $120.0 million for capital expenditures in 2000.
We may also require additional financing for future acquisitions, to refinance
our debt at its final maturities and to meet our mandatory redemption provisions
on our senior preferred stock.
We have agreed to purchase approximately $65.0 million of cell site and
switching equipment from Nortel Networks Corp. prior to November 2001. Of this
commitment, approximately $27.8 million remained outstanding at September 30,
1999. Under another equipment supply agreement, we agreed to purchase
approximately $81.0 million of cell site and switching equipment from Lucent
Technologies Inc. by January 13, 2002. Of this commitment, $33.2 million
remained outstanding at September 30, 1999. Purchases made under these
commitments will be financed using funds available under our credit facilities.
We expect to fulfill our purchase commitments under both of these agreements
with purchases budgeted for the fourth quarter of 1999 and the year 2000.
We recently entered into definitive agreements to acquire the FCC licenses
for, and certain assets related to, Alaska 1, Alaska 3, Michigan 3, Michigan 10
and Texas 9 rural service areas for an aggregate purchase price of
$284.0 million. These acquisitions are expected to close in the first half of
2000. On June 28, 1999 we concluded our 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 using available funds under our credit
facilities. In the fourth quarter of 1999, we also acquired the FCC license for,
and certain assets related to, a portion of Arizona 1 RSA for $24.0 million.
Arizona 1 is located in northwestern Arizona. Effective December 16, 1999, we
concluded the purchase of the FCC license for, and certain assets related to,
Pennsylvania 2 RSA for $6.0 million. We have no definitive agreements with
respect to any acquisitions other than our acquisitions of Alaska 1, Alaska 3,
Michigan 3, Michigan 10 and Texas 9 rural service areas and the American
Cellular acquisition.
The American Cellular joint venture has obtained a commitment for a bank
credit facility of $1.75 billion. After initial funding and borrowings under
this credit facility to complete the American Cellular acquisition, we expect
there will be approximately $75.0 million of credit availability under this
facility. American Cellular has required, and will likely continue to require,
substantial capital to further develop, expand and upgrade its cellular systems.
The American Cellular joint venture has preliminarily budgeted approximately
$70.0 million for American Cellular capital expenditures in 2000. If American
Cellular does not generate sufficient cash flows from operations or otherwise
have
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<PAGE>
sufficient access to capital to meet all of its debt service, capital
expenditure, working capital or other operating needs, we may be required to
fund our 50% share of any capital needs of the American Cellular joint venture
in order to protect our substantial investment in it. See "The American Cellular
Acquisition--Joint Venture Credit Facility."
CAPITAL COMMITMENTS
The following table reflects our material capital commitments and estimated
capital expenditures for 2000 and the sources of funds available to us to
finance them. This table assumes an initial public offering price for this
offering of $21 per share and an offering price in the concurrent offering to
AT&T Wireless of $19.79 per share. Capital expenditures disclosed in the
following table relate to amounts that we expect to incur in 2000:
<TABLE>
<CAPTION>
AMOUNT
SOURCE OF FUNDS COMMITTED OR AVAILABLE CAPITAL COMMITMENTS CAPITAL REQUIRED
- --------------- ---------------------- ----------------------------- ----------------
<S> <C> <C> <C>
Refinance Dobson Operating
Company and Dobson Cellular
New Dobson Operating Company Operations Company credit
credit facility............ $ 800.0 million facilities................... $ 335.0 million
Proceeds from sale of
Class A common stock in Refinance 11 3/4% senior
this offering.............. $ 489.0 million notes........................ $ 188.4 million
Proceeds from sale of Equity contribution to
Class A common stock to American Cellular joint
AT&T Wireless.............. $ 29.0 million venture...................... $ 372.5 million
Dobson/Sygnet credit Redemption of preferred
facility................... $ 24.0 million stock........................ $ 74.2 million
Debt service on credit
facilities................. $ 111.0 million
Completion of pending
acquisitions............... $ 284.0 million
Commitments to Nortel and
Lucent, and additional
budgeted capital
expenditures............... $ 100.0 million
---------------- ----------------
$ 1342.0 million $ 1465.1 million
================ ================
</TABLE>
We expect to fund the difference between sources of funds and uses of
capital in the above table with cash flows from operations. See "Risk
Factors--Risks Related to Our Business--If we cannot obtain the additional
financing we need to continue expanding our systems, our business would be
harmed substantially."
If our joint venture with AT&T Wireless does not consummate the American
Cellular acquisition, we will use the proceeds currently allocated for that
purpose:
- to reduce our outstanding indebtedness and, potentially, to redeem a
portion of our senior preferred stock;
- to pay our share of any damages to American Cellular that may arise under
the American Cellular merger agreement; and
- for working capital and other general corporate purposes.
For further information regarding the payment of damages to American Cellular,
see "The American Cellular Acquisition--The Acquisition." For a discussion of
the shares of outstanding Class D preferred stock and Class E preferred stock
that will be repurchased or redeemed pursuant to the recapitalization, see "The
Recapitalization."
Although we cannot provide any assurance, assuming successful implementation
of our strategy, including the further development of our cellular systems and
significant and sustained growth in our cash flows, we believe that borrowings
under our new credit facility, the net proceeds from this offering and cash
flows from operations should be sufficient to allow us to consummate our pending
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<PAGE>
acquisitions and are expected to be sufficient to satisfy our currently expected
capital expenditures, working capital and debt service obligations. 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. We currently expect
that we may have to refinance our indebtedness at their respective maturities
commencing in 2006. We will also need to refinance our mandatory redemption
obligations under our senior preferred stock. 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, or SFAS, No. 133, Derivatives and Hedging.
SFAS 133 establishes uniform hedge accounting criteria for all derivatives
requiring companies to formally document, designate and assess the effectiveness
of transactions that utilize hedge accounting. Under SFAS 133, derivatives will
be recorded on the balance sheet as either an asset or liability measured at
their fair value, with changes in the fair value recognized in current earnings.
Under SFAS 133, we would record an asset of $0.3 million relating to an interest
rate hedge valuation at September 30, 1999. However, in June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, which amended SFAS 133 by
deferring the effective date to fiscal years beginning after June 15, 2000. We
have not determined the timing or method of adoption of SFAS 133.
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. In March 1999, we entered into an interest rate swap that effectively
fixed the interest rate on $110.0 million of the principal outstanding amount of
the Dobson/Sygnet credit facilities at approximately 5.48% plus a factor based
on our leverage, approximately 8.76% at September 30, 1999. The term of the
interest rate swap is 24 months. In June 1999, we entered into an interest rate
cap agreement terminating on June 14, 2001. The cap agreement minimizes our
interest rate exposure by setting a maximum rate of 7.50% plus a factor based on
our leverage, approximately 8.88% at September 30, 1999, for $160.0 million of
our indebtedness. The counterparty to each of the interest rate swap and cap are
major financial institutions. Increases in interest expense relating to the
interest rate hedge for the nine months ended September 30, 1998 and 1999 were
reflected in income and were immaterial. We did not recognize any gains or
losses in 1996, 1997 or 1998 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 market values of our total long-term fixed rate debt and our
variable-rate debt are shown in Note 15 to our September 30, 1999 consolidated
financial statements. Based on our market risk sensitive instruments outstanding
at September 30, 1999, 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.
IMPACT OF YEAR 2000 ISSUE
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, these 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.
50
<PAGE>
In April 1998, we established a multi-disciplined team to perform a year
2000 impact analysis. The team consisted of representatives from each of our
lines of business, as well as representatives from key corporate departments,
and was headed by a full-time year 2000 compliance manager. The team created a
year 2000 assessment methodology that brought a structured approach to the
assessment and management reporting process.
We completed an inventory of our automated systems and services and
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 regional Bell operating
companies and other systems outside our control. We have had contact with all of
the vendors of products and services that we believe are critical to our
operations. Our vendors' representations pertaining to year 2000 compliance have
come in writing directly to us, in contracts and by accessing year 2000
information available at their web sites. While all of our 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
obtaining assurances of year 2000 compliance in the form of documented year 2000
planning and testing and third party audits, whenever available.
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 focus of our remediation efforts is not a
large scale in-house effort, but rather an 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 were to be included as a part of existing maintenance and/or service
agreements at no additional cost to us and were in place and tested by the end
of the second quarter of 1999. All critical systems relating to call delivery,
billing, accounting, payroll and customer care were running on software that was
designated by the vendor as being year 2000 compliant by the end of October
1999. We have replaced or upgraded all non-critical systems such as workstations
to ensure compliance with year 2000. The cost of upgrading or replacing those
systems that were not covered by existing service or maintenance agreements was
approximately $0.75 million. Our estimated upgrade costs does not include the
cost of upgrading and/or replacing those non-year 2000 compliant systems that
were replaced or upgraded based on non-year 2000 related business reasons.
Since January 1, 2000 we have tested our critical systems and those tests
revealed no year 2000 problems. In addition, our operations to date have not
experienced any year 2000-related problems. We will continue to analyze systems
and services that utilize date-embedded codes that may experience operational
problems as various functions are utilized in the coming months. 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 we do business to coordinate year 2000
compliance. We completed our year 2000 contingency and business continuity plans
during the fourth quarter of 1999. 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.
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<PAGE>
INDUSTRY OVERVIEW
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the commercial wireless communication
industry includes one-way radio applications, such as paging or beeper services,
and two-way radio applications, such as cellular services, personal
communications services and enhanced specialized mobile radio services. Since
the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of
subscribers for cellular services, personal communications services and enhanced
specialized mobile radio services has increased from an estimated 340,000 at the
end of 1985 to over 76 million as of June 30, 1999 according to the Cellular
Telecommunications Industry Association, an international association for the
wireless industry. The following chart illustrates the annual growth in U.S.
wireless communication customers for cellular services, personal communications
services and enhanced specialized mobile radio services through June 30, 1999.
<TABLE>
<CAPTION>
JUNE 30
WIRELESS INDUSTRY STATISTICS(1) 1993 1994 1995 1996 1997 1998 1999
- ------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total service revenues (in billions)...... $ 10.9 $ 14.2 $ 19.1 $ 23.6 $ 27.5 $ 33.1 $ 19.4
Subscribers at end of period (in
millions)............................... 16.0 24.1 33.8 44.0 55.3 69.2 76.3
Subscriber growth......................... 45.1% 50.8% 40.0% 30.4% 25.6% 25.1% 25.4%
Average monthly service revenues per
subscriber, excluding roaming
revenues................................ $58.74 $51.48 $47.59 $44.66 $41.12 $39.66 $39.97
Average monthly service revenues per
subscriber, including roaming
revenues................................ $67.13 $59.08 $54.91 $50.61 $46.11 $44.35 $44.37
Penetration at end of period.............. 6.2% 9.4% 13.0% 16.3% 20.7% 25.7% 27.9%
</TABLE>
- ------------------------------
SOURCE: CELLULAR TELECOMMUNICATIONS INDUSTRY ASSOCIATION.
(1) Statistics for 1993 through 1998 were as of and for the years ended
December 31. Statistics for 1999 are as of and for the six months ended
June 30.
Cellular service, which operates in the 800 MHz frequency band of the radio
spectrum, is currently the predominant form of commercial mobile wireless voice
communications service. Cellular systems have historically been analog-based
systems, which use one continuous electronic signal that varies in amplitude or
frequency over a single radio channel. However, over the last several years
cellular operators have deployed digital service in most of the major
metropolitan markets and in many rural and suburban areas. Digital systems
convert voice or data signals into a stream of digits that is compressed before
transmission, enabling a single radio channel to carry multiple simultaneous
signal transmissions. This increases the capacity of the networks of cellular
operators. 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, caller ID, call forwarding, call waiting and more
complex data transmission features, including facsimile, electronic mail,
internet and data network access.
The FCC began auctioning spectrum between 1850 to 1990 MHz in late 1994 to
be used by personal communications service licensees to provide wireless
communications services which are substantially similar to digital cellular
services. Personal communications services compete directly with existing
cellular telephone, paging and enhanced specialized mobile radio services. In
addition to personal communications services and cellular services, enhanced
specialized mobile radio licensees provide interconnected two-way voice and data
services within a 15 MHz band of spectrum.
Wireless communications systems are divided into multiple geographic
coverage areas, known as "cells." Each cell contains a transmitter, a receiver
and signaling equipment, collectively known as the "cell site." The cell site is
connected by microwave or landline telephone circuits to a switch that uses
computers to control the operation of the wireless systems for the entire
service area. The system controls the transfer of calls from cell to cell as a
subscriber's handset travels, coordinates calls to and
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<PAGE>
from handsets, allocates calls among the cells within the system and connects
calls to the local landline telephone system or to a long distance carrier.
Wireless communications providers establish interconnection agreements with
local exchange carriers and interexchange carriers, thereby integrating their
system with the existing landline communications system. Because the signal
strength of transmission between a handset and a cell site declines as the
handset moves away from the cell site, the switching office and the cell site
monitor the signal strength of calls in progress. When the signal strength of a
call declines to a predetermined level, the switching office may hand-off the
call to another cell site where the signal strength is stronger. Cells are
typically designed on a grid, although terrain factors, including natural and
man-made obstructions, signal coverage patterns and capacity constraints may
result in irregularly shaped cells and overlaps or gaps in coverage.
Wireless system operators normally agree to provide service to subscribers
from other compatible wireless systems who are temporarily located in or
traveling through their service areas in a practice called "roaming." Agreements
among system operators provide that the carrier that normally provides services
to the roaming subscriber pays the serving carrier at rates prescribed by the
serving carrier. Analog cellular handsets are functionally compatible with
cellular systems in all markets within the United States. As a result, analog
cellular handsets may be used wherever a subscriber is located, as long as a
cellular system is operational in the area and necessary roaming arrangements
exist. Although cellular, personal communications service and enhanced
specialized mobile radio systems utilize similar technologies and hardware, they
operate on different frequencies and use different technical and network
standards. Multi-mode phones, however, make it possible in many instances for
users of one type of system to roam on a different type of system outside of
their service area.
Wireless digital signal transmission is accomplished through the use of
various forms of "air interface protocols." The FCC has not mandated a single
national digital standard (as it did with the analog Advanced Mobile Phone
System historically used in cellular systems) and, as a result, the following
three distinct technologies have evolved as standards and have been deployed
nationally in digital cellular and personal communications service systems:
- TDMA--Time Divisional Multiple Access is the standard adopted and
certified by the Cellular Telecommunications Industry Association. It is
the digital standard being deployed nationally by AT&T Wireless and
Southwestern Bell Mobile Systems.
- GSM--Global System for Mobile Communications is the digital standard that
originated in Europe and has been widely deployed by 1.9 GHz license
holders such as VoiceStream Communications, Omnipoint Corporation,
Powertel, Inc. and Aerial Communications, Inc.
- CDMA--Code Divisional Multiple Access is a spread-spectrum technology that
is predominantly being used by Sprint Corporation, Vodafone AirTouch Plc.,
U S WEST, Bell Atlantic Corporation, and GTE.
Each standard of digital technology provides substantially the same level
and quality of service to the end user. However, each technological standard is
currently incompatible with each other technological standard. As a result,
wireless subscribers may only utilize digital wireless service in the areas
where the technological standard that is utilized by their handset has been
deployed. Time divisional multiple access and code divisional multiple access
digital systems have been deployed over a wider area of the nation than the
global system for mobile communications standard has been; however, the global
system for mobile communications standard has also been deployed in Europe. Over
time, these standards are expected to converge and become compatible, assuming
operators invest in expected third generation technologies. These are not
expected to be introduced commercially for several years.
A subscriber using a multi-mode phone may, however obtain service from both
digital and analog systems and may also utilize both cellular services and
personal communications services. Until digital networks become fully built-out,
these multi-mode handsets are necessary for the portion of the digital
subscriber base who wish to utilize wireless service in areas currently without
digital coverage that utilizes their applicable digital standard.
53
<PAGE>
BUSINESS
OVERVIEW
Our cellular telephone systems cover a total population of approximately
5.9 million and, as of September 30, 1999 we had approximately 424,000
subscribers with an aggregate market penetration of approximately 7.2%. We began
providing cellular telephone service in 1990 in Oklahoma and the Texas
Panhandle. We have expanded our cellular operations rapidly since then,
primarily through the acquisition of rural and suburban cellular systems. Since
1996, we have completed 14 acquisitions of cellular licenses and systems,
increasing the total population served by our systems by approximately
5.7 million and expanding the geographic scope of our operations. We have
upgraded substantially all of our systems to digital technology and we now offer
voice and digital feature service, to approximately 90% of our covered
population. For the nine months ended September 30, 1999, we had total revenues
of $235.1 million and a net loss from continuing operations before extraordinary
items of $47.1 million. At September 30, 1999, we had approximately $1.1 billion
of consolidated indebtedness and a consolidated stockholders' deficit of
approximately $296.2 million. We expect to incur significant additional
indebtedness to fund our capital needs in the future as we continue to acquire,
develop and construct our cellular systems and grow our subscriber base.
We believe that owning and operating a mix of rural and suburban cellular
systems provides strong growth opportunities because we believe these systems
currently have lower penetration rates, higher subscriber growth rates, a higher
proportion of roaming revenues and less competition for subscribers than
cellular systems located in larger metropolitan areas. We focus on acquiring
underdeveloped cellular systems that are adjacent to major metropolitan areas,
which include a high concentration of expressway corridors and roaming activity.
We have a strategic relationship with AT&T Wireless, which recently became
one of our stockholders. Through this relationship, we have a coast-to-coast
roaming agreement that allows our customers to utilize wireless systems owned by
AT&T Wireless, and customers of AT&T Wireless to utilize our cellular systems.
We also have roaming agreements with AirTouch, Southwestern Bell Mobile Systems
and other wireless providers.
We have entered into an equally-owned joint venture with AT&T Wireless to
acquire American Cellular for approximately $2.4 billion, including fees and
expenses. American Cellular is one of the largest independent rural cellular
telephone operators in the United States. American Cellular's systems cover a
total population of approximately 4.8 million, and as of September 30, 1999 it
had approximately 398,000 subscribers with an aggregate market penetration of
approximately 8.3%. American Cellular serves markets in portions of Kentucky,
Michigan, Minnesota, New York, Ohio, Pennsylvania, Tennessee, West Virginia and
Wisconsin. Following completion of this acquisition, we will operate American
Cellular's systems. American Cellular's management organization, billing system,
network infrastructure and marketing programs are substantially similar to ours.
The closing of this offering is not contingent on the completion of the American
Cellular acquisition, which we expect to occur in the first quarter of 2000.
OTHER PENDING ACQUISITIONS
The FCC has designated 428 rural markets across the United States as rural
service areas, or RSAs, and has licensed two cellular licenses in each RSA. The
FCC has also designated 305 geographic areas of the United States that contain
cities with populations of 50,000 or more as metropolitan statistical areas, or
MSAs, and has allocated two cellular licenses to each MSA.
In addition to the American Cellular acquisition, we recently entered into
definitive agreements to acquire the FCC licenses for, and certain assets
related to, Alaska 1 RSA, Alaska 3 RSA, Michigan 3 RSA, Michigan 10 RSA and
Texas 9 RSA that, if completed, would have increased the total population served
by our cellular systems by approximately 0.7 million as of September 30, 1999.
Each acquisition
54
<PAGE>
is subject to FCC approval, compliance with requirements of the
Hart-Scott-Rodino Act and customary closing conditions. The following is a
summary of each acquisition:
ALASKA 3 RSA. On September 30, 1999, we entered into an agreement to
purchase Alaska 3 RSA for $12.0 million, subject to adjustment. Alaska 3 RSA is
located in the southeastern corner of the state. The Alaska 3 market area, which
includes Juneau and Ketchikan, has an estimated total population of
approximately 74,000. Our acquisition of Alaska 3 is expected to close in the
first quarter of 2000. We are managing this system pending its closing under the
supervision and control of the seller.
ALASKA 1 RSA. On October 6, 1999, we entered into an agreement to purchase
Alaska 1 RSA for $16.0 million, subject to adjustment. Alaska 1 RSA is located
in central Alaska from the western coastline to the eastern border with Canada.
The Alaska 1 market area, which includes Fairbanks, has an estimated total
population of approximately 113,000. Our acquisition of Alaska 1 is expected to
close in the first quarter of 2000. We are managing this system pending its
closing under the supervision and control of the seller.
MICHIGAN 3 RSA. On October 25, 1999, we entered into an agreement to
purchase Michigan 3 RSA for $97.0 million, subject to adjustment. Michigan 3 RSA
is located in northwestern Michigan. The Michigan 3 RSA market area, which
includes Traverse City and Petoskey, has an estimated total population of
approximately 166,000. Our acquisition of Michigan 3 is expected to close in the
first quarter of 2000.
MICHIGAN 10 RSA. On December 17, 1999, we entered into an agreement to
purchase Michigan 10 RSA for $34.0 million, subject to adjustment. Michigan 10
RSA is located in the eastern "thumb" of Michigan. The Michigan 10 market area,
which is mostly surrounded by Saginaw Bay and Lake Huron, has an estimated total
population of approximately 138,000. Our acquisition of Michigan 10 is expected
to close in the first quarter of 2000.
TEXAS 9 RSA. On January 4, 2000, we entered into an agreement to purchase
Texas 9 RSA for $125.0 million, subject to adjustment. Texas 9 RSA, which is
located in central Texas, includes the towns of Brownwood and Stephenville and
has an estimated total population of approximately 190,000. Our acquisition of
Texas 9 is expected to close in the second quarter of 2000.
STRATEGY
We have developed organizational, marketing and operational programs
designed to increase the number and retention of our subscribers, promote
superior customer service, control subscriber acquisition costs and enhance
operating cash flow in our markets. We intend to apply these programs to the
properties we acquire, including American Cellular.
Our strategy is to capitalize on our competitive strengths and acquire,
develop and operate rural and suburban cellular systems. The principal elements
of our strategy include:
- CONTINUE TO GROW THROUGH DISCIPLINED ACQUISITIONS. We intend to acquire
additional cellular operations in RSAs and smaller MSAs that:
- have attractive demographics and growth trends;
- have a favorable competitive environment;
- are located adjacent to major metropolitan areas;
- include a high concentration of expressway corridors that have a
significant amount of roaming activity; and
- have the potential to further develop strategic relationships with
operators of neighboring wireless systems and the ability to offer
service under a leading brand name.
- INTEGRATE ACQUIRED OPERATIONS. We intend to integrate the operations of
cellular systems we acquire, including American Cellular, with our
existing operations to achieve economies of scale.
55
<PAGE>
We believe that these increased efficiencies will come from the
consolidation and centralized control of pricing, customer service and
marketing, system design, engineering, purchasing, financial and
administrative functions and billing functions. We expect to consolidate
American Cellular's call service centers and one or more of our call
centers. We intend to use our increased leverage in negotiating prices and
services from third party service providers and equipment vendors.
- CONTINUE TO INCREASE SYSTEM CAPACITY AND COVERAGE AND FURTHER UPGRADE OUR
SYSTEMS THROUGH THE IMPLEMENTATION OF ADVANCED TECHNOLOGY. We believe that
increasing capacity and upgrading our systems will attract additional
subscribers, increase the use of our systems by existing subscribers,
increase roaming activity and further enhance the overall efficiency of
our network. We have upgraded substantially all of our systems to digital
technology and we now offer digital voice and digital feature services to
approximately 90% of our covered population. We intend to upgrade our
remaining cellular systems with digital technology to enable us to
increase roaming, serve the increasing number of digital cellular
subscribers and personal communications service subscribers with multimode
phones, and provide value-added, high margin, enhanced capabilities,
including caller ID, longer battery life and zone billing.
- EXPAND STRATEGIC RELATIONSHIPS. We intend to maintain and expand strategic
relationships with operators of wireless systems in major MSAs near our
cellular systems. These relationships include roaming agreements that
allow our subscribers to use the wireless systems of operators in
neighboring MSAs and RSAs at favorable rates. Under these agreements,
similar benefits are available to the MSA operators' subscribers roaming
in our areas. In addition, we deploy digital technology in our system area
that is the same as that selected by our roaming partners in the
neighboring MSA. We also market our cellular products and services under
the predominant brand name used in neighboring MSAs. These brand names
include CELLULAR ONE-Registered Trademark- and AIRTOUCH-TM-
CELLULAR-Registered Trademark-. We believe these strategic relationships
and agreements enable us to increase our roaming revenues, offer our
subscribers larger "home rate" areas and leverage the recognized brand
names of our roaming partners and their extensive marketing efforts.
- AGGRESSIVELY MARKET AND PROMOTE OUR CELLULAR SERVICES IN OUR LOCAL
MARKETS. Our marketing objective is to continue our service quality, local
sales presence 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. Our local management
teams have day-to-day operating authority with the flexibility to respond
to individual market requirements. Their presence fosters a 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.
- USE HIGHLY TARGETED SALES EFFORTS. We seek to attract subscribers who we
believe are likely to generate high monthly revenues 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 services.
- PROVIDE SUPERIOR CUSTOMER SERVICE. We intend to maintain a high level of
customer satisfaction through a variety of techniques, including the
maintenance of 24-hour customer service. We support local customer service
through our direct sales force, our retail stores and regional customer
service centers. 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.
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<PAGE>
CELLULAR OPERATIONS--DOBSON COMMUNICATIONS
MARKETS AND SYSTEMS
The following table sets forth information with respect to our existing
cellular markets. Information with respect to populations in our licensed areas
are as of December 31, 1998 and are management's estimates based upon Kagan's
1999 Cellular/PCS Pop Book Disk, Paul Kagan Associates, Inc., Carmel,
California, adjusted to exclude those portions of our RSAs and MSAs not covered
by our licenses. Net population represents total population less minority
ownership interests in our licenses. Information with respect to subscribers are
management estimates as of September 30, 1999. We determine market penetration
by dividing total subscribers in each of our FCC cellular licensed areas at the
end of the period by the estimated total population covered by the applicable
cellular license or authorization.
<TABLE>
<CAPTION>
TOTAL NET TOTAL MARKET DATE
POPULATION POPULATION SUBSCRIBERS PENETRATION ACQUIRED
---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
MARKETS:
NORTHERN REGION
Youngstown (Youngstown, OH MSA, Sharon, PA MSA,
PA 1 RSA and OH 11 RSA)........................... 911,000 911,000 1998
OH 2 RSA............................................ 262,000 262,000 1999
Erie (Erie, PA MSA)................................. 280,000 280,000 1998
PA (PA 2, 6 and 7 RSAs )............................ 690,000 690,000 1998
NY 3 RSA............................................ 481,000 481,000 1998
---------- ----------
Total............................................. 2,624,000 2,624,000 224,700 8.6%
---------- ---------- -------
CENTRAL REGION
Northwest OK (Enid, OK MSA and OK
2 RSA)............................................ 106,000 106,000 1991
OK 5 and 7 RSAs..................................... 157,000 101,000 1989
TX 2 RSA............................................ 89,000 55,000 1989
KS/MO (KS 5 RSA, MO 1, 4 and 5 RSAs)................ 246,000 246,000 1996
TX 16 RSA........................................... 336,000 336,000 1998
TX 10 RSA........................................... 320,000 320,000 1998
---------- ----------
Total............................................. 1,254,000 1,164,000 65,800 5.2%
---------- ---------- -------
WESTERN REGION
AZ 5 RSA............................................ 183,000 137,000 1997
AZ 1 RSA............................................ 135,000 135,000 1999
CA 7 RSA............................................ 144,000 144,000 1998
CA 4 RSA............................................ 368,000 368,000 1998
Santa Cruz, CA MSA.................................. 251,000 219,000 1998
---------- ----------
Total............................................. 1,081,000 1,003,000 61,100 5.7%
---------- ---------- -------
EASTERN REGION
West MD (Cumberland, MD MSA, Hagerstown, MD MSA,
MD 1 and 3 RSAs, and PA 10 West RSA).............. 494,000 494,000 1997
East MD (MD 2 RSA).................................. 455,000 455,000 1997
---------- ----------
Total............................................. 949,000 949,000 72,400 7.6%
---------- ---------- -------
Total--Dobson regions combined................ 5,908,000 5,740,000 424,000 7.2%
========== ========== =======
</TABLE>
In addition to our pending acquisition of American Cellular, we have pending
acquisitions that, if completed, would have increased the total population
served by our cellular systems by approximately 0.7 million as of September 30,
1999. See "Business--Other Pending Acquisitions."
PRODUCTS AND SERVICES
We provide a variety of cellular services and products designed to address a
range of 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
market area. We also sell cellular equipment at discount prices and use free
phone promotions as a way to encourage use of our mobile services. We offer
cellular service for a fixed monthly access fee accompanied by varying
57
<PAGE>
allotments of unbilled or free minutes, plus additional variable charges per
minute of use and for custom calling features. We offer longer-term pricing
programs under single year and, to a lesser extent, multi-year service
contracts. 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 the 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.
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 and customer service,
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. We believe our local offices and installation
and repair facilities enhance our knowledge of local markets and enable us to
better serve customers, schedule installations and make repairs. Through the use
of centralized monitoring equipment, we are able to centrally monitor the
technical performance of our 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, Oklahoma and Frederick, Maryland 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 larger competitors.
We contact our subscribers frequently 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 we believe are
likely to generate high monthly revenues 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 in order to increase our roaming revenues 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 our
services and products, such as targeted telemarketing and direct mail programs.
We market our cellular products and services under national brand names and,
in selected markets, our own brand name. The service mark we select for use in
each of our markets depends, to a large extent, upon the service mark used by
the principal cellular operator in the neighboring metropolitan areas.
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, we believe that 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 we use independent
agents. We had approximately 88 direct sales representatives as of
September 30, 1999.
58
<PAGE>
We believe that our after-sale telemarketing program, which includes
courtesy calls to our new customers and is conducted by our sales force and
customer service personnel, helps to reduce our churn rates. 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 115 retail outlets as of September 30, 1999. Our retail stores
range in size from 420 square feet to 6,400 square feet. Each of our retail
stores 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, including
extended hours, a large selection of products and services, a well-trained sales
staff and convenient locations, which are designed to 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 roaming
agreements that allow customers to roam at competitive prices. We believe this
increases usage on all cellular systems, including our own. We focus on systems
that are adjacent to major metropolitan areas and include a high concentration
of expressway corridors, which tend to have a significant amount of roaming
activity. The following table lists our principal roaming partners in each of
our cellular markets:
<TABLE>
<CAPTION>
CELLULAR MARKETS PRINCIPAL CELLULAR ROAMING PARTNERS
- ---------------- -------------------------------------
<S> <C>
Northern Region...................... AirTouch
AT&T Wireless
Southwestern Bell Mobile
Central Region....................... AirTouch
AT&T Wireless
Houston Cellular
Southwestern Bell Mobile
U.S. Cellular
Western Region....................... AirTouch
AT&T Wireless
Bay Area Cellular
Eastern Region....................... AT&T Wireless
Southwestern Bell Mobile
</TABLE>
Our largest roaming partner is AT&T Wireless. For the nine months ended
September 30, 1999, AT&T Wireless' customers accounted for approximately 37% of
our roaming revenues, or approximately 17% of our total operating revenues.
Under our roaming agreement with AT&T Wireless, we and AT&T Wireless charge each
other favorable roaming rates for each of our respective markets. This rate will
decrease over time. The agreement provides for the maintenance by us of certain
call features and related services to roaming customers, such as call waiting,
call forwarding, three-way calling, caller ID and voice mail. The roaming
agreement may be terminated or suspended by either party if the FCC revokes a
license covering a material portion of our or AT&T Wireless's markets, either
party fails to control subscriber fraud, either party fails to adhere to system
technical requirements and upgrades or either party breaches any of the material
terms of the roaming agreement. The agreement expires in January 2003.
We also have agreements with the North American Cellular Network, which is
the largest wireless telephone network system in the world linking cellular
operators throughout the United States and Canada and enabling customers to use
their cellular phones to place and receive calls in these areas as easily as
they do in their home areas. Through this network, customers are able to receive
calls
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<PAGE>
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, the
North American Cellular Network enables special services such as call forwarding
and call waiting to automatically follow subscribers as they travel.
SYSTEM DEVELOPMENT AND TECHNOLOGY
SYSTEM DEVELOPMENT. We develop or build out our cellular service areas in
response to projected subscriber demand and competitive factors by adding
channels to existing cell sites and by building new cell sites to increase
capacity with an emphasis on improving coverage for hand-held phones in heavily-
trafficked areas. We develop projected subscriber demand for each cellular
service area on a cell-by-cell basis. In January 1998, we entered into an
agreement with Lucent Technologies Inc. to purchase 300 cell sites, two switches
and related hardware and software for approximately $81.0 million over a four
year period. We estimate our aggregate remaining commitment under this agreement
as of September 30, 1999 was approximately $33.2 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 through the period ending in
November 2001. We estimate our aggregate remaining commitment under this
agreement as of September 30, 1999 was approximately $27.8 million.
We expect our cell site expansion to enable us to continue to add and retain
subscribers, enhance subscriber use of our systems, increase roaming traffic due
to the larger geographic area covered by our cellular network and further
enhance the overall efficiency of our cellular network. We believe that the
increased cellular coverage will have a positive impact on market penetration
and subscriber usage.
DIGITAL TECHNOLOGY. We use two basic protocols in our digital networks. Our
primary digital technology or protocol is Time Divisional Multiple Access, or
TDMA, which divides each channel into three subchannels providing service to
three users instead of one. Our other digital technology or protocol is Code
Divisional Multiple Access, or CDMA, which converts analog signals into digital
for transmission over our cellular network. Our digital services include digital
voice channels, short messaging services, message waiting indicator and caller
ID services.
We have upgraded substantially all of our systems to digital technology and
we now offer digital voice and digital feature services to approximately 90% of
our covered population. We match the digital protocols of our markets to those
used by our roaming partners in adjoining markets.
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The following table reflects the digital technology currently used by us in
each of our cellular markets.
<TABLE>
<CAPTION>
STATUS/EXPECTED
CELLULAR MARKET DIGITAL TECHNOLOGY COMPLETION DATE
- --------------- -------------------------- -------------------
<S> <C> <C>
NORTHERN REGION:
Youngstown............................... analog/TDMA IS-136 Completed
Erie..................................... analog/TDMA IS-136 Completed
New York................................. analog/TDMA IS-136 Completed
Pennsylvania............................. analog/TDMA IS-136 Completed
Ohio 2................................... analog/TDMA IS-136 Completed
and analog/CDMA First quarter 2000
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
Texas 10................................. analog/TDMA IS-136 Completed
Texas 16................................. analog/TDMA IS-136 Completed
Kansas/Missouri.......................... analog/TDMA IS-136 First quarter 2000
WESTERN REGION:
Arizona 5................................ analog/CDMA Second quarter 2000
Arizona 1................................ analog/TDMA IS-136 Completed
California 7............................. analog/CDMA Second quarter 2000
California 4............................. analog/TDMA IS-136 Completed
Santa Cruz............................... analog/TDMA IS-136 Completed
EASTERN REGION:
East Maryland............................ analog/TDMA IS-136 Completed
West Maryland............................ analog/TDMA IS-136 Completed
</TABLE>
INFORMATION SYSTEMS. H.O. Systems, Inc. recently began providing the
billing function for most of our cellular operations. Proprietary software
furnished by H.O. Systems serves all functions of billing for corporate and
retail locations. All administrative and customer maintenance functions are
handled in-house. H.O. Systems prints and processes all of our customer
invoices. H.O. Systems' software is in place and functioning in our western
region markets and we expect to have fully implemented the H.O. Systems'
software throughout our remaining regions by the end of the fourth quarter of
1999. We use software that compliments this billing system, allowing the use of
credit, collection and switch interfaces.
SERVICE MARKS
We own the service mark Dobson Cellular-TM-, which we use in our cellular
telephone systems in western Oklahoma and the Texas Panhandle. 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 our brand name.
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The following table sets forth the brand names used by us for products and
services in each of our cellular markets:
<TABLE>
<CAPTION>
CELLULAR MARKET SERVICE MARK
- --------------- -----------------------------------
<S> <C>
Northern Region................................ CELLULAR ONE-Registered Trademark-
AIRTOUCH-TM-
CELLULAR-Registered Trademark-
Central Region................................. Dobson Cellular-TM-
CELLULAR ONE-Registered Trademark-
Western Region................................. CELLULAR ONE-Registered Trademark-
AIRTOUCH-TM-
CELLULAR-Registered Trademark-
Eastern Region................................. CELLULAR ONE-Registered Trademark-
</TABLE>
CELLULAR ONE-Registered Trademark- is a registered service mark with the
U.S. Patent and Trademark Office. The service mark is owned by Cellular One
Group, a Delaware general partnership of Cellular One Marketing, Inc., a
subsidiary of Southwestern Bell Mobile Systems and Cellular One
Development, Inc., a subsidiary of AT&T Wireless. We use the CELLULAR
ONE-Registered Trademark- service mark to identify and promote our cellular
telephone service pursuant to licensing agreements with Cellular One Group. We
believe we obtain substantial marketing benefits from the name recognition
associated with this widely used service mark, both with existing subscribers
traveling outside of our service areas and with potential new subscribers moving
into our service areas. 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-Registered Trademark- is a registered service mark
licensed by Vodafone AirTouch. Our right to use the service mark is
non-exclusive and non-transferrable. The licensing agreement for the
AIRTOUCH-TM- CELLULAR-Registered Trademark- service mark requires us to provide
high-quality cellular telephone service to our customers and to otherwise
maintain reasonable standards set by Vodafone AirTouch. The licensing agreement
is for an initial term of 20 years with automatic extensions for additional
five-year periods.
EMPLOYEES AND AGENTS
As of September 30, 1999, we had approximately 1,020 employees. In addition,
as of that date, we had agreements with approximately 365 independent sales
agents, including car dealerships, electronics stores, paging service companies
and independent contractors. None of our employees is represented by a labor
organization, and we consider our employee relations to be good.
PROPERTIES
We maintain our corporate headquarters in Oklahoma City, Oklahoma where we
lease approximately 24,600 square feet at a monthly rental of approximately
$19,000. As of September 30, 1999, our cellular operations leased 115 retail
offices and 11 administrative offices at aggregate annual rentals of
approximately $3.7 million. We review these leases from time to time and, in the
future, may lease or acquire new facilities as needed. We expect to lease or
purchase additional sales and administrative office spaces in connection with
our pending acquisitions. We do not anticipate encountering any material
difficulties in meeting our future needs for leased space. We also owned and
leased approximately 459 cell sites as of September 30, 1999.
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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 Southwestern United States. Logix
operates long-haul fiber optic facilities in Oklahoma, Texas and Colorado and
incumbent local exchange services in Oklahoma. Logix also offers switch-based
integrated carrier provider services in Oklahoma City, Tulsa, Amarillo, Houston,
Austin, Dallas, Forth Worth and San Antonio.
We distributed the stock of Logix to the current holders of our old Class A
common stock and Class D preferred stock, on January 24, 2000. Logix is
accounted for as a discontinued operation in our consolidated financial
statements. Prior to the distribution of Logix we received an opinion from
Arthur Andersen LLP that the distribution of Logix should not result in a
taxable event to us. The distribution of Logix stock could have adverse tax
consequences to us. "See Risk Factors--Risks Related to Our Business-- On
January 24, 2000, we distributed the stock of our subsidiary, Logix, to our
current stockholders. The distribution of the Logix stock could have adverse tax
consequences to us." and "Certain Transactions" for a discussion of the
potential tax liability and the indemnity agreement relating to the Logix
spinoff.
COMPETITIVE STRENGTHS/COMPETITION
We believe that our competitive strengths are:
- ESTABLISHED OPERATING HISTORY IN RURAL AND SUBURBAN MARKETS. We began
providing cellular telephone service in 1990 in Oklahoma and the Texas
Panhandle and since then have rapidly expanded our cellular operations to
include systems in rural and suburban markets covering a total population
of approximately 5.9 million as of September 30, 1999. We believe that
during this time we have gained substantial experience as an operator of
cellular systems in rural and suburban markets.
- PROVEN ACQUISITION AND INTEGRATION CAPABILITIES. Since 1996 we have
successfully completed 14 acquisitions of cellular licenses and systems,
significantly expanding the geographic scope of our operations and
increasing our total subscribers from approximately 26,600 as of
December 31, 1995 to approximately 424,000 as of September 30, 1999. On
December 23, 1998 we acquired Sygnet, which increased the total population
covered by our cellular systems by approximately 2.4 million. We
substantially completed the integration of Sygnet's systems and operations
by the end of June 1999, and since closing the Sygnet acquisition have
increased the number of our subscribers in the Sygnet markets from
approximately 178,800 to approximately 211,300 as of September 30, 1999,
an 18.2% increase.
- STRATEGIC RELATIONSHIP WITH AT&T WIRELESS. We have a strategic
relationship with AT&T Wireless, which recently became one of our
stockholders. Through this relationship, we have a coast-to-coast roaming
agreement that enables our customers to use AT&T Wireless's systems, and
AT&T Wireless's customers to use our systems, each at favorable rates.
AT&T Wireless customers accounted for approximately 37% of our roaming
revenues, or approximately 17% of our total revenues, in the nine months
ended September 30, 1999. In addition, we and AT&T have entered into an
equally-owned joint venture to acquire American Cellular for approximately
$2.4 billion, including fees and expenses, which has further expanded the
scope of our relationship with AT&T.
- EXPERIENCED MANAGEMENT TEAM. We have an experienced management team. Both
Everett R. Dobson, our Chairman of the Board and Chief Executive Officer,
and G. Edward Evans, our President, have substantial experience in the
wireless communications industry and both are
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actively involved in the Cellular Telecommunications Industry Association,
the leading cellular industry association.
- ABILITY TO OFFER A VARIETY OF DIGITAL SERVICES, INCLUDING DIGITAL VOICE
AND DIGITAL FEATURE SERVICES TO APPROXIMATELY 90% OF OUR COVERED
POPULATION. We have upgraded our cellular network to offer digital voice
and digital feature services to approximately 90% of our covered
population, which both enhances our attractiveness as a roaming partner to
personal communications service and other cellular providers and provides
increased services to our current subscribers, including digital voice
services.
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>
Northern Region.................................... ALLTEL
Bell Atlantic Mobile
Frontier Cellular
GTE Wireless
Central Region..................................... ALLTEL
AT&T Wireless
Chariton Cellular
GTE Wireless
Kansas Cellular
Pioneer Cellular
Southwestern Bell Mobile
Western Wireless
Western Region..................................... Bell Atlantic Mobile
Centennial Cellular
Citizens Mojave Cellular
GTE Wireless
Nextel
Sprint PCS
Eastern Region..................................... Bell Atlantic Mobile
Nextel
Sprint PCS
U.S. Cellular
</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. Many of our competitors have been
operating for a number of years, operate nationwide systems, currently serve a
substantial subscriber base and have significantly greater financial, personnel,
technical, marketing, sales and distribution resources than we do. 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.
We compete primarily against one other facilities-based cellular carrier in
each of our cellular markets. We also compete with personal communications
service and enhanced specialized mobile radio providers. We compete for
customers based principally upon price, the services and enhancements offered,
the quality of our cellular system, customer service, system coverage and
capacity. This competition may increase to the extent that licenses are
transferred from smaller, stand-alone operators
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to larger, better capitalized and more experienced cellular operators that may
be able to offer consumers certain network advantages.
AT&T Wireless, Nextel Communications and Sprint PCS operate substantially
nationwide networks, and Bell Atlantic Mobile Systems, VoiceStream Wireless
Corporation and Vodafone AirTouch, among others, through joint ventures and
affiliation arrangements, could operate a substantially nationwide wireless
system. If any of our roaming partners, including AT&T Wireless, were to acquire
a personal communications service license for any of our markets, they could
build out personal communications service networks in our markets to provide
their customers with wireless service which would reduce our roaming revenues.
Any increased competition from personal communications service providers in
rural markets covered by our systems could also have the effect of further
reducing the roaming rates we could charge. Although AT&T Wireless has agreed
not to build out personal communications service networks in any of the markets
currently served by American Cellular for five years after the consummation of
the American Cellular acquisition, AT&T Wireless is not contractually restricted
from building out a competing personal communications service network in our
markets. See "The American Cellular Acquisition--Operating Arrangements."
We also face, to a lesser extent, competition from mobile satellite service
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. Recently, the FCC created potential sources of new
competition by auctioning additional personal communications service licenses,
as well as licenses for wireless communications services, local multipoint
distribution service and 220 to 222 MHz service. Further, the FCC has announced
plans to auction licenses in the general wireless communications services the 24
GHz and 39 GHz Services, and has allocated spectrum in the 700 MHz band that may
be licensed for mobile use. The FCC has also recently announced its intent to
allocate approximately 200 MHz of additional spectrum to wireless use, much of
which can be licensed for commercial wireless purposes. 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, future competition
from these operators could be intense.
CELLULAR OPERATIONS--AMERICAN CELLULAR
American Cellular is one of the largest independent rural cellular telephone
operators in the United States. American Cellular's systems cover a total
population of approximately 4.8 million and, as of September 30, 1999 it had
approximately 398,000 subscribers. American Cellular has concentrated its recent
efforts on creating an integrated network of cellular systems in its operating
regions. American Cellular operates four regions of cellular systems in New
York, Kentucky and the Upper Midwest and Mid-Atlantic regions as well as certain
other markets and has a number of other minority interests. American Cellular
markets all of its cellular products and services under the CELLULAR
ONE-Registered Trademark- brand name for its cellular systems. American Cellular
offers digital technology, which is comprised of digital feature services, such
as call waiting, caller ID and voice mail, in all its cellular systems, and
digital voice services through approximately 60% of its cell sites. The joint
venture expects to convert the remaining 40% of American Cellular's cell sites
to offer digital voice services by the end of the second quarter of 2000.
American Cellular's management, organization, billing system, network
infrastructure and working programs are substantially similar to ours. For
additional information regarding the American Cellular acquisition, see "The
American Cellular Acquisition."
The majority of American Cellular's systems are in the early stages of their
growth cycle and, we believe, afford significant opportunities for improvements
in performance, particularly with respect to rates of penetration and churn.
There can be no assurances, however, that we, as the operator of these systems
under our joint venture with AT&T Wireless, will be able to achieve or maintain
such improvements.
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<PAGE>
MARKETS AND SYSTEMS
The following table sets forth information with respect to American
Cellular's existing cellular markets.
<TABLE>
<CAPTION>
TOTAL NET TOTAL MARKET DATE
POPULATION POPULATION SUBSCRIBERS PENETRATION ACQUIRED
---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
MARKETS:
UPPER MIDWEST REGION
Duluth MSA/MN 4 RSA/WI 2 RSA........................ 290,000 290,000 1994
Eau Claire MSA/WI 2 RSA............................. 174,000 168,000 1994
Wausau MSA/WI 6A RSA................................ 158,000 153,000 1995
MN 2A RSA........................................... 31,000 31,000 1995
MN 3 RSA............................................ 58,000 58,000 1994
MN 5 RSA............................................ 257,000 257,000 1995
MN 6 RSA............................................ 145,000 145,000 1994
WI 1 RSA............................................ 109,000 109,000 1994
WI 3 RSA/WI 2 RSA................................... 166,000 166,000 1994
WI 4 RSA............................................ 119,000 119,000 1997
WI 5 RSA............................................ 80,000 80,000 1997
MI 1 RSA............................................ 198,000 198,000 1995
Alton, IL RSA....................................... 23,000 20,000
---------- ----------
Total............................................. 1,808,000 1,794,000 162,900 9.0%
---------- ---------- -------
NY REGION
Orange County NY MSA................................ 330,000 330,000 1996
Poughkeepsie NY MSA................................. 264,000 253,000 1996
NY 5 RSA............................................ 378,000 378,000 1995
NY 6 RSA............................................ 112,000 112,000 1996
---------- ----------
Total............................................. 1,084,000 1,073,000 101,100 9.3%
---------- ---------- -------
KY REGION
KY 4 RSA............................................ 252,000 252,000 1997
KY 5 RSA............................................ 161,000 161,000 1997
KY 6 RSA............................................ 268,000 268,000 1997
KY 8 RSA............................................ 120,000 120,000 1997
TN 4 RSA............................................ 273,000 273,000 1998
---------- ----------
Total............................................. 1,074,000 1,074,000 73,400 6.8%
---------- ---------- -------
MID-ATLANTIC REGION
OH 7 RSA/OH 10A RSA................................. 323,000 323,000 1995
PA 9 RSA............................................ 187,000 187,000 1996
WV 2 RSA............................................ 78,000 78,000 1995
WV 3 RSA............................................ 266,000 266,000 1996
---------- ----------
Total............................................. 854,000 854,000 60,600 7.1%
---------- ---------- -------
Total--American Cellular regions combined....... 4,820,000 4,795,000 398,000 8.3%
========== ========== =======
</TABLE>
MARKETING
American Cellular markets all of its cellular products and services under
the CELLULAR ONE-Registered Trademark- brand names. We believe the national
advertising campaign conducted by the Cellular One Group has enhanced American
Cellular's advertising exposure at a lower cost than could be achieved alone. We
also believe that American Cellular has obtained substantial marketing benefits
from the name recognition associated with this widely used service mark, both
with existing subscribers traveling outside of American Cellular's service areas
and with potential new subscribers moving into American Cellular's service
areas.
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Through its membership in North American Cellular Network and other special
networking arrangements, American Cellular has provided extended regional and
national service to its subscribers in other markets, thereby allowing them to
make and receive calls while in other cellular service areas without dialing
special access codes.
American Cellular's sales force works principally out of its retail stores
in which American Cellular offers a full line of cellular products and services.
As of September 30, 1999, American Cellular maintained approximately 90 retail
locations. Ranging from 250 square feet to 4,000 square feet, each store is
fully equipped to handle customer service and telephone maintenance and
installation. Some of these stores are also authorized warranty repair centers.
PRODUCTS AND SERVICES
In addition to providing cellular telephone service in each of its markets,
American Cellular also offers various custom-calling features, including voice
mail, call forwarding, call waiting, three-way conference calling and no answer
transfer. American Cellular has upgraded its systems to provide digital feature
services in its markets such as caller ID, message waiting indicator, short
messaging services and sleep mode for longer battery life.
American Cellular offers several rate plans so that customers may choose the
plan that best fits their expected calling needs. American Cellular has designed
rate plans on a market-by-market basis. These rate plans include a high-volume
user plan, a medium-volume user plan, a basic plan and an economy plan. Most
rate plans combine a fixed monthly access fee, a designated amount of free
minutes, per-minute usage charges and additional charges for custom-calling
features in a package which offers value to the customer while enhancing airtime
use and revenues. In general, rate plans which include a higher monthly access
fee typically include a lower usage rate per minute.
Agreements between American Cellular and other cellular operators allow
their respective subscribers to place calls, or roam, in most cellular service
areas throughout the country. American Cellular's markets, strategically
surrounding or between major metropolitan areas, encompass significant portions
of heavily traveled corridors, which results in significant roaming revenues.
CUSTOMER SERVICE
Customer service is an essential element of American Cellular's marketing
and operating philosophy. American Cellular has endeavored to attract new
subscribers and retain existing subscribers by providing consistently
high-quality customer service. In each of its cellular service regions, American
Cellular has maintained a local staff, including a market manager, customer
service representatives, technical and engineering staff, sales representatives
and installation and repair facilities. Each cellular service region handles its
own customer-related functions such as credit evaluation, customer activations,
account adjustments and rate plan changes. Local offices and installation and
repair facilities have enabled American Cellular to better service customers,
schedule installations and make repairs.
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COMPETITORS AND ADJOINING SYSTEMS
The following chart lists American Cellular's cellular competitors in each
of its regions.
<TABLE>
<CAPTION>
AMERICAN CELLULAR REGIONS COMPETITORS
- ------------------------------------- -------------------------------------
<S> <C>
Upper Midwest AirTouch Communications, Inc.
U.S. Cellular
CelluLink
Cellular 2000
CellCom
Century Telephone Enterprises
Rural Cellular Corp.
Mid-Atlantic U.S. Cellular
ALLTEL
Ameritech
Bell Atlantic Mobile
New York Bell Atlantic Mobile
Kentucky BellSouth Mobility
Ramcell, Inc.
Bluegrass Cellular
U.S. Cellular
ALLTEL
</TABLE>
SERVICE MARKS
American Cellular uses the CELLULAR ONE-Registered Trademark- service mark
to identify and promote its cellular telephone service pursuant to licensing
agreements with Cellular One Group. Licensing and advertising fees are
determined based upon the population of the licensed areas. The licensing
agreements require American Cellular to provide high-quality cellular telephone
service to its customers and to maintain a certain minimum overall customer
satisfaction rating in surveys commissioned by Cellular One Group. The licensing
agreements which American Cellular has entered into are for original five-year
terms expiring on various dates. These agreements may be renewed at American
Cellular's option for three additional five-year terms.
EMPLOYEES AND DEALERS
As of September 30, 1999, American Cellular had approximately 815 employees.
In addition, American Cellular has agreements with independent dealers,
including car dealerships, electronics stores, paging services companies and
independent contractors. None of American Cellular's employees are represented
by a labor organization, and American Cellular's management considers its
employee relations to be good.
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 of 1996 has had an impact on
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
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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 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. 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. The cellular geographic service area 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 cellular geographic
service area 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 cellular geographic service area. 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. No entity may, directly or indirectly, own a controlling interest in,
or otherwise have the ability to control, both 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 personal communications
service, cellular and enhanced specialized mobile radio spectrum, regulated as
commercial mobile radio services with significant overlap in any geographic area
except in RSAs, where a total of 55MHz is lawful. This so-called "spectrum cap"
rule could have an impact on our ability to acquire other cellular systems, and
it also could limit the universe of potential buyers of any of our systems
should we wish to sell.
The FCC recently amended the ownership attribution rules to allow for
somewhat more ownership overlap. Significant overlap will occur when at least
10% of the 1990 census population of the licensed service area is within the
cellular geographic service area, as defined below, and/or the personal
communications service area or enhanced specialized mobile radio service area.
Ownership limits on overlapping cellular licensees were recently amended so that
a party with a controlling interest or otherwise attributable interest in a
cellular licensee may have a direct or indirect ownership interest of up to 5%
in another cellular licensee in overlapping cellular geographic service areas,
and a party may have a direct or indirect ownership interest of up to 20% in
both cellular licensees in overlapping cellular geographic service areas so long
as neither interest is a controlling interest. This change in the ownership
attribution rules affords greater opportunities for non-controlling investment
in cellular systems and could facilitate our ability to attract capital or to
make investments in other cellular operators.
Cellular service providers also must satisfy a variety of FCC requirements
relating to technical and reporting matters. One 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
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to support the FCC's regulation of its cellular operations, as well as fees
necessary to support federal universal service programs, number portability
regional database costs, centralized administration of telephone numbering,
telecommunications relay service for the hearing-impaired and application filing
fees. These regulatory payment obligations will increase our costs of doing
business.
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. Because
an FCC license is necessary to lawfully provide cellular service, if the FCC
were to disapprove any such filing our business plans would be adversely
affected.
The FCC also regulates a number of other aspects of the cellular business.
For example, the FCC regulates cellular resale practices and currently also
applies such cellular resale requirements to A and B Block (and A/B Block
controlled) broadband personal communications service and enhanced specialized
mobile radio licensees. These cellular, personal communications service and
enhanced specialized mobile radio 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 personal communications
service and enhanced specialized mobile radio operators are currently scheduled
to 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 services, personal communications
services and enhanced specialized mobile radio services. Under this regulatory
structure, all of our cellular licenses are classified as commercial mobile
radio services. As a commercial mobile radio services 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,
thereby allowing us to respond more quickly to our competition in the
marketplace.
The FCC has also adopted requirements for cellular and other commercial
mobile radio services 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 are scheduled to occur in several stages, with the final stage
beginning as early as March 2001 and the FCC recently amended its rules to
eliminate a requirement that carriers be compensated for enhanced 911 costs and
expand the circumstances under which wireless carriers may be required to offer
enhanced 911 services. Federal legislation recently signed into law may limit
our liability relative to incompleted 911 calls to a degree commensurate with
wireline carriers in our markets. Federal law also requires cellular and
personal communications service carriers to provide law enforcement agencies
with capacity to support lawful wiretaps by March 12, 2001 and technical
capabilities for wiretaps beginning June 30, 2000 and to comply with
wiretap-related record-keeping and personnel-related obligations. Some of the
FCC's and FBI's rules implementing the wiretap requirements are currently being
reviewed by federal courts. These wireless 911 and law enforcement wiretap
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 personal communications service licensees can provide and permits cellular,
broadband personal communications service, paging and enhanced specialized
mobile radio 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 personal
communications service and enhanced specialized mobile radio licensees, although
the extent of lawful state regulation of such "wireless local loop" service is
undetermined. In this regard, the FCC has also adopted telephone number
portability rules for local exchange carriers, as well as cellular, personal
communications service and enhanced specialized mobile radio licensees, that
could facilitate the development of local exchange competition, including
wireless local loop service.
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The new number portability rules generally require cellular, personal
communications service and enhanced specialized mobile radio licensees to have
the capability to deliver calls from their systems to ported numbers effective
December 31, 1998 and offer number portability and roaming to ported numbers by
November 24, 2002 but this schedule may be expedited if deemed necessary by the
FCC to promote number conservation. 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 has also adopted rules to govern customer billing by commercial
mobile radio service providers and is considering whether to extend billing
rules currently applicable to landline carriers to commercial mobile radio
services carriers. Adoption of some of the FCC's proposals could increase the
complexity and costs of our billing processes and limit the manner in which we
bill for services. Finally, the FCC has initiated a rulemaking proceeding to
help facilitate the offering of so-called "calling party pays" services whereby
the party placing the call to a wireless customer pays the wireless airtime
charges. Adoption of a calling party pays system may result in increased usage
of wireless systems, thereby generating increased revenues and creating more
competition between commercial mobile radio services and traditional landline
carriers.
The FCC generally grants cellular and personal communications service
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 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 our existing
cellular license without entertaining 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. To date, the FCC has renewed each of our
licenses for which a renewal application was required for a new ten year term.
The balance of our existing licenses begin to expire in October 2000.
A personal communications service system operates under a protected
geographic service area license granted by the FCC for either a major trading
area or a basic trading area on one of six frequency blocks allocated for
broadband service. The FCC has divided the United States and its possessions and
territories into personal communications service markets based upon Rand
McNally's 493 basic trading areas, all of which are included in the 51 major
trading areas. 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 major trading areas, one 30 MHz block (C Block) licensed for each of
the 493 basic trading areas, and three 10 MHz blocks (D, E and F Blocks)
licensed for each of the 493 basic trading areas, a total of more than 2,000
licenses.
The FCC may deny applications for FCC authority, and in extreme cases 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. To our
knowledge, there are no activities, and no judicial or administrative
proceedings, involving either us or the licensees in which we hold a controlling
interest, that would warrant such a finding by the FCC.
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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. 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. For investors from countries that are
not members of the World Trade Organization, the FCC will determine whether the
home country of the foreign investor extends reciprocal treatment called
"equivalent competitive opportunities" to U.S. entities. If these 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
regional Bell operating companies, 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 and commercial mobile radio service providers
such as us, the FCC concluded that local exchange carriers are required to
compensate commercial mobile radio service providers for the reasonable costs
incurred by these providers in terminating traffic that originates on local
exchange carrier facilities, and vice versa. Consistent with this ruling, the
FCC has determined that local exchange carriers may not charge a commercial
mobile radio service provider or other carrier for terminating local exchange
carrier-originated traffic and that local exchange carriers may not charge
commercial mobile radio service 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 local exchange carrier-originated local traffic. If the FCC
ultimately resolves these issues in favor of commercial mobile radio service
providers, then we will pursue relief through settlement negotiations,
administrative complaint procedures or both. If these issues are ultimately
decided in favor of the local exchange carriers, 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. We have made such
payments as the FCC has required. The United States Court of Appeals for the
Fifth Circuit recently reversed many of the FCC's rules regarding carriers'
contribution obligations, and the FCC has recently adopted rules implementing
the court's decision. While it generally appears that our contributions to
federal universal service programs may decrease, our contributions to state
universal service programs may be subject to increases and, moreover, the FCC's
decision implementing the court's decision is subject to further administrative
and possibly judicial proceedings. Thus, the impact of the court's decision is
uncertain. We may also seek to qualify for payments from these programs in high
cost areas where we provide wireless services, although we are not certain that
such payments will be available to cellular carriers. If such payments are made
available to us, they would be an additional source of revenue to us that could
be used to subsidize service we provide in these high cost areas.
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The Telecommunications Act also eases the restrictions on the provision of
interexchange telephone services by wireless carriers affiliated with regional
Bell operating companies. Regional Bell operating company-affiliated wireless
carriers have interpreted the legislation to permit immediate provision of in
region long distance call delivery for their cellular customers, thus presenting
an additional source of competition to us.
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 revised but have
the potential to impose upon us new costly obligations and impose burdens on our
current marketing activities. The FCC's rules implementing the
Telecommunications Act's customer proprietary network information provisions
were recently vacated by the United States Court of Appeals for the Tenth
Circuit on First Amendment grounds. The extent to which the FCC will need to
modify its rules to address the court's concerns is uncertain, but imposition of
rules similar to those vacated by the court would impose additional costs on us
and inhibit our marketing efforts.
The Telecommunications Act also requires telecommunications carriers to make
their services accessible to persons with disabilities and the FCC has adopted
rules to implement these requirements. These rules generally require service
providers to offer equipment and services that are accessible to and usable by
persons with disabilities, if readily available, and to comply with
complaint/grievance procedures for violations of these provisions. These rules
are still new and are subject to interpretation through the complaint process.
While much of the focus of these rules is on the manufacture of equipment,
carriers such as us could, if found to have violated the rules, be subject to
fines and/or the imposition of costly new requirements.
In addition, the FCC is currently considering rules to promote the
conservation of numbering resources. These efforts may affect wireless service
providers by imposing additional costs or limiting access to numbering
resources. The FCC has also authorized a number of states, including California,
Ohio and Texas to initiate limited numbering administration measures while the
FCC's consideration of federal rules remains pending, and other states,
including Ohio, have requested similar authority. The impact of the federal
rules on wireless carriers, and whether states will continue to have numbering
administration authority, is uncertain. If more states are given authority over
numbering administration, differing number conservation regimes may be adopted
in different states. In such a case, we likely would incur additional costs in
order to keep abreast of each such regime.
The FCC has determined that interstate interexchange (long distance) service
offerings of commercial mobile radio service providers are subject to rate
averaging and rate integration requirements of the Telecommunications Act. Rate
averaging requires us to average our interstate long distance commercial mobile
radio service rates between high cost and urban costs. The FCC has delayed
implementation of the rate integration requirements with respect to wide area
rate plans pending further reconsideration of its rules, and has delayed the
requirement that commercial mobile radio service carriers integrate their rates
among commercial mobile radio service affiliates. Other aspects of the FCC's
rules are currently under review before the United States Court of Appeals for
the District of Columbia. There is a pending proceeding in which the FCC will
determine how integration requirements apply to commercial mobile radio service
offerings, including single rate plans. While this proceeding is pending,
commercial mobile radio service providers are subject to long distance rate
integration only where they separately state a long distance toll charge and
bill to
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customers, and the FCC is not enforcing the requirement for wide-area plans. To
the extent that we offer services subject to these requirements our pricing
flexibility is reduced, and there is no assurance that the FCC will decline to
impose these requirements on us and/or across our various commercial mobile
radio service affiliates.
The overall impact of the Telecommunications Act on our business is unclear
and will likely remain so for the foreseeable future. For example, limitations
on local zoning requirements imposed by the Telecommunications Act may
facilitate the construction of new cell sites and related facilities. However,
these restrictions on zoning authority may provide only limited assistance to
cellular carriers. On the other hand, 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 market
entry of, or the rates charged by, any commercial mobile radio services 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 of licenses and resolution of customer
complaints.
The location and construction of our cellular transmitter towers and
antennas are subject to FCC and Federal Aviation Administration 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.
If zoning approval or requisite state permits cannot be obtained, or if
environmental rules make construction impossible or infeasible on a particular
site, our network design might be adversely affected, network design costs could
increase the service provided to our customers might be reduced.
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. Such changes could impose new obligations on us that would
adversely affect our operating results.
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.
LEGAL PROCEEDINGS
We are not currently aware of any pending or threatened litigation against
us or our subsidiaries that could have a material adverse effect on our
financial condition, results of operations or cash flows.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
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,
1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------
<S> <C> <C>
Everett R. Dobson (1)............. 40 Chairman of the Board, Chief
Executive Officer and Director
G. Edward Evans................... 38 President
Bruce R. Knooihuizen.............. 43 Executive Vice President and Chief
Financial Officer
R. Thomas Morgan.................. 43 Vice President and Chief
Information Officer
Craig T. Sheetz................... 40 Executive Vice President and Chief
Operating Officer
Timothy J. Duffy.................. 40 Senior Vice President and Chief
Technical Officer
Richard D. Sewell, Jr. ........... 42 Treasurer
Stephen T. Dobson (1)............. 36 Secretary and Director
Russell L. Dobson (1)............. 64 Director
Justin L. Jaschke................. 41 Director
Albert H. Pharis, Jr.............. 49 Director
Dana L. Schmaltz.................. 32 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 pursuant to which we became the holding company parent of our
subsidiary, Dobson Operating Company. Unless otherwise indicated, information
below with respect to positions held by our executive officers and directors
refers to their positions with Dobson Operating Company 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, our Chief Operating Officer and President of
our cellular subsidiaries. He was elected our Chairman of the Board, President
and Chief Executive Officer in April 1996. Mr. Dobson served on the board of the
Cellular Telecommunications Industry Association 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 its Investment Committee.
G. EDWARD EVANS has served as our President since January 2000. From 1997 to
2000, he was President of our cellular subsidiaries. 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
U.S. Cellular from 1990 to 1993 and was a Sales Manager of GTE Mobilnet from
1989 to 1990. Mr. Evans serves on the board of the Cellular Telecommunications
Industry Association. He holds a B.S. in Business Administration from the
University of South Florida and an M.B.A. from Georgia State University.
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BRUCE R. KNOOIHUIZEN has served as our Executive Vice President and Chief
Financial Officer since January 2000. He served as our Vice President and Chief
Financial Officer from July 1996 to January 2000. 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 US
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 has served as Vice President and Chief Information Officer
since 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 three 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.
CRAIG T. SHEETZ has served as Executive Vice President and Chief Operating
Officer since December 1998. Mr. Sheetz is responsible for the operations of the
company, including field sales and marketing, call center management, billing
and intercarrier services. Before joining us, he served as Vice President, Chief
Financial Officer and Treasurer of Sygnet Wireless, Inc. since 1990. Prior to
joining Sygnet, Mr. Sheetz served as Assistant Vice President at Mellon Bank and
PNC Bank where he specialized in the media and telecommunications industries.
Mr. Sheetz holds a B.A. in Economics from Albion College and an M.B.A. from the
University of Rochester.
TIMOTHY J. DUFFY has served as Chief Technical Officer and Senior Vice
President of Network Operations and Engineering for Dobson Cellular Systems
since December 1998. In this capacity, he manages Dobson's cellular network
facilities as well as engineering, design and build out of new cellular
networks. Prior to joining us, Mr. Duffy worked for Sygnet Communications from
1985 to 1998 in engineering and related management positions. In 1983 he was
employed as Director of Engineering for the Constrander Corporation where he was
responsible for seven AM and FM radio broadcast facilities in Ohio and
Pennsylvania. From 1976 to 1982 he served as Chief Engineer of radio station
WGRP in Greenville, Pennsylvania. Mr. Duffy holds a U.S. patent concerning the
integration of wireless phone location information to make call management
decisions. He is a member of the Institute of Electrical and Electronics
Engineers and holds a degree in Electrical Engineering from Pennsylvania State
University.
RICHARD D. SEWELL, JR. has served as Treasurer since 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 a
predecessor entity to 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 served as a director since 1990. He served as our
Treasurer from 1990 until September 1998, and he has served as Secretary since
1990. He has also served as General Manager and Secretary of Dobson Telephone
Company from 1994 to 1998 and 1990 to 1998, respectively. He became President of
Logix in January 1997 and Vice Chairman of Logix in 1999. He holds a B.S. in
Finance from the University of Central Oklahoma.
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RUSSELL L. DOBSON has served as a director since 1990 and was Chairman of
the Board and Chief Executive Officer from 1990 to 1996. Mr. Dobson joined his
father at Dobson Telephone Company 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 Oklahoma Telephone
Association, Western Rural Telephone Company and Organization for the Protection
and Advancement of Small Telephone Companies.
JUSTIN L. JASCHKE has served as a director since October 1996. Mr. Jaschke
has been the Chief Executive Officer and a director of Verio Inc., a publicly
held internet services provider based in Englewood, Colorado, since its
inception in March 1996. Prior to March 1996, Mr. Jaschke served as Chief
Operating Officer for Nextel Communications, Inc. following its merger with
OneComm Corporation in July 1995. Mr. Jaschke served as OneComm's President and
a member of its Board of Directors from 1993 until its merger with Nextel. From
May 1990 to April 1993, Mr. Jaschke served as President and Chief Executive
Officer of Bay Area Cellular Telephone Company. Mr. Jaschke currently serves as
Chairman of the Board of Directors of Metricom, Inc., a wireless data
communications provider. Mr. Jaschke has a B.S. in mathematics from the
University of Puget Sound and an M.S. in management from the Massachusetts
Institute of Technology Sloan School of Management.
ALBERT H. PHARIS, JR. has served as a director and a consultant since
December 1998. Mr. Pharis became Chief Executive Officer of our subsidiary,
Logix, in September 1999. He served as President, Chief Executive Officer and
Director of Sygnet from 1985 to December 1998. He has been active as a board
member of the Cellular Telecommunications Industry Association since 1985 and as
a member of its Executive Committee since 1989. He has also been Chairman of its
Small Operators Caucus.
DANA L. SCHMALTZ became a director in accordance with the terms of our
stockholders' agreement, dated December 23, 1998, with John W. Childs and
entities which he owns or controls and their co-investors. Mr. Schmaltz is a
Vice President of J.W. Childs Associates, Inc. and has been at J.W. Childs
Associates, Inc. since February 1997. From 1995 to 1997, Mr. Schmaltz was an
associate at DLJ Merchant Banking, Inc. Mr. Schmaltz received an A.B. from
Dartmouth College. Mr. Schmaltz graduated from the Harvard Graduate School of
Business Administration in 1995.
BOARD COMPOSITION
We currently have six directors on our board of directors and one vacancy.
Effective upon the closing of this offering, our board of directors will serve
staggered three-year terms as follows:
<TABLE>
<CAPTION>
MEMBERS EXPIRATION OF TERM
- ------- ------------------
<S> <C>
Everett R. Dobson........................................... 2003
Stephen T. Dobson........................................... 2003
Russell L. Dobson........................................... 2003
Justin L. Jaschke........................................... 2002
Albert H. Pharis, Jr........................................ 2002
Dana L. Schmaltz............................................ 2001
</TABLE>
This classification of our board of directors may have the effect of delaying or
preventing changes in our control or management. We intend to appoint two
additional independent directors to our board within 90 days of this offering to
comply with the requirements of the NASDAQ National Market. See
"--Board Committees." One of these directors will serve in the class that
expires in 2002 and the other will serve in the class that expires in 2001.
Shares of our Class B common stock are entitled to ten votes per share
subject to certain exceptions where they are restricted to one vote per share.
The holders of our Class B common stock have entered into an investors agreement
that enables them to appoint all of our directors and which provides that they
will vote their shares of common stock together in a manner that will enable
them to
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elect all of our directors and control the outcome of substantially all matters
submitted to our stockholders for a vote. Pursuant to the investors agreement,
the Dobson CC Limited Partnership is entitled to designate four of our
directors, John W. Childs and entities which he owns or controls and their
co-investors are entitled to designate one of our directors, AT&T Wireless is
entitled to designate one of our directors and the Dobson CC Limited
Partnership, John W. Childs and entities which he owns or controls and their
co-investors and AT&T Wireless are entitled to jointly designate one of our
directors. AT&T Wireless has elected not to exercise its right to designate a
director at this time.
Upon the occurrence of certain voting rights triggering events under the
certificates of designation of our senior preferred stock, two additional
directors may be designated by the holders of our 12 1/4% senior preferred stock
and two additional directors may be designated by the holders of our 13% senior
preferred stock. See "Description of Capital Stock."
Our directors serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified. Our
executive officers serve at the discretion of our board of directors. Our
officers are appointed at the board's first meeting after each annual meeting of
stockholders.
DIRECTOR COMPENSATION
We reimburse directors for out-of-pocket expenses incurred in attending
board meetings. In addition, in connection with his election as a director in
October 1996, we granted Justin L. Jaschke an option to acquire 833 shares of
our Class D common stock, which will be convertible into 92,830 shares of our
Class A common stock, at an exercise price of $0.77 per Class A common stock
equivalent. 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.
BOARD COMMITTEES
Our compensation committee currently consists of Russell L. Dobson and Dana
L. Schmaltz. The compensation committee reviews and evaluates the salaries,
supplemental compensation and benefits of our officers, reviews general policy
matters relating to compensation and benefits of our employees and makes
recommendations concerning these matters to the board of directors. The
compensation committee also administers our 1996 stock option plan and 2000
stock incentive plan.
Our audit committee currently consists of Justin L. Jaschke and Dana L.
Schmaltz. The audit committee reviews with our independent auditor, the scope
and timing of its audit services, the auditor's report on our financial
statements following completion of its audit and our policies and procedures
with respect to interal accounting and financial controls. In addition, the
audit committee makes annual recommendations to our board of directors for the
appointment of independent auditors for the following year. As a condition to
the eligibility of our Class A common stock for quotation on the NASDAQ National
Market, our audit committee must consist of at least three directors who are
considered independent under the rules of the NASDAQ National Market within
90 days after our Class A common stock is first quoted on the NASDAQ National
Market. Mr. Jaschke would be considered independent but Mr. Schmaltz and our
other directors would not. We intend to appoint two additional independent
directors to our board, both of whom will serve on our audit committee, within
this period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the members of our 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 and is the father of Everett and Stephen
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Dobson. For a description of certain transactions between Mr. Dobson and us, see
"Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation during
1999, 1998, and 1997 earned by our chief executive officer and our other four
most highly compensated executive officers as of December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS(1) COMPENSATION OPTION AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(2) (# OF SHARES)(3) ($)(4)
- --------------------------- -------- -------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Everett R. Dobson ....... 1999 500,000 250,000 106,100(5) -- 6,400
Chairman of the Board, 1998 380,400 250,000 39,700(5) -- 6,400
President, Chief 1997 300,000 250,000 54,800(5) -- 9,500
Executive Officer and
Director
Stephen T. Dobson ....... 1999(6) 200,000 80,000 77,400(7) -- 6,400
Secretary and Director 1998 155,200 80,000 32,600(7) -- 4,700
1997 100,000 75,000 13,800(7) 6,500
G. Edward Evans ......... 1999 191,700 80,000 37,100(8) -- 6,400
President of our cellular 1998 152,500 76,000 -- 130,149 4,300
subsidiaries 1997 113,600 80,000(9) -- 785,188 --(10)
Bruce R. Knooihuizen .... 1999 194,200 140,000 11,200(11) -- 6,400
Vice President and 1998 165,000 102,500 -- 130,149 4,100
Chief Financial Officer 1997 152,500 82,500 -- -- 1,400
Craig T. Sheetz ......... 1999 176,900 150,000(12)(13) -- 67,310 6,400
Executive Vice President 1998(14) -- -- -- -- --
and Chief Operating 1997(14) -- -- -- -- --
Officer
</TABLE>
- ------------------------
(1) The bonuses for 1999 represent the bonuses to be paid in 2000 with respect
to services performed in 1999. The bonuses for 1998 and 1997 represent the
bonuses paid in 1999 and 1998 with respect to services performed in 1998 and
1997, respectively.
(2) Represents the value of perquisites and other personal benefits in excess of
10% of annual salary and bonus.
(3) Represents the number of shares of Class A common stock on a converted
basis.
(4) Includes the matching contributions made by us to the account of the
executive officer under our 401(k) Profit Sharing Plan.
(5) Includes $84,400, $26,000, and $36,600 for personal use of our aircraft and
$21,700, $12,300, and $18,200 for a company-provided vehicle in 1999, 1998
and 1997, respectively.
(6) All of Mr. Dobson's annual compensation for 1999 was paid by Logix.
(7) Includes $61,700, $16,100, and $10,400 for personal use of our aircraft and
$15,700, $16,300, and $3,400 for a company-provided vehicle in 1999, 1998
and 1997, respectively.
(8) Includes $34,800 for personal use of our aircraft and $2,300 for a
company-provided vehicle.
(9) Includes $20,000 received upon commencement of employment.
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<PAGE>
(10) In February 1997, we made a below market home mortgage loan to Mr. Evans.
See "Certain Transactions."
(11) Includes $6,700 for personal use of our aircraft and $4,500 for a
company-provided vehicle.
(12) Represents bonus for the first three quarters of 1999. The fourth quarter
bonus will be determined during the first quarter of 2000, and will be based
on the performance of both Mr. Sheetz and us.
(13) Includes $89,500 received upon commencement of employment.
(14) Not employed by us in 1997 and 1998.
The following tables list those persons in the previous table who were
granted options to purchase shares of our Class C common stock and our old
Class B common stock in 1999. As part of our recapitalization, options for the
purchase of our old Class B common stock will be amended to be exercisable into
shares of our Class D common stock. Our Class C common stock and Class D common
stock will automatically convert to our Class A common stock on a 111.44-for-one
basis upon transfer. The following tables provide information regarding our
outstanding options on a converted basis. No stock options were exercised by the
persons in the following tables in 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL REALIZABLE
VALUE AT MID-
NUMBER OF PERCENT OF TOTAL RANGE OF ASSUMED
SECURITIES UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE INITIAL OFFERING
NAME OPTIONS GRANTED EMPLOYEES IN 1999 ($/SHARE) EXPIRATION DATE PRICE
- ---- --------------------- ------------------ -------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Craig T. Sheetz 67,310 33.3% $3.77 01/01/09 $1,159,751
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ANNUAL
RATES OF
STOCK
APPRECIATION FOR
OPTION TERM(1)
-------------------
NAME 5% 10%
- ---- -------- --------
<S> <C> <C>
Craig T. Sheetz $159,588 $404,426
</TABLE>
- ------------------------------
(1) The assumed annual rates of stock price appreciation of 5% and 10%
correspond to the option exercise price and are set by the Securities and
Exchange Commission and are not intended as a forecast of possible future
appreciation in stock prices.
1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/99(#) OPTIONS AT 12/31/99($)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---- ------------------------------- -----------------------------------
<S> <C> <C>
G. Edward Evans.................... 340,105 / 575,232 $ 6,840,240 / $11,476,598
Bruce R. Knooihuizen............... 614,902 / 496,700 $12,399,381 / $ 9,887,898
Craig T. Sheetz.................... -- / 67,310 -- / $ 1,159,825
</TABLE>
- ------------------------
(1) Assumes the conversion of each share of Class C common stock and Class D
common stock issuable upon exercise of options into 111.44 shares of
Class A common stock.
(2) The value of unexercised in-the-money options at December 31, 1999 is
computed as the product of the stock value at December 31, 1999, assumed to
be $21 per share, less the stock option exercise price, and the number of
underlying securities at December 31, 1999.
EMPLOYMENT AGREEMENTS
We do not have formal employment agreements with any of our employees. 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 provide for 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
8,807 shares of our Class D common stock, which is convertible into 981,453
shares of our Class A common stock, vesting at the rate of 20% per year. The
terms of Mr. Evans' employment provide for an initial annual salary
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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 7,046 shares of our Class D common stock, which is
convertible into 785,188 shares of our Class A common stock, with 100% of the
options vesting ratably over five years. 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 D common stock held by these officers become fully vested upon a
change of control.
In connection with the employment of Craig T. Sheetz in 1999, we agreed to
provide him compensation in the form of salary, bonus, stock options and other
benefits. The terms of Mr. Sheetz's employment provide for an initial annual
salary of $180,000, an annual bonus up to 50% of his annual salary, and a
ten-year option to purchase 604 shares of our Class C common stock, which is
convertible into 67,310 shares of our Class A common stock, vesting at the rate
of 20% per year. The options to purchase shares of our Class A common stock held
by Mr. Sheetz become fully vested upon a change of control.
Prior to August 15, 1998, Russell L. Dobson was one of our corporate
officers. Effective August 15, 1998, we entered into a consulting agreement with
Mr. Dobson. Under the terms of the consulting agreement, Mr. Dobson has been
retained by us from August 15, 1998 through August 31, 2008. In exchange for
Mr. Dobson's services, we agreed to provide monthly compensation of $15,000 and
insurance benefits commensurate with our employee plan. Mr. Dobson's
responsibilities include, but are not necessarily limited to, representing us at
various functions, including trade shows and seminars, assisting with regulatory
matters, including appearances where required before regulatory bodies, and
analyzing technical and financial data to assist executive officers in strategic
planning and forecasting. In addition, Mr. Dobson has agreed not to compete with
us during the term of his consulting agreement. During 1998, we paid Mr. Dobson
approximately $195,000, a portion of which was for services as an officer and
the balance of which was under the consulting agreement.
Effective December 23, 1998, immediately following our acquisition of Sygnet
Wireless, Inc., Albert H. Pharis, Jr., formerly the chief executive officer of
Sygnet Wireless, became a consultant to us to assist us on an as-needed basis
for a term of five years. Mr. Pharis advises and consults with us regarding
operational matters affecting our business, such as industry trends,
technological developments, the competitive environment, and the integration of
Sygnet and other acquisitions. Mr. Pharis received a fee of $40,000 for the
first 90 days of such consulting period and is to receive an annual fee of
$60,000 thereafter. In addition, Mr. Pharis, who serves on our board of
directors, received options to purchase 833 shares of our Class D common stock,
which is convertible into 92,830 shares of our Class A common stock, at an
exercise price of approximately $5.11 per share of Class A common stock
equivalent. Mr. Pharis's options vest ratably over a five-year period and fully
vest upon a change of control.
STOCK OPTION PLANS
We adopted our 1996 stock option plan and our 2000 stock incentive plan to
encourage our key employees by providing opportunities to participate in our
ownership and future growth through the grant of incentive stock options and
nonqualified stock options. The plans also permit the grant of options to our
directors. The 1996 and 2000 plans are presently administered by our
compensation committee. We will not grant any additional options under the 1996
plan. All future options will be granted pursuant to the 2000 plan.
1996 STOCK OPTION PLAN
The maximum number of shares for which we may grant options under the plan
is 37,226 shares of our Class C common stock and of our Class D common stock,
subject to adjustment in the event of any stock dividend, stock split,
recapitalization or reorganization. As of September 30, 1999, we had granted
options to purchase an aggregate of 37,130.88 shares of our Class C common stock
and
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Class D common stock which would have been convertible into an aggregate of
4,137,865 shares of our Class A common stock. Shares subject to previously
expired or terminated options become available again for grants of options. The
shares that we will issue under the 1996 stock option plan will be newly issued
shares. Following the completion of this offering, we do not intend to grant any
additional options under the 1996 stock option plan even though this plan will
remain in effect until 2006. Instead, we intend that future grants of options,
if any, will be made under our 2000 stock incentive plan.
The 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 C common stock and Class D
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 common stock, 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.
With certain exceptions, Section 162(m) of the Internal Revenue Code denies
a deduction to publicly-held corporations for compensation paid to certain
executive officers in excess of $1.0 million per executive per taxable year
(including any deduction with respect to the exercise of an option). An
exception exists, however, for amounts received upon exercise of stock options
pursuant to certain grandfathered plans. Options granted under our plan are
expected to satisfy this exception.
2000 STOCK INCENTIVE PLAN
We adopted the 2000 stock incentive plan on January 10, 2000. The maximum
number of shares for which we may grant options under the plan is 4,000,000
shares of Class A common stock, subject to adjustment in the event of any stock
dividend, stock split, recapitalization, reorganization or certain
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defined change of control events. As of the date of this prospectus, we had no
options outstanding under our 2000 stock incentive plan. Shares subject to
previously expired, cancelled, forfeited or terminated options become available
again for grants of options. The shares that we will issue under the plan will
be newly issued shares.
The 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 A 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 common stock, 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 committee may not grant a nonqualified stock option at an
exercise price which is less than 75% of the fair market value of our Class A
common stock on the date of grant.
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 written notice to us,
accompanied by full payment:
- in cash or by check, bank draft or money order payable to us;
- by delivering shares of our common stock or other equity securities having
a fair market value equal to the exercise price; 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 on the effective
date 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 January 10, 2010.
With certain exceptions, Section 162(m) of the Internal Revenue Code denies
a deduction to publicly-held corporations for compensation paid to certain
executive officers in excess of $1.0 million per executive per taxable year
(including any deduction with respect to the exercise of an option). An
exception exists, however, for amounts received upon exercise of stock options
pursuant to certain grandfathered plans. Options granted under our plan are
expected to satisfy this exception.
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CERTAIN TRANSACTIONS
We have a policy requiring that any material transaction that we enter into
with with our officers, directors or principal stockholders and their affiliates
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. In addition, the terms of our various debt instruments limit the ability
of us and of our subsidiaries to enter into transactions with our affiliates.
The Everett R. Dobson Irrevocable Family Trust, The Steven T. Dobson
Irrevocable Family Trust and The Robbin L. Dobson Irrevocable Family Trust are
the limited partners of the Dobson CC Limited Partnership, which holds
approximately 52,925,285 of our Class B common stock. Everett R. Dobson is the
president and sole director and shareholder of the general partner of the
partnership.
Prior to November 1, 1998, we leased our headquarters from WillRuss Limited
Liability Company 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. Our lease, with renewals, runs
through October 2000.
We made a $300,000 home mortgage loan to G. Edward Evans in February 1997 in
connection with his employment. 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 our reorganization in February 1997, the shareholders of Dobson Operating
Company exchanged their Dobson Operating Company stock for our stock, and we
assumed outstanding Dobson Operating Company stock options, substituting shares
of our common stock for the Dobson Operating Company stock subject to options.
Also, in February 1997, we issued 100,000 shares of our Class C preferred stock
to the Fleet Investors. At the time of this transaction, a principal of the
Fleet Investors became one of our directors.
Transactions with us described below refer to Dobson Operating Company 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 our February 1997 reorganization,
we entered into a new shareholders' agreement having substantially the same
terms and conditions.
The Dobson trusts were co-borrowers with us and certain of our subsidiaries
under a prior bank facility, which we 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, and the Dobson CC Limited Partnership guaranteed our loan
obligations and those of our subsidiaries under the prior bank facility. All
borrowings were secured by shares of our old Class A common stock. We paid
dividends on that old Class A common stock in amounts sufficient to permit the
Dobson trusts to service the loan. The Dobson trusts incurred legal fees
totaling approximately $0.5 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. We paid those fees. We used $7.5 million of bank
borrowings to pay a dividend to holders of our old Class A common stock, of
which $6.0 million was used to fully pay the loan and $0.5 million was used to
pay indebtedness owed to us by the Dobson trusts with respect to the legal fees
described above.
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Everett R. Dobson and Russell L. Dobson beneficially owned 67% of the
capital stock of Associated Telecommunications and Technologies, Inc. In
December 1996, we consolidated $263,000 of Associated Telecommunications'
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., a wholly-owned subsidiary of Associated Telecommunications,
owed us $307,000, representing funds we advanced during 1992, 1993 and 1995.
That indebtedness accrued interest at an annual rate of 10%. The combined
principal amount of $570,000 for the Associated Telecommunications and National
Telecommunications loans, was paid in full on October 1, 1997 in connection with
the closing of our acquisition of the Arizona 5 market. We lent another
subsidiary of Associated Telecommunications $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
Associated Telecommunications and its subsidiaries, including accounting, plant
and central office management and engineering. Billings for those 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 Associated
Telecommunications 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
Associated Telecommunications 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, Associated Telecommunications 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
$47,700, respectively. The amounts owed by NATELCO, LLC to us for management
fees at December 31, 1997 and 1998 were $8,900 and $0, respectively.
Associated Telecommunications beneficially owned a 20.55% partnership
interest in the Arizona 5 partnership. In connection with our Arizona 5
acquisition, we purchased all of the outstanding capital stock of Associated
Telecommunications for $14.2 million, of which Everett R. Dobson and Russell L.
Dobson, together, received $9.5 million. The purchase price for the Associated
Telecommunications' stock was based on Associated Telecommunications' 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.
He repaid that loan 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. He repaid that loan 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 from 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
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rate on the loans to Russell L. Dobson approximated the prevailing market rates
at the time we first made the loans to him.
In 1995, we bought 75,000 shares of common stock of Zenex Long Distance,
Inc. 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, we 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 a $0.9 million 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 for $0.9 million.
In January 1998, our subsidiary, Logix, 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, owed from Zenex to Everett R. Dobson, was paid in full.
In connection with the Sygnet acquisition in December 1998, the Fleet
Investors converted their Class B preferred stock into our old Class A common
stock. We purchased for $1.9 million all of our 100,000 outstanding shares of
Class C preferred stock held by Fleet Venture Resources, Inc., Fleet Equity
Partners VI, L.P. and Kennedy Plaza Partners, collectively the Fleet Investors,
and also purchased 43,345 shares of our old Class A common stock for
$31.1 million. In addition, the shareholders agreement with the Fleet Investors
was terminated. Thadeus J. Mocarski, a principal of the Fleet Investors, was one
of our directors at the time of our purchase and resigned as a director upon
consummation of the Sygnet acquisition. As part of the Sygnet acquisition, the
Dobson CC Limited Partnership acquired 37,853 shares of Class G preferred stock
from us in exchange for 37,853 shares of our old Class A common stock. On
May 17, 1999 we redeemed all of the outstanding shares of our Class G preferred
stock for $25.0 million plus accrued dividends of $1.5 million. All of the
Class G preferred stock was acquired by the Dobson CC Limited 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.
As part of the Sygnet acquisition in December 1998, our subsidiary, Dobson
Tower Company purchased cellular towers from Sygnet for $25.0 million and leased
the towers back to Sygnet. To finance the tower transaction, the Dobson CC
Limited Partnership purchased preferred stock of Dobson Tower Company for
$7.7 million and Dobson Tower Company obtained a $17.5 million bank credit
facility. We own all of Dobson Tower Company's common stock. On October 15,
1999, Dobson Tower Company sold substantially all of its towers to American
Tower Corporation for a purchase price of approximately $38.7 million. In
connection with the sale, our subsidiary, Sygnet Communications, leased the
towers back from American Tower Corporation for an initial term of ten years. A
portion of the sale proceeds is being held in escrow pending resolution of
various title issues. With the proceeds of this sale, Dobson Tower Company
repaid its $17.5 million credit facility and Dobson Tower Company redeemed all
of its outstanding Class A preferred stock from the Dobson CC Limited
Partnership and repaid certain costs and expenses incurred by the Dobson CC
Limited Partnership for a total of
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$8.3 million. We used the balance of the sale proceeds to pay costs associated
with the tower sale and to reduce the credit facility of Sygnet.
In connection with our acquisition of Sygnet and the related financing, we
engaged in a number of transactions with the Dobson CC Limited Partnership and
with John W. Childs and entities which he owns or controls and their
co-investors.
On December 23, 1998, John W. Childs and entities which he owns or controls
and their co-investors and the Dobson CC Limited Partnership purchased shares of
our Class D preferred stock for $85.0 million pursuant to an investment and
transaction agreement and entered into a stockholder and investor rights
agreement with us and certain of our shareholders, other than the holders of the
Class F preferred stock. The Dobson CC Limited Partnership purchased 3,533.8
shares of our Class D preferred stock for $4.0 million and John W. Childs and
entities which he owns or controls and their co-investors purchased 71,559.9
shares of our Class D preferred stock for $81.0 million. Concurrently, John W.
Childs and entities which he owns or controls and their co-investors purchased
13,647.16 shares of our old Class A common stock for $11.5 million from the
Fleet Investors. Each share of Class D preferred stock is convertible into one
share of our old Class A common stock and one share of Class E preferred stock.
On September 17, 1999, AT&T Wireless acquired from John W. Childs and entities
which he owns or controls and their co-investors. 15,472.4 shares of Class D
preferred stock and 3,764.84 shares of our old Class A common stock for
$22.1 million. On the same day, we entered into an amended stockholder and
investor rights agreement with the Dobson CC Limited Partnership, John W. Childs
and entities which he owns or controls and their co-investors and AT&T Wireless.
See "Description of Capital Stock--Common Stock" for a description of the
investors agreement.
On September 13, 1999, our subsidiary, Logix, entered into an amended
revolving credit agreement with Bank of America, N.A., and other banks. As an
inducement to the lenders to enter into this credit agreement, the Dobson CC
Limited Partnership guaranteed up to $50.0 million of the obligation of Logix
thereunder. Upon certain conditions and performance by Logix, the amount of the
obligation guaranteed by the Dobson CC Limited Partnership may be reduced to
$20.0 million prior to the repayment in full of the credit agreement
indebtedness by Logix. The Dobson CC Limited Partnership also entered into an
agreement as of the same date providing, among other things, for the Dobson CC
Limited Partnership to lend up to $20.0 million to Logix under certain
conditions.
On October 5, 1999, the Dobson CC Limited Partnership provided a
$50.0 million letter of credit issued by Bank of America, N.A. for our
subsidiary to use in connection with its obligations as a 50% member of the
American Cellular joint venture with AT&T Wireless. On October 5, 1999, the
Dobson CC Limited Partnership obtained from Bank of America a $200.0 million
loan commitment and agreed to use the loan proceeds, if drawn, to acquire shares
of our preferred stock. We agreed to use the $200.0 million to make part of our
agreed upon capital contributions to the American Cellular joint venture in the
event we do not receive sufficient funds in this offering.
The Dobson CC Limited Partnership and unrelated third parties have acquired
land and have finalized financing for the construction of our new headquarters.
We anticipate completion of the project in the first quarter of 2001.
On November 9, 1999, our subsidiary, DCC PCS, Inc. entered into a license
acquisition agreement with AT&T Wireless, Royal Wireless, L.L.C. and Arnage
Wireless, L.L.C., under which DCC PCS will sell, subject to FCC approval, all of
its personal communications service licenses to those two companies for
$1.1 million in addition to the assumption of DCC PCS's indebtedness of
approximately $4.0 million. AT&T Wireless has guaranteed the performance of the
obligations of Royal Wireless and Arnage Wireless under this agreement.
As described elsewhere in this prospectus, we distributed the stock of our
subsidiary, Logix, to the holders of our old Class A common stock and Class D
preferred stock, effective January 24, 2000. Our directors and principal
shareholders, Everett Dobson, Russell Dobson, Dana Schmaltz, on behalf of
87
<PAGE>
John W. Childs and entities which he owns or controls and their co-investors,
and AT&T Wireless, participated in the distribution, either directly or
beneficially. We executed an agreement with the Dobson CC Limited Partnership, a
principal holder of our old Class A common stock, under which it agreed not to
take any action which may result in us recognizing taxable income because of the
Logix spin-off, unless:
- our available net operating losses exceed the amount of taxable income
recognized by Dobson; or
- Dobson CC Limited Partnership causes Logix to indemnify Dobson for any tax
liability resulting from the spin-off after application of Dobson's net
operating losses, and Logix is financially capable of performing its
indemnity obligation.
See "Risk Factors--Risks Related to Our Business--On January 24, 2000, we
distributed the stock of our subsidiary, Logix, to our current stockholders. The
distribution of the Logix stock could have adverse tax consequences to us."
The Dobson CC Limited Partnership, John W. Childs and entities which he owns
or controls and their co-investors and AT&T Wireless own shares of our Class D
preferred stock. As part of our recapitalization, they will convert all
outstanding shares of our Class D preferred stock into shares of our old
Class A common stock and Class E preferred stock. The Class E preferred stock
held by the Dobson CC Limited Partnership and AT&T Wireless will be redeemed,
together with accrued and unpaid dividends thereon, through the issuance of
additional shares of our old Class A common stock. The Class E preferred stock
held by John W. Childs and entities which he owns or controls and their
co-investors will be redeemed, together with accrued and unpaid dividends
thereon, for an aggregate redemption consideration of $74.2 million, with net
proceeds from this offering. As discussed above, the Dobson CC Limited
Partnership, Russell Dobson and certain of our existing optionholders have the
right to acquire up to 35% of our Class D preferred stock held by AT&T Wireless
and John W. Childs and entities which he owns or controls and their
co-investors. If this right is exercised, we expect the recapitalization would
include the following related party transactions:
- The Childs' entities and AT&T Wireless would transfer a portion of their
Class D preferred stock to the Dobson CC Limited Partnership, Russell
Dobson and certain of our existing optionholders in satisfaction of the
option;
- the Childs' entities would convert a portion of their Class D preferred
stock remaining after the exercise of the option into one share of old
Class A common stock and one share of Class E preferred stock;
- we would use approximately $48.2 million of the proceeds from this
offering to redeem all of the remaining Class D preferred stock and all of
the Class E preferred stock held by the Childs' entities;
- we would redeem the remaining Class D preferred stock held by the other
holders of the Class D preferred stock through the issuance of new shares
of old Class A common stock; and
- the Dobson CC Limited Partnership, Russell Dobson and certain of our
existing option holders would purchase additional shares of old Class A
common stock.
Dana Schmaltz and John W. Childs and entities which he owns and controls and
their affiliates and co-investors will receive a direct or indirect benefit from
these transactions.
88
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
The following table provides information concerning beneficial ownership of
each class of our common stock as adjusted to reflect our recapitalization as if
it had occurred on December 31, 1999, and as adjusted to reflect the sale of
shares of Class A common stock offered by this prospectus, held by:
- each person or group of affiliated persons known by us to beneficially own
more than 5% of each voting class of our stock;
- each of our directors;
- our chief executive officer and each of our other four most highly
compensated executive officers; and
- all directors, director nominees and executive officers as a group.
The number of shares of common stock outstanding for each listed person
includes any shares the individual has the right to acquire within 60 days of
this prospectus. For purposes of calculating each person's or group's percentage
ownership, stock options exercisable within 60 days are included for that person
or group, but not for the stock ownership of any other person or group.
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON PERCENT OF TOTAL
STOCK(1) STOCK(2) ECONOMIC INTEREST
------------------------- ------------------------- ----------------------
NUMBER NUMBER
OF SHARES OF SHARES
BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS OWNED CLASS OFFERING OFFERING
- ------------------------------------ ------------ ---------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Everett R. Dobson(4)..................... -- -- 53,164,368 82.40% 82.40% 58.43%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson........................ -- -- 351,482 * * *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Bruce R. Knooihuizen..................... 632,287(5) 2% -- -- * *
13439 North Broadway Ext.
Oklahoma City, OK 73114
Craig T. Sheetz.......................... 13,462(5) * -- -- * *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Justin L. Jaschke........................ 64,171(5) * -- -- * *
5616 South Ivy Ct.
Greenwood Village, CO 80111
Albert H. Pharis, Jr..................... 21,390 -- -- -- * *
7130 S. Raccoon Road
Canfield, OH 44406
G. Edward Evans.......................... 516,116(5) 1% -- -- * *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
John W. Childs(2)(6)(7)(8)............... -- -- 7,817,010 12.11% 12.11% 8.59%
One Federal St., 21st Floor
Boston, MA 02110
c/o J.W. Childs Equity
Partners II, L.P.
J.W. Childs Equity Partners II,
L.P.(2)(6)(7)(8) -- -- 7,817,010 12.11% 12.11% 8.59%
One Federal St., 21st Floor
Boston, MA 02110
Dana L. Schmaltz(2)(7)(8)................ -- -- 7,817,010 12.11% 12.11% 8.59%
One Federal St., 21st Floor
Boston, MA 02110
All directors, nominees and executive
officers as a group (12 persons)....... 1,349,779 4.76% 61,332,860 95.06% 95.06% 67.41%
<CAPTION>
PERCENT OF TOTAL
VOTING POWER(3)
----------------------
BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING OFFERING
- ------------------------------------ ---------- ---------
<S> <C> <C>
Everett R. Dobson(4)..................... 82.40% 79.15%
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Russell L. Dobson........................ * *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Bruce R. Knooihuizen..................... * *
13439 North Broadway Ext.
Oklahoma City, OK 73114
Craig T. Sheetz.......................... * *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
Justin L. Jaschke........................ * *
5616 South Ivy Ct.
Greenwood Village, CO 80111
Albert H. Pharis, Jr..................... * *
7130 S. Raccoon Road
Canfield, OH 44406
G. Edward Evans.......................... * *
13439 N. Broadway Ext.
Oklahoma City, OK 73114
John W. Childs(2)(6)(7)(8)............... 12.11% 11.64%
One Federal St., 21st Floor
Boston, MA 02110
c/o J.W. Childs Equity
Partners II, L.P.
J.W. Childs Equity Partners II,
L.P.(2)(6)(7)(8) 12.11% 11.64%
One Federal St., 21st Floor
Boston, MA 02110
Dana L. Schmaltz(2)(7)(8)................ 12.11% 11.64%
One Federal St., 21st Floor
Boston, MA 02110
All directors, nominees and executive
officers as a group (12 persons)....... 95.06% 91.31%
</TABLE>
- ------------------------------
* Less than 1%.
(1) The number of shares of Class A common stock includes shares of Class A
common stock issuable upon the assumed conversion of shares of Class C
common stock and Class D common stock issuable upon the exercise of options
which can be exercised within 60 days after the date of this prospectus. The
number of shares of Class A common stock does not include the shares of
Class A common stock issuable upon conversion of the outstanding shares of
Class B common stock.
89
<PAGE>
(2) The Dobson CC Limited Partnership has the right to acquire shares of
Class D preferred stock owned by AT&T Wireless and J.W. Childs Equity
Partners II, L.P. and its affiliated entities and co-investors. The shares
outstanding do not reflect the exercise of this option.
(3) In calculating the percent of total voting power, the voting power of shares
of Class A common stock and the Class B common stock is aggregated. The
Class A common stock and the Class B common stock vote together as a single
class on all matters submitted to a vote of shareholders, except as required
by law. Each share of Class A common stock is entitled to one vote and each
share of Class B common stock is entitled to ten votes, except that each
share of Class B common stock is entitled to only one vote with respect to
any "going private" transaction.
(4) All such shares are held by the Dobson CC Limited Partnership. As the
president, a director and sole shareholder of RLD, Inc., the general partner
of that partnership, Everett R. Dobson has voting and investment power with
respect to such shares.
(5) Represents shares of Class C common stock and Class D common stock issuable
upon the exercise of stock options issued pursuant to our 1996 stock option
plan, and the assumed conversion of each share of Class C common stock and
Class D common stock into 111.44 shares of Class A common stock.
(6) Includes 342,454 shares of our Class B common stock owned by John W. Childs.
The remaining shares are owned by affiliated entities and co-investors of
J.W. Childs Equity Partners II, L.P. John W. Childs is the sole director and
stockholder of J.W. Childs Associates, Inc., the general partner of J.W.
Childs Associates, L.P., which is the general partner of J.W. Childs
Advisors II, L.P., which is the general partner of J.W. Childs Equity
Partners II, L.P. John W. Childs may be deemed to be the beneficial owner of
the shares beneficially owned by J.W. Childs Equity Partners II, L.P. and
its affiliated entities and co-investors. John W. Childs disclaims
beneficial ownership of such shares.
(7) As co-investors, the following individuals and their affiliated entities
that own shares of our Class B common stock have granted powers of attorney
to sell shares of our Class B common stock to the underwriters pursuant to
the over-allotment option to officers of J.W. Childs Associates, L.P. with
respect to shares of our Class B common stock: John W. Childs, Richard S.
Childs, James E. Childs, Timothy J. Healy, Glenn A. Hopkins, Jerry D. Horn,
B. Lane MacDonald, Raymond B. Rudy, Dana L. Schmaltz, Steven G. Segal,
Adam L. Suttin, Edward D. Yun, Ed Kozlowski, Jim Murphy, Benno C. Schmidt,
Mario Soussou and Bill Watts. J.W. Childs Equity Partners II, L.P. may be
deemed to beneficially own shares of our common stock held by these
co-investors. J.W. Childs Equity Partners II, L.P. disclaims beneficial
ownership of such shares.
(8) Mr. Schmaltz owns 9,158 shares of our Class B common stock. Mr. Schmaltz is
an officer of J.W. Childs Associates, Inc. and may be deemed to beneficially
own the remainder of the shares which are held by John W. Childs, J.W.
Childs Equity Partners II, L.P. and its affiliated entities and
co-investors. Mr. Schmaltz disclaims beneficial ownership of such shares.
The number of shares set forth above includes the 3,456,941 shares which may
be sold to the underwriters pursuant to the over-allotment option.
SELLING SHAREHOLDERS
If the underwriters exercise their over-allotment option in full, the
following shareholders will sell and beneficially own the number of shares
indicated below:
90
<PAGE>
<TABLE>
<CAPTION>
CLASS B COMMON CLASS B COMMON
CLASS B COMMON STOCK TO BE SOLD STOCK
STOCK BEFORE OVER- THROUGH OVER- AFTER OVER-ALLOTMENT
ALLOTMENT EXERCISE ALLOTMENT EXERCISE EXERCISE
----------------------- ----------------------- -----------------------
NUMBER OF NUMBER OF NUMBER
SHARES PERCENT OF SHARES PERCENT OF OF SHARES PERCENT OF
NAME OWNED CLASS OWNED CLASS OWNED CLASS
- ---- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J.W. Childs Equity Partners II,
L.P.......................... 7,194,283 11.15% 3,181,549 4.93% 4,012,734 6.22%
Bock Family Trust.............. 3,662 * 1,619 * 2,043 *
John W. Childs................. 342,454 * 151,445 * 191,009 *
Richard S. Childs.............. 5,390 * 2,384 * 3,006 *
James E. Childs................ 5,390 * 2,384 * 3,006 *
Samual A. Anderson............. 1,079 * 477 * 602 *
Timothy J. Healy............... 5,496 * 2,431 * 3,065 *
Glenn A. Hopkins............... 25,055 * 11,080 * 13,975 *
Jerry D. Horn.................. 17,583 * 7,776 * 9,807 *
B. Lane MacDonald.............. 3,662 * 1,619 * 2,043 *
Raymond B. Rudy................ 10,989 * 4,860 * 6,129 *
Dana L. Schmaltz............... 9,158 * 4,050 * 5,108 *
Chechesse Creek Trust.......... 1,833 * 811 * 1,022 *
Steven G. Segal................ 64,471 * 28,511 * 35,960 *
SGS 1995 Family Limited
Partnership.................. 4,762 * 2,106 * 2,656 *
Steven G. Segal 1995
Irrevocable Trust............ 16,851 * 7,452 * 9,399 *
SGS-III Family Limited
Partnership.................. 1,833 * 811 * 1,022 *
Adam L. Suttin................. 23,444 * 10,368 * 13,076 *
Adam L. Suttin Irrevocable
Family Trust................. 2,199 * 972 * 1,227 *
Suttin Family Trust II......... 4,099 * 1,813 * 2,286 *
Eugene N. Suttin IRA........... 18,131 * 8,018 * 10,113 *
Edward D. Yun.................. 9,158 * 4,050 * 5,108 *
Yun Family Trust............... 733 * 324 * 409 *
Bob Elman...................... 2,652 * 1,173 * 1,479 *
Ed Kozlowski................... 3,662 * 1,619 * 2,043 *
Jim Murphy..................... 2,652 * 1,173 * 1,479 *
Rebacliff, Baker & Dobbs,
LLC.......................... 1,100 * 486 * 614 *
Benno C. Schmidt............... 1,833 * 811 * 1,022 *
Mario Soussou.................. 7,325 * 3,239 * 4,086 *
Bill Watts..................... 14,652 * 6,480 * 8,172 *
OFS Investment Partners II..... 11,419 * 5,050 * 6,369 *
<CAPTION>
PERCENT OF TOTAL PERCENT OF TOTAL
ECONOMIC INTEREST VOTING POWER
------------------------------- -------------------------------
BEFORE AFTER BEFORE AFTER
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
NAME EXERCISE EXERCISE EXERCISE EXERCISE
- ---- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
J.W. Childs Equity Partners II,
L.P.......................... 7.91% 4.41% 11.28% 6.29%
Bock Family Trust.............. * * * *
John W. Childs................. * * * *
Richard S. Childs.............. * * * *
James E. Childs................ * * * *
Samual A. Anderson............. * * * *
Timothy J. Healy............... * * * *
Glenn A. Hopkins............... * * * *
Jerry D. Horn.................. * * * *
B. Lane MacDonald.............. * * * *
Raymond B. Rudy................ * * * *
Dana L. Schmaltz............... * * * *
Chechesse Creek Trust.......... * * * *
Steven G. Segal................ * * * *
SGS 1995 Family Limited
Partnership.................. * * * *
Steven G. Segal 1995
Irrevocable Trust............ * * * *
SGS-III Family Limited
Partnership.................. * * * *
Adam L. Suttin................. * * * *
Adam L. Suttin Irrevocable
Family Trust................. * * * *
Suttin Family Trust II......... * * * *
Eugene N. Suttin IRA........... * * * *
Edward D. Yun.................. * * * *
Yun Family Trust............... * * * *
Bob Elman...................... * * * *
Ed Kozlowski................... * * * *
Jim Murphy..................... * * * *
Rebacliff, Baker & Dobbs,
LLC.......................... * * * *
Benno C. Schmidt............... * * * *
Mario Soussou.................. * * * *
Bill Watts..................... * * * *
OFS Investment Partners II..... * * * *
</TABLE>
- ------------------------------
* less than 1%
91
<PAGE>
THE RECAPITALIZATION
Prior to completion of this offering, we intend to effect a recapitalization
of our capital stock. We are undertaking this recapitalization primarily to
create the shares of Class A common stock we propose to sell in this offering
and to create the Class B common stock that our pre-IPO shareholders will
acquire. We are also creating our non-voting, convertible Class C common stock
and Class D common stock so that we can fulfill our obligations to holders of
outstanding options to purchase shares of our old Class B common stock and old
Class C common stock.
In connection with this recapitalization, our current shareholders intend to
engage in a series of related stock transfers among themselves in settlement of
the contractual repurchase rights certain of them granted to our largest
stockholder, the Dobson CC Limited Partnership, and to Russell Dobson and
certain of our optionholders at the time of the sale of our Class D preferred
stock in December 1998. In addition, a portion of the shares of Class D
preferred stock will be exchanged with us for additional shares of our old
Class A common stock. After these transfers, we will pay approximately
$10 million in respect of the accrued and unpaid dividends on our remaining
Class D preferred stock, and the holders of the remaining shares of our Class D
preferred stock will convert each share of Class D preferred stock into one
share of our old Class A common stock and one share of our Class E preferred
stock. This conversion is being effected in accordance with the terms of the
Class D preferred stock issued in December 1998. Following this conversion, we
will redeem all of our outstanding Class E preferred stock for approximately
$43 million in cash with a portion of the proceeds of the offering.
The following table reflects our current capitalization, as of January 25,
2000:
<TABLE>
<CAPTION>
CLASS AUTHORIZED SHARES OUTSTANDING
- ----- ----------------- -----------
<S> <C> <C>
COMMON STOCK
Old Class A common............................. 1,438,000 491,774
Old Class B common............................. 31,000 0
Old Class C common............................. 31,000 0
PREFERRED STOCK
12 1/4% Senior Exchangeable.................... 734,000 296,605
13% Senior Exchangeable........................ 500,000 181,229
Class A preferred.............................. 450,000 314,286
Class D preferred.............................. 85,000 75,093.70
Class E preferred.............................. 405,000 0
Other preferred................................ 497,000 0
</TABLE>
The following table reflects our recapitalization as we expect it to exist
immediately following the exchange transactions described above, but before our
recapitalization, the consummation of this offering, and the redemption of our
Class E preferred stock. The initial public offering price of our Class A common
stock will affect the formula used by our shareholders to determine the precise
number of shares they will transfer among themselves. For purposes of this
table, we have assumed the mid-point of the range of offering prices indicated
on the cover page of this prospectus.
<TABLE>
<CAPTION>
CLASS AUTHORIZED SHARES OUTSTANDING
- ----- ----------------- -----------
<S> <C> <C>
COMMON STOCK
Old Class A common............................. 1,438,000 588,291.53
Old Class B common............................. 31,000 0
Old Class C common............................. 31,000 0
PREFERRED STOCK
12 1/4% Senior Exchangeable.................... 734,000 296,605
13% Senior Exchangeable........................ 500,000 181,229
Class A preferred.............................. 450,000 314,286
Class D preferred.............................. 85,000 57,357.17
Class E preferred.............................. 405,000 38,365.75
Other preferred................................ 497,000 --
</TABLE>
92
<PAGE>
In order to complete our recapitalization, we will authorize our new
Class A common stock, new Class B common stock and new Class D common stock. We
will then effect a stock split of our Old Class A common stock by issuing 111.44
shares of our new Class B common stock for each outstanding share of our Old
Class A common stock.
The following table reflects the recapitalization discussed above:
<TABLE>
<CAPTION>
PRE-RECAPITALIZATION CLASS OF STOCK BECOMES POST-RECAPITALIZATION CLASS OF STOCK
- ----------------------------------- --------- ------------------------------------
<S> <C> <C>
--> New Class A common(1)
Old Class A common --> New Class B common
Old Class B common --> New Class D common
Old Class C common --> New Class C common
Old Class A preferred (2)
Old Class D preferred --> Class B common(3)
Class E preferred
12 1/4% senior exchangeable --> No change
13% senior exchangeable --> No change
</TABLE>
- ------------------------
(1) Newly created class by the recapitalization.
(2) Class A preferred will be cancelled and retired.
(3) Class D preferred is convertible into Class E preferred and
pre-capitalization Class A common, and the pre-capitalization Class A common
will become post-recapitalization Class B common.
The following table illustrates our capitalization as we expect it to exist
immediately after this offering and after giving effect to the recapitalization
and redemption of the Class E preferred stock.
<TABLE>
<CAPTION>
CLASS AUTHORIZED SHARES OUTSTANDING
- ----- ----------------- -----------
<S> <C> <C>
COMMON STOCK
New Class A common........................................ 175,000,000 25,000,000
New Class B common........................................ 70,000,000 65,559,208
New Class C common........................................ 4,226 0
New Class D common........................................ 33,000 0
PREFERRED STOCK
12 1/4% Senior Exchangeable............................... 734,000 296,605
13% Senior Exchangeable................................... 500,000 181,229
Class E preferred......................................... 40,000 0
Other preferred........................................... 4,766,000 0
</TABLE>
93
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the terms of our capital stock which will be
authorized following our recapitalization, the closing of this offering and the
use of proceeds therefrom. This summary is qualified in its entirety by the
provisions of our certificate of incorporation and bylaws and to the applicable
provisions of Oklahoma law.
COMMON STOCK
At the closing of this offering and the concurrent offering to AT&T
Wireless, we will be authorized to issue 175,000,000 shares of Class A common
stock and 70,000,000 shares of Class B common stock. Immediately after this
offering, there will be:
- 26,470,000 shares of Class A common stock issued and outstanding;
- 4,000,000 shares of Class A common stock reserved for issuance upon
exercise of future options that may be granted under our 2000 stock
incentive plan;
- 4,226 shares of Class C common stock authorized for issuance upon the
exercise of options granted under our 1996 stock option plan;
- 33,000 shares of Class D common stock authorized for issuance upon the
exercise of options granted under our 1996 stock option plan;
- 65,559,208 shares of Class B common stock issued and outstanding owned by
35 shareholders.
- 69,697,073 shares of Class A common stock reserved for issuance upon
conversion of shares of our Class B common stock and upon conversion of
shares of Class C common stock and that may be issued upon the exercise of
options granted under our 1996 stock option plan.
The rights of holders of the Class A, Class B, Class C and Class D common
stock are identical in all respects, except as discussed below. Additional
shares of Class B common stock may be issued to Class B stockholders only upon a
stock split or stock dividend to holders of all classes of common stock on a pro
rata basis.
DIVIDENDS
Subject to the right of the holders of any class of preferred stock, holders
of shares of common stock are entitled to receive dividends that may be declared
by our board of directors out of legally available funds. No dividend may be
declared or paid in cash or property on any share of any class of common stock
unless simultaneously an equivalent dividend is declared or paid on each share
of that and every other class of common stock. In the event of stock dividends,
holders of Class A common stock or Class B common stock shall be entitled to
receive only additional shares of that class, while stock dividends with respect
to Class C common stock and Class D common stock are payable only in shares of
Class A common stock.
VOTING RIGHTS
The Class A common stock and the Class B common stock vote together as a
single class on all matters submitted to a vote of shareholders, except as
required by law. Each share of Class A common stock is entitled to one vote and
each share of Class B common stock is entitled to 10 votes, except that each
share of common stock is entitled to one vote with respect to any "going
private" transaction under the Securities Exchange Act of 1934. Class C common
stock and Class D common stock have no voting rights, except as required by law.
LIQUIDATION RIGHTS
Upon our liquidation, dissolution or winding-up, the holders of our common
stock are entitled to share ratably in all assets available for distribution
after payment in full to creditors and holders of our preferred stock, if any.
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CONVERSION AND TRANSFERABILITY OF COMMON STOCK
Shares of Class B common stock are convertible at any time, at the option of
the holder, into an equal number of fully paid and non-assessable shares of
Class A common stock. All conversion rights of Class B common stock are subject
to any necessary FCC approval. Shares of Class B common stock transferred to a
party other than certain Dobson family members, controlled affiliates of the
transferor or estate planning vehicles will automatically convert into an equal
number of fully paid and non-assessable shares of Class A common stock. Shares
of Class C common stock and Class D common stock will automatically be converted
into 111.44 fully paid and non-assessable shares of Class A common stock,
subject to adjustment for stock splits, stock dividends, recapitalizations or
reorganizations.
INVESTORS AGREEMENT
We are currently negotiating the terms of a new investors agreement to be
entered into among the holders of our Class B common stock prior to this
offering, which will replace our existing investors agreement. We cannot assure
you that the terms of the new investors agreement will be the same as those we
anticipate and describe below.
The new investors agreement is expected to provide that each of John W.
Childs and entities which he owns or controls and their co-investors, AT&T
Wireless and the Dobson CC Limited Partnership will have certain demand and
"piggy-back" registration rights for the shares of Class A common stock issuable
upon sale or conversion of their Class B common stock. In addition, the
investors agreement is expected to provide each of the signatories with
pre-emptive rights with respect to future private equity issues by Dobson. The
investors agreement is also expected to contain restrictions on transfer
identical to those contained in Dobson's certificate of incorporation. These
restrictions will provide that shares of Class B common stock may not be
transferred to a party other than certain Dobson family members, controlled
affiliates of the transferor or estate planning vehicles. The new investors
agreement is also expected to grant AT&T Wireless, under certain circumstances,
a right of first refusal on the transfer of any shares from the Dobson CC
Limited Partnership to a major telecommunications competitor.
The investors agreement is also expected to provide that seven directors
will constitute our board of directors. So long as AT&T Wireless beneficially
owns minimum percentages of shares of our common stock, AT&T Wireless will be
entitled to designate one director. Similarly, so long as John W. Childs and
entities which he owns or controls and their co-investors beneficially own
minimum percentages of shares of our common stock, they will be entitled to
designate one director. Both AT&T Wireless and John W. Childs and entities which
he owns or controls and their co-investors have the right to have an observer
present at all meetings of our board of directors and any committees of our
board of directors, provided they continue to maintain minimum equity ownership
levels.
The Dobson CC Limited Partnership will be entitled to designate up to four
directors, depending on its level of voting control of the Company. One director
will be designated jointly by John W. Childs and entities which he owns or
controls and their co-investors, AT&T Wireless and the Dobson CC Limited
Partnership. Notwithstanding the foregoing, an additional two directors may be
designated by the holders of our 12 1/4% senior preferred stock and an
additional two directors may be designated by the holders of our 13% senior
preferred stock in the event of non-payment of dividends for certain periods or
other voting rights triggering events.
OTHER PROVISIONS
The holders of common stock are not entitled to preemptive or similar
rights.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is UMB Bank, n.a.
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PREFERRED STOCK
GENERAL
We are authorized to issue 6,000,000 shares of preferred stock, par value
$1.00 per share. Our board of directors, in its sole discretion, may designate
and issue one or more series of preferred stock from the authorized and unissued
shares of preferred stock.
Subject to limitations imposed by law or our amended and restated
certificate of incorporation, the board of directors is empowered to determine:
- the designation of and the number of shares constituting a series of
preferred stock;
- the dividend rate, if any, for the series;
- the terms and conditions of any voting and conversion rights for the
series, if any;
- the number of directors, if any, which the series shall be entitled to
elect;
- the amounts payable on the series upon our liquidation, dissolution or
winding-up;
- the redemption prices and terms applicable to the series, if any; and
- the preferences and relative rights among the series of preferred stock.
These rights, preferences, privileges and limitations of preferred stock could
adversely affect the rights of holders of common stock.
SENIOR PREFERRED STOCK
12 1/4% SENIOR PREFERRED STOCK
As of September 30, 1999, we had issued and outstanding 278,872 shares of
our 12 1/4% senior preferred stock which has a liquidation preference of $1,000
per share plus accrued and unpaid dividends.
The certificates of designation for our 12 1/4% senior preferred stock
provide for the following rights:
VOTING RIGHTS. The holders of our 12 1/4% senior 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 certificates of
designation provide that, upon the occurrence of a voting rights triggering
event, the number of directors constituting our board of directors will be
increased by two directors, whom the holders of 12 1/4% senior preferred stock
will be entitled to elect. Whenever the right of the holders of 12 1/4% senior
preferred stock to elect directors shall cease, the number of directors
constituting the board of directors will be restored to the number of directors
constituting the board of directors prior to the time of the event that entitled
the holders of 12 1/4% senior preferred stock to elect directors.
Under Oklahoma law, the holders of 12 1/4% senior preferred stock will be
entitled to vote as a class upon a proposed amendment to our certificate of
incorporation, whether or not entitled to vote thereon by our certificate of
incorporation, if the amendment would increase or decrease the par value of the
shares of that class, or alter or change the powers, preferences or special
rights of the shares of that class so as to affect them adversely.
DIVIDENDS. The holders of our 12 1/4% senior preferred stock are entitled
to receive cumulative dividends at the annual rate of 12 1/4% of the $1,000 per
share liquidation preference, as and when declared by the board of directors. We
may pay dividends in cash or, on or prior to January 15, 2003, in additional
fully paid and nonassessable shares of senior preferred stock having a
liquidation preference equal to the amount of the dividends.
REDEMPTION. We must redeem the 12 1/4% senior preferred stock on
January 15, 2008, 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 January 15, 2003, the 12 1/4%
senior 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
12 1/4% senior preferred stock as set forth below, plus accrued and unpaid
dividends, if such redemption occurs during the 12-month period beginning
January 15 of each of the following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 106.125%
2004........................................................ 104.084
2005........................................................ 102.042
2006 and thereafter......................................... 100.000
</TABLE>
Before January 15, 2001, we may redeem up to 35% of the aggregate
liquidation preference amount of the 12 1/4% senior preferred stock at a
redemption price equal to 112.25% 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 12 1/4%
senior preferred stock originally issued remains outstanding after any
redemption.
OPTIONAL EXCHANGE. We may exchange the 12 1/4% senior preferred stock in
whole, but not in part, into our senior subordinated exchange debentures.
CHANGE OF CONTROL. Upon a change of control, we must make an offer to
purchase the 12 1/4% senior preferred stock at a purchase price equal to 100% of
the liquidation preference of the 12 1/4% senior preferred stock, plus accrued
and unpaid dividends. A change of control means, with respect to each series of
12 1/4% senior preferred stock, such time as:
- a shareholder becomes the beneficial owner of more than 35% of the total
voting power of our voting 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, or
- individuals who on the issue date of such 12 1/4% senior preferred stock
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.
This offering will not result in a change of control under the certificate
of designation of our 12 1/4% senior preferred stock.
RESTRICTIVE COVENANTS. The certificate of designation that governs the
12 1/4% senior preferred stock 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.
13% SENIOR PREFERRED STOCK
As of September 30, 1999, we had issued and outstanding 175,402 shares of
our 13% senior preferred stock which have a liquidation preference of $1,000 per
share plus accrued and unpaid dividends.
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The certificate of designation for the 13% senior preferred stock provides
for the following rights:
VOTING RIGHTS. The holders of our 13% senior preferred stock have voting
rights substantially similar to the voting rights provided to the 12 1/4% senior
preferred stock.
DIVIDENDS. The holders of 13% senior preferred stock are 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, on or prior to May 1, 2004, in additional fully paid
and nonassessable shares of 13% senior preferred stock having a liquidation
preference equal to the amount of the dividends.
REDEMPTION. We must redeem the 13% senior preferred stock on May 1, 2009,
subject to the legal availability of funds therefor, at 100% of the liquidation
preference, plus accrued and unpaid dividends.
At any time and from time to time on or after May 1, 2004, we may redeem our
13% senior preferred stock, in whole or in part, at our option, at a redemption
price expressed as a percentage of the liquidation preference of the 13% senior
preferred stock 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 our 13% senior preferred stock 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 our 13% senior preferred stock
originally issued remain outstanding after any redemption.
OPTIONAL EXCHANGE. We may exchange our 13% senior exchangeable preferred
stock in whole, but not in part, into our senior subordinated exchange
debentures. Our exchange rights are substantially similar to our exchange rights
with respect to our 12 1/4% senior preferred stock.
CHANGE OF CONTROL. Upon a change of control, which is defined similarly to
the same term used in our 12 1/4% senior preferred stock, we will be required to
make an offer to purchase our outstanding 13% senior preferred stock at a
purchase price equal to 100% of its liquidation preference plus accrued and
unpaid dividends.
FOREIGN OWNERSHIP
Our certificate of incorporation restricts the ownership, voting and
transfer of our capital stock, including our common stock, in accordance with
the Communications Act and the rules of the FCC, which prohibits foreign
nationals or their representatives, a foreign government or its representative,
or any corporation organized under the laws of a foreign country from owning of
record or voting greater than 25% of our equity unless the FCC determines that
the public interest would be served by denying such foreign ownership. In
addition, our certificate authorizes our board of directors to take action to
enforce these prohibitions, including requiring redemptions of common stock to
the extent necessary to reduce aggregate foreign ownership to lawful limits and
placing a legend regarding restrictions on foreign ownership on the certificates
representing the common stock.
OKLAHOMA ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Our certificate of incorporation and bylaws and the Oklahoma General
Corporation Act include a number of provisions that may have the effect of
encouraging persons considering unsolicited tender
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offers or other unilateral takeover proposals to negotiate with our board of
directors rather than pursue non-negotiated takeover attempts. These provisions
include a classified board of directors, authorized blank check preferred stock,
restrictions on business combinations, in certain circumstances the
nullification of voting rights of 20% or more shareholders and the availability
of authorized but unissued common stock.
CLASSIFIED BOARD OF DIRECTORS. Our certificate of incorporation and bylaws
contain provisions for a staggered board of directors with only one-third of the
board standing for election each year. Shareholders may only remove directors
for cause. A staggered board makes it more difficult for stockholders to change
the majority of the directors.
BLANK CHECK PREFERRED STOCK. Our certificate of incorporation authorizes
blank check preferred stock. Our board of directors can set the voting rights,
redemption rights, conversion rights and other rights relating to such preferred
stock and could issue preferred stock in either a private or public transaction.
In some circumstances, the blank check preferred stock could be issued and have
the effect of preventing a merger, tender offer or other takeover attempt which
our board of directors opposes.
Our board of directors has no present intention to issue any new class or
series of preferred stock; however, our board of directors has the authority,
without further shareholder approval, to issue one or more series of preferred
stock that could, depending on the terms of such series, either impede or
facilitate the completion of a merger, tender offer or other takeover attempt.
Although our board of directors is required to make any determination to issue
such stock based on its judgment as to the best interest of our shareholders,
our board of directors could act in a manner that would discourage an
acquisition attempt or other transaction that some, or a majority, of the
shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock. Our board of directors does not intend to seek shareholder
approval prior to any issuance of such stock, unless otherwise required by law.
OKLAHOMA TAKEOVER STATUTE. We are subject to Section 1090.3 of the Oklahoma
General Corporation Act. In general, Section 1090.3 prevents an "interested
stockholder" from engaging in a "business combination" with an Oklahoma
corporation for three years following the date that person became an interested
stockholder, unless:
- prior to the date such person became an interested stockholder, our board
of directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination;
- upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of our voting stock outstanding at the time
the transaction commenced, excluding stock held by directors who are also
officers of the corporation and stock held by certain employee stock
plans; or
- on or subsequent to the date of the transaction in which such person
became an interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
Section 1090.3 defines a "business combination" to include:
- any merger or consolidation involving the corporation and an interested
stockholder;
- any sale, transfer, pledge or other disposition involving an interested
stockholder of 10% or more of the assets of the corporation;
- subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
an interested stockholder;
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- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by an interested stockholder of any loans, guarantees, pledges
or other financial benefits provided by or through the corporation.
For purposes of Section 1090.3, the term "corporation" also includes our
majority-owned subsidiaries. In addition, Section 1090.3 defines an "interested
stockholder" as an entity or person beneficially owning 15% or more of our
outstanding voting stock and any entity or person affiliated with or controlling
or controlled by such entity or person.
OKLAHOMA CONTROL SHARE ACT. If we have 1,000 or more shareholders and meet
other conditions, we will be subject to Oklahoma's control share act. With
exceptions, this act prevents holders of more than 20% of the voting power of
our stock from voting their shares. This provision may delay the time it takes
anyone to gain control of us. Holders of our Class B common stock are presently
exempt from the Oklahoma control share act.
STOCKHOLDER ACTION. With respect to any act or action required of or by the
holders of our common stock, the affirmative vote of a majority of the total
combined voting power of all classes of our outstanding common stock, voting
together as a single class, present in person or represented by proxy at a
meeting and entitled to vote thereon is sufficient to authorize, affirm, ratify
or consent to such act or actions, except as otherwise provided by law or in our
certificate of incorporation. The Oklahoma General Corporation Act requires the
approval of the holders of a majority of the total combined voting power of all
classes of our outstanding common stock, voting together as a single class for
certain extraordinary corporate transactions, such as a merger, sale of
substantially all assets, dissolution or amendment of our certificate of
incorporation. Our certificate of incorporation provides for a vote of the
holders of two-thirds of the issued and outstanding stock having voting power,
voting as a single class, to amend, repeal or adopt any provision relating to
the amendment provisions of our certificate of incorporation, the
indemnification of directors, director liability, alien stock ownership, and our
board of directors.
Pursuant to the Oklahoma General Corporation Act, stockholders may take
actions without the holding of a meeting by written consent if the consent is
signed by the holders of at least the number of shares which would be necessary
to approve the transaction at a duly called shareholder's meeting. If we have
one thousand or more shareholders of record, actions taken by our shareholders
by written consent must be unanimous. Mr. Everett R. Dobson and the other
directors and executive officers as a group will beneficially own shares of
Class B common stock representing approximately 96.1% of the total combined
voting power of all classes of our capital stock entitled to vote, considered as
a single class after the offering. Pursuant to the rules and regulations of the
Securities and Exchange Commission, if stockholder action is taken by written
consent, we will be required to send each stockholder entitled to vote on the
matter acted on, but whose consent was not solicited, an information statement
containing information substantially similar to that which would have been
contained in a proxy statement.
EXCULPATION
Directors and officers shall not be personally liable for monetary damages
(including, without limitation, any judgment, amount paid in settlement,
penalty, punitive damages or expense of any nature (including, without
limitation, attorneys' fees and disbursements)) for any action taken, or any
failure to take any action, unless:
- the director or officer has breached his or her duty of loyalty to the
corporation or its shareholders;
- the breach or failure to perform constitutes an act or omission not in
good faith or which involves intentional misconduct or a knowing violation
of law; or
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- for any transaction from which the director or officer derived an improper
personal benefit.
INDEMNIFICATION
To the fullest extent permitted by the Oklahoma General Corporation Act, we
will indemnify any person who was, is, or is threatened to be made, a party to a
proceeding by reason of the fact that he or she:
- is or was our director, officer, employee, or agent; or
- while our director, officer, employee or agent is or was serving at our
request as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise.
We have entered into indemnity agreements with each of our directors and
executive officers. Under each indemnity agreement, we will pay on behalf of the
directors and executive officers and their executors, administrators and heirs,
any amount which they are or become legally obligated to pay because of:
- any claim threatened or made against them by any person because of any
act, omission, neglect or breach of duty, including any actual or alleged
error, misstatement or misleading statement, which they commit or suffer
while acting in their capacity as our director or officer, or the director
or officer of our affiliates; or
- being a party, or being threatened to be made a party, to any threatened,
pending or contemplated action, suit or preceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that they
are or were our, or are or were our affiliate's, director, officer,
employee or agent, or are or were serving at our request as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Our indemnity obligations may include payments for damages, charges,
judgments, fines, penalties, settlements and court costs, costs of investigation
and costs of defense of legal, equitable or criminal actions, claims or
proceedings and appeals therefrom, and costs of attachment, supersedeas, bail,
surety or other bonds. We also intend to provide liability insurance for each of
our directors and executive officers.
Any indemnification of our directors, officers or others pursuant to the
foregoing provisions for liabilities arising under the Securities Act of 1933
are, in the opinion of the Securities and Exchange Commission, against public
policy as expressed in the Securities Act of 1933 and are unenforceable.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our shares
of Class A common stock, and no prediction can be made as to the effect, if any,
that market sales of shares of common stock or the availability of shares of
common stock for sale will have on the market price of our shares of Class A
common stock prevailing from time to time. Nevertheless, sales of substantial
amounts of shares of common stock in the public market, or the perception that
such sales could occur, could adversely affect the market price of our shares of
Class A common stock and could impair our future ability to raise capital
through the sale of our equity securities.
Upon the closing of this offering and the concurrent offering to AT&T
Wireless, we will have an aggregate of 26,470,000 shares of Class A common stock
outstanding and 64,523,450 shares of Class B common stock outstanding. In
addition, 37,130.88 shares of Class C common stock and Class D common stock, or
4,137,865 shares of Class A common stock on an as converted basis, will be
issuable upon exercise of outstanding stock options. The shares sold in this
offering will be freely tradable, except that any shares held by our
"affiliates," as that term is defined in Rule 144 promulgated under the
Securities Act of 1933, may only be sold in compliance with the limitations
described below.
Any shares of common stock outstanding after this offering and held by our
affiliates will be deemed "restricted securities" as defined under Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 promulgated under
the Securities Act, which is summarized below. After taking into account the
180-day lock-up agreements described below and the provisions of Rule 144,
additional shares will be available for sale in the public market:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ---------------------------------------------
<S> <C>
57,582,859 180 days after the date of this prospectus
At various times after 180 days after
3,190,591 the date of this prospectus
</TABLE>
Approximately 57,582,859 of the shares of common stock that will become
eligible for resale after the expiration of the 180-day lock-up agreements are
held by affiliates and, therefore, will remain subject to the volume limitations
and other restrictions of Rule 144. See "Risk Factors--Risks Related to This
Offering--Future sales of our Class A common stock could adversely affect its
market price and impede our ability to raise capital through future issuances of
equity securities."
In general, under Rule 144 as currently in effect, a person or persons whose
shares are required to be aggregated, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock which, would be
approximately shares immediately after this offering; or
- the average weekly trading volume in the shares of common stock during the
four calendar weeks preceding the date on which notice of such sale is
filed, subject to certain restrictions.
A person who is not deemed to have been an affiliate at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years would be entitled to sell such shares without regard
to the requirements described above. To the extent that shares were acquired
from an affiliate, the transferee's holding period for the purpose of effecting
a sale under Rule 144 commences on the date of transfer from the affiliate.
All of our directors, officers and shareholders, and our option holders,
have agreed that they will not, without the prior written consent of Lehman
Brothers Inc. and Banc of America Securities LLC,
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sell or otherwise dispose of any shares of common stock or options to acquire
shares of common stock during the 180-day period following the date of this
prospectus. See "Underwriting."
We intend to file Form S-8 registration statements under the Securities Act
on or immediately after the date of this prospectus to register all shares of
Class C and Class D common stock issuable under our 1996 stock option plan and
to register all shares of Class A common stock issuable under our 2000 stock
incentive plan. This registration statements will automatically become effective
upon filing. Accordingly, shares covered by this registration statement will
thereupon be eligible for sale in the public markets, unless the options are
subject to vesting restrictions or the contractual restrictions described above.
See "Management."
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue, and grant options to purchase, shares of common stock and we may
offer and sell shares of common stock under our 1996 stock option plan and our
2000 stock incentive plan.
Following this offering, in some circumstances and subject to conditions,
holders of our outstanding shares of Class B common stock will have demand
registration rights (subject to the 180-day lock-up arrangement described above)
to require us to register the shares of Class A common stock into which their
shares of Class B common stock are convertible and they will have rights to
participate in any future registration of securities by us. See "Description of
Capital Stock--Common Stock--Investors Agreement."
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income tax
consequences of the ownership of our Class A common stock, including certain
anticipated U.S. income and estate tax consequences of the ownership and
disposition of our Class A common stock applicable to non-U.S. holders, as
defined below. This discussion does not consider the specific facts and
circumstances that may be relevant to particular holders and does not address
the treatment of holders of Class A common stock under the laws of any state,
local or foreign taxing jurisdiction. This discussion is based on the tax laws
of the U.S., including the Internal Revenue Code, as amended to the date hereof,
existing and proposed regulations thereunder, and administrative and judicial
interpretation thereof, as currently in effect. These laws and interpretations
are subject to change, possibly on a retroactive basis.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE
FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS TO THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH YOU
MAY BE SUBJECT.
GENERAL
We believe that for federal income tax purposes neither we nor any U.S.
holder will recognize any income, gain or loss as a result of the issuance of
our Class A common stock. You are a "U.S holder" for U.S. federal income tax
purposes if you are a beneficial owner of common stock and are:
- a citizen or resident of the U.S.;
- a corporation, partnership or other entity created or organized under the
laws of the U.S. or any state;
- an estate, the income of which is subject to U.S. federal income tax
without regard to its source;
- a trust, if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust; or
- subject to certain exceptions, an individual who is present in the U.S. on
at least 31 days in the current calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar
year, counting for such purposes all of the days present in the current
calendar year, one-third of the days present in the immediately preceding
calendar year, and one-sixth of the days present in the second preceding
year.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion summarizes certain U.S. federal income and estate
tax consequences of the ownership and disposition of our Class A common stock by
"non-U.S. holders." You are a "non-U.S. holder" for U.S. federal income tax
purposes if you are:
- a non-resident alien individual;
- a foreign corporation;
- a foreign partnership; or
- an estate or trust that in either case is not subject to U.S. federal
income tax on a net income basis on income or gain from common stock.
DIVIDENDS
If you are a non-U.S. holder of our Class A common stock, dividends paid to
you are subject to withholding of U.S. federal income tax at a 30% rate or at a
lower rate if so specified in an applicable income tax treaty and certain filing
requirements are met. If, however, the dividends are effectively connected with
your conduct of a trade or business within the U.S., and they are attributable
to a permanent establishment that you maintain in the U.S., if that is required
by an applicable income tax treaty as a condition for subjecting you to U.S.
income tax on a net income basis on such dividends,
104
<PAGE>
then these "effectively connected" dividends generally are not subject to
withholding tax provided certain filing requirements are met. Instead, the
effectively connected dividends are taxed at rates applicable to U.S. citizens,
resident aliens and U.S. corporations.
Effectively connected dividends received by a non-U.S. corporation may,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or at a lower rate if so specified in an applicable income tax
treaty.
Under currently effective U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of making
such dividends subject to the 30% withholding tax discussed above. Under current
interpretations of U.S. Treasury regulations, the presumption that dividends
paid to an address in a foreign country are paid to a resident of that country,
unless the payor has knowledge to the contrary, also applies for the purposes of
determining whether a lower tax treaty rate applies.
Under U.S. Treasury regulations, which will generally apply to dividends
paid after December 31, 2000 or the final withholding regulations, if you claim
the benefit of a lower treaty rate, you must satisfy certain certification
requirements. In addition, in the case of Class A common stock held by a foreign
partnership, the certification requirements generally will apply to the partners
of the partnership and the partnership must provide certain information,
including a U.S. taxpayer identification number. The final withholding
regulations also provide look-through rules for tiered partnerships.
If you are eligible for a reduced rate of U.S. withholding tax under a tax
treaty, you may obtain a refund of any excess amounts withheld by filing a
refund claim with the IRS.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
If you are a non-U.S. holder you generally will not be subject to U.S.
federal income tax on gain recognized on a disposition of our Class A common
stock unless:
- the gain is effectively connected to your conduct of a trade or business
in the U.S. and the gain is attributable to a permanent establishment that
you maintain in the U.S., if that is required by an applicable income tax
treaty as a condition for subjecting you to U.S. taxation on a net income
basis on gain from the sale or other disposition of our Class A common
stock;
- you are an individual, you hold our Class A common stock as a capital
asset and you are present in the U.S. for 183 or more days in the taxable
year of the sale and certain other conditions exist; or
- We are or have been a "United States real property holding corporation"
for federal income tax purposes and you held, directly or indirectly, at
any time during the five-year period ending on the date of disposition,
more than 5% of our common stock and you are not eligible for any treaty
exemption.
Effectively connected gains recognized by a corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or at a lower rate if so specified in an applicable income
tax treaty.
We have not been, are not, and do not anticipate becoming a "United States
real property holding corporation" for federal income tax purposes.
FEDERAL ESTATE TAXES
Class A common stock held by a non-U.S. holder at the time of death, or by
certain trusts benefitting the non-U.S. holder as to which no U.S. person has
certain rights or powers will be included in the holder's gross estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, U.S. information reporting requirements and backup withholding
tax will not apply to dividends paid to you if you are either:
- subject to the 30% withholding tax discussed above;
- not subject to the 30% withholding tax because an applicable tax treaty
reduces or eliminates such withholding tax;
- not subject to the 30% withholding tax discussed above for the reason that
the dividends are effectively connected with your conduct of a trade or
business within the U.S.; or
- not subject to the 30% withholding tax pursuant to U.S. Treasury
Regulations providing relief from undue administrative burden,
although dividend payments to you will be reported for purposes of the
withholding tax. See "--Dividends" above. If you do not meet any of the above
requirements for exemption and you fail to provide certain information,
including your U.S. taxpayer identification number, or otherwise establish your
status as an "exempt recipient," you may be subject to backup withholding of
U.S. federal income tax at a rate of 31% on dividends paid with respect to our
Class A common stock.
Under current law, the payor may generally treat dividends paid to a payee
with a foreign address as exempt from backup withholding and information
reporting unless the payor has definite knowledge that the payee is a U.S.
person. However, under the final withholding regulations, dividend payments
generally will be subject to information reporting and backup withholding unless
certain certification requirements are met. See the discussion under
"--Dividends" for the rules applicable to foreign partnerships under the final
withholding regulations.
U.S. information reporting and backup withholding requirements generally
will not apply to a payment of the proceeds of a sale of common stock made
outside the U.S. through an office outside the U.S. of a non-U.S. broker.
However, U.S. information reporting, but not backup withholding, will apply to a
payment made outside the U.S. of the proceeds of a sale of our Class A common
stock through an office outside the U.S. of a broker that:
- is a U.S person;
- derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S.;
- is a "controlled foreign corporation" as to the U.S.; or
- with respect to payments made after December 31, 2000, is a foreign
partnership, if at any time during its tax year:
- one or more of its partners are U.S. persons, as defined in the U.S.
Treasury regulation, who in the aggregate hold more than 50% of the
income or capital interest in the partnership; or
- such foreign partnership is engaged in a U.S. trade or business, unless
the broker has documentary evidence in its records that the holder or
beneficial owner is a non-U.S. person or otherwise establishes an
exemption.
Payment of the proceeds of a sale of our Class A common stock to or through
a U.S. office of a broker is subject to both U.S. backup withholding and
information reporting unless the holder certifies its non-U.S. status under
penalty of perjury or otherwise establishes an exemption.
A non-U.S. holder generally may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing a refund claim with the
IRS.
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UNDERWRITING
GENERAL
Under the underwriting agreement, which is filed as an exhibit to the
registration statement of which this prospectus is a part, each of the
underwriters named below, for whom Lehman Brothers Inc., Banc of America
Securities LLC, Salomon Smith Barney Inc., Deutsche Bank Securities Inc.,
Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are
acting as representatives, has agreed to purchase from us the respective number
of shares of Class A common stock shown opposite its name below. Lehman Brothers
Inc. and Banc of America Securities LLC are acting as joint book running
managers for the offering and Salomon Smith Barney Inc. is acting as joint lead
manager for this offering. Deutsche Bank Securities Inc., Goldman, Sachs & Co.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as co-managers
for this offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF CLASS A
COMMON
UNDERWRITER STOCK
- ----------- ----------
<S> <C>
Lehman Brothers Inc.........................................
Banc of America Securities LLC..............................
Salomon Smith Barney Inc....................................
Deutsche Bank Securities Inc................................
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
----------
Total..................................................... 25,000,000
==========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of Class A common stock are subject to certain conditions, and
that if any of the foregoing shares of Class A common stock are purchased by the
underwriters pursuant to an underwriting agreement, all of the shares of
Class A common stock that the underwriters have agreed to purchase pursuant to
the underwriting agreement must be so purchased.
COMMISSIONS AND EXPENSES
The representatives have advised us that the underwriters propose to offer
the shares of Class A common stock directly to the public at the public offering
price set forth on the cover page of this prospectus, and to certain selected
dealers, who may include the underwriters, at such public offering price less a
selling concession not in excess of $ per share. The underwriters may allow,
and the selected dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the offering, the underwriters may
change the offering price and other selling terms.
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<PAGE>
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions.... $ $ $
</TABLE>
Set forth below is an itemization of the total expenses, excluding
underwriting discounts and commissions, that we expect to incur in connection
with the offer and sale of the securities. With the exception of the Securities
Act Registration Fee and NASD fees, all amounts are estimates.
<TABLE>
<S> <C>
Securities Act Registration Fee............................. $ 175,518
NASD Filing Fee............................................. 30,500
Printing and Engraving Expenses............................. 1,000,000
Legal Fees and Expenses..................................... 1,500,000
Accounting Fees and Expenses................................ 1,500,000
Miscellaneous............................................... 793,982
----------
Total..................................................... $5,000,000
==========
</TABLE>
OVER-ALLOTMENT OPTION
We have granted the underwriters an option to purchase up to an aggregate of
293,059 additional shares of Class A common stock and John W. Childs and
entities which are owned or controlled by Mr. Childs or with respect to which he
shares voting power and their co-investors have granted to the underwriters an
option to purchase up to an aggregate of 3,456,941 additional shares of Class A
common stock, each of which is exercisable solely to cover over-allotments, if
any, at the public offering price less the underwriting discounts and
commissions shown on the cover page of this prospectus. Such option may be
exercised at any time, and from time to time, until 30 days after the date of
the underwriting agreement. We will not receive any of the proceeds from the
sale of shares by John W. Childs and entities which are owned or controlled by
Mr. Childs or with respect to which he shares voting power in the over-allotment
option. To the extent that the underwriters exercise these options, each
underwriter will be committed, subject to certain conditions, to purchase a
number of additional shares of Class A common stock proportionate to such
underwriter's initial commitment, as indicated in the preceding table, and we
and the selling shareholders will be obligated, under such over-allotment
option, to sell such shares of Class A common stock to the underwriters.
CONCURRENT OFFERING TO AT&T WIRELESS
The price of the shares to be sold to AT&T Wireless in the concurrent
offering is expected to be equal to the initial public offering price per share
less an amount equal to the underwriting discount we pay to the underwriters in
this offering. The underwriters will not receive any compensation in connection
with the concurrent offering.
LOCK-UP AGREEMENTS
We and all of our directors, officers, shareholders and option holders,
holding an aggregate of 4,099,245 shares of Class A common stock and
60,773,450 shares of Class B Common Stock have agreed not to offer to sell, sell
or otherwise dispose of directly or indirectly any shares of common stock during
the 180-day period following the date of the prospectus without the prior
written consent of Lehman Brothers Inc. and Banc of America Securities LLC
except that we may grant options to purchase and issue shares of Class C common
stock and Class D common stock under our 1996 stock option plan and Class A
common stock under our 2000 stock incentive plan. The 4,099,245 shares of
108
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Class A common stock subject to the 180-day lock-up agreements, includes the
1,470,000 shares of Class A common stock that may be sold in the concurrent
offering to AT&T Wireless. Lehman Brothers Inc. and Banc of America Securities
LLC have advised us that they do not currently intend to release any shares of
common stock subject to the 180-day lock-up agreements and that the decision
whether to release any of the shares subject to the lock-up agreements in the
future will be based on a number of factors, including, among other things:
- the number of shares requested to be released;
- the timing of the request;
- the trading price of the shares of Class A common stock;
- the volatility in the trading price of the shares of Class A common stock;
and
- general market conditions.
See "Risk Factors--Risks Related to This Offering--You will incur immediate
and substantial dilution of approximately $26.72 per share" and "Future sales of
our Class A common stock could adversely affect its market price and impede our
ability to raise capital through future issuances of equity securities."
OFFERING PRICE DETERMINATION
Prior to the offering, there has been no public market for the shares of
Class A common stock. The initial public offering price was negotiated between
the representatives and us. In determining the initial public offering price of
the shares of Class A common stock, the representatives considered, among other
things and in addition to prevailing market conditions, our historical
performance and capital structure, estimates of our business potential and
earning prospects, an overall assessment of our management and the consideration
of the above factors in relation to market valuation of companies in related
businesses.
Application has been made to have the shares of Class A common stock
approved for quotation on the Nasdaq National Market under the symbol "DCEL."
FIDELITY CAPITAL MARKETS
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution of information through the internet,
intranet and other proprietary electronic technology.
INDEMNIFICATION
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities related to the offering, including liabilities under the
Securities Act, and to contribute, under defined circumstances, to payments that
the underwriters may be required to make in respect thereof.
STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares of Class A common stock is completed,
rules of the Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase shares of
Class A common stock. As an exception to these rules, the representatives are
permitted to engage in transactions that stabilize the price of shares of
Class A common stock. These transactions may consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares of
Class A common stock.
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<PAGE>
If the underwriters create a short position in the shares of Class A common
stock in connection with the offering (i.e., they sell more shares than are set
forth on the cover page of this prospectus), the representatives may reduce that
short position by purchasing shares of Class A common stock in the open market.
The representatives also may elect to reduce any short position by exercising
all or part of the over-allotment option described herein.
The underwriters have informed us that they will not confirm sales to
discretionary accounts in excess of 5% of the shares of Class A common stock
offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
Class A common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the shares of Class A common stock, they
may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid could have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the shares of Class A common stock. In
addition, neither we nor any of the underwriters makes any representation that
the representatives will engage in these stabilizing transactions or that these
transactions, once commenced, will not be discontinued without notice.
OFFERS AND SALES IN CERTAIN JURISDICTIONS
We are offering to sell, and seeking offers to buy, shares of Class A common
stock only in jurisdictions where offers and sales are permitted.
Any offer of the shares of Class A common stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement (where such an exemption is not
available, offers shalll be made only by a registered dealer) in the relevant
Canadian jurisdiction where any such offer is made.
Each underwriter has represented and agreed that:
- it has not offered or sold and will not offer or sell, in the United
Kingdom by means of any document, any shares of Class A common stock other
than to people whose ordinary business it is to buy, hold, manage or
dispose of investments, whether as principal or agent for purposes of
their business or otherwise in circumstances that do not constitute an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Securities Act of 1986 in relation to the shares of our Class A
common stock;
- it has only issued or passed on, and will only issue and pass on, to any
person in the United Kingdom, a document received by it in connection with
the offering of the shares of our Class A common stock if that person is
of the kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1996, or is a person
to whom the document may otherwise be lawfully issued or passed on.
Purchasers of the shares of Class A common stock offered in this prospectus
may be required to pay stamp taxes and other charges under the laws and
practices of the country of purchase, in addition to the offering price listed
on the cover of this prospectus.
110
<PAGE>
DIRECTED SHARE PROGRAM
At our request, the underwriters have reserved up to 5% of the shares of
Class A common stock offered hereby for sale to certain of our employees,
directors and friends at the initial public offering price set forth on the
cover page of this prospectus. These persons must commit to purchase no later
than the close of business on the day following the effective date of the
registration statement of which this prospectus is a part. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase such reserved shares. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act of 1933 in connection with sales of directed shares.
OTHER COMMERCIAL BANKING AND INVESTMENT BANKING TRANSACTIONS
In the ordinary course of their respective businesses, the underwriters and
their affiliates have engaged, and in the future may engage, in commercial
banking and investment banking transactions with us and our affiliates.
Lehman Brothers Inc. has provided investment banking, financial advisory and
other services to us, for which services Lehman Brothers Inc. has received
customary fees. Lehman has acted for us as follows:
- Lehman Brothers Inc. is acting as our financial advisor in connection with
the pending acquisition of American Cellular;
- Lehman Brothers Inc. is acting as the dealer manager in the tender offer
and consent solicitation for our 11 3/4% senior notes;
- Lehman Brothers Inc. acted as our financial advisor in connection with the
spin-off of our Logix subsidiary;
- Lehman Commercial Paper Inc., an affiliate of Lehman Brothers Inc., is a
lender under our new credit facility and will be a lender under the credit
facility for our joint venture with AT&T Wireless;
- Lehman Brothers Inc. acted as the exclusive initial purchaser in
connection with the sale of our 13% senior preferred stock in May 1999;
- Lehman Brothers Inc. acted as an initial purchaser in connection with the
sale of the Dobson/ Sygnet 12 1/4% senior notes in December 1998; and
- Lehman Commercial Paper Inc. acted as the managing agent in the December
1998 syndication of, and is a lender under, the Dobson/Sygnet credit
facility.
Banc of America Securities LLC has provided commercial and investment
banking services to us, for which services they have received customary fees.
Banc of America Securities LLC has acted for us as follows:
- Banc of America Securities LLC is acting as sole dealer manager in the
tender offer and consent solicitation for American Cellular's 10 1/2%
senior notes;
- Banc of America Securities LLC acted as sole lead arranger for our new
credit facility and will act as the sole lead arranger for the credit
facility for our joint venture with AT&T Wireless and Bank of America,
N.A., an affiliate of Banc of America Securities LLC, is a lender under
our new credit facility and will be a lender under the joint venture's
credit facility;
- Banc of America Securities LLC acted as the sole lead arranger for the
Dobson CC Limited Partnership's credit facilities in December 1999 and
Bank of America, N.A. is a lender under those facilities;
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<PAGE>
- Banc of America Securities LLC acted as the sole lead arranger for the
Dobson CC Limited Partnership's credit facility in October 1999 and Bank
of America, N.A. is a lender under that facility;
- Banc of America Securities LLC acted as the sole lead arranger for our
Logix credit facility in May 1999 and Bank of America, N.A. is a lender
under that facility;
- Banc of America Securities LLC acted as arranging agent for our Dobson
Operating Company and Dobson Cellular Operations Company credit facilities
in December 1998 and Bank of America, N.A. is a lender under those
facilities;
- Banc of America Securities LLC acted as lead arranger for our
Dobson/Sygnet credit facility in December 1998 and Bank of America, N.A.
is a lender under that facility;
- Banc of America Securities LLC acted as lead manager in connection with
the sale of our Dobson/Sygnet 12 1/4% senior notes in December 1998;
- Banc of America Securities LLC acted as sole manager in connection with
the sale of our 12 1/4% senior preferred stock in December 1998;
- Banc of America Securities LLC acted as sole dealer manager in the tender
offer and consent solicitation for Sygnet's 11 1/2% senior notes in
December 1998;
- Banc of America Securities LLC acted as co-manager in connection with the
sale of our Logix 12 1/4% senior notes in June 1998; and
- Banc of America Securities LLC acted as co-manager in connection with the
sale of our 12 1/4% senior preferred stock in January 1998.
In the event the Dobson CC Limited Partnership fails to repay the
outstanding balances under its three credit facilities described above by
specified dates, Bank of America, N.A. may require the partnership to issue it
warrants to purchase shares of our Class A common stock held by the partnership.
In no event will the Dobson CC Limited Partnership issue warrants to Bank of
America, N.A. for the purchase of 10% or more of our outstanding common stock.
In February 1999, Alex. Brown & Sons Incorporated, a predecessor to Deutsche
Bank Securities Inc., acted as a co-manager in connection with the sale of our
11 3/4% senior notes due 2007.
In July 1999 American Cellular engaged Merrill Lynch, Pierce, Fenner & Smith
Incorporated as its financial advisor to assist the company in analyzing,
structuring, negotiating and effecting a proposed business combination between
American Cellular and other interested parties. American Cellular is obligated
to pay customary fees for these services upon the occurrence of certain events
and the consummation of a business combination involving the company. In
addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as a
co-manager in connection with the sale of our 12 1/4% senior preferred stock in
January 1998.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Class A common
stock offered hereby are being passed upon for us by McAfee & Taft A
Professional Corporation, Oklahoma City, Oklahoma. Weil, Gotshal & Manges LLP,
New York, New York, has represented the underwriters in connection with this
offering.
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<PAGE>
EXPERTS
The consolidated balance sheets of Dobson Communications Corporation and its
subsidiaries as of December 31, 1997, December 31, 1998 and September 30, 1999,
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 and
for the nine months ended September 30, 1999 included in this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Ernst & Young LLP, independent auditors, have audited the following
financial statements. We have included these financial statements in this
prospectus in reliance on Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
- The consolidated financial statements of Sygnet Wireless, Inc. for the
years ended December 31, 1996 and December 31, 1997 and for the period
from January 1, 1998 through December 23, 1998.
- The consolidated financial statements of American Cellular Corporation and
subsidiaries at December 31, 1998 and September 30, 1999, and for the
period from February 26, 1998 to December 31, 1998 and the nine months
ended September 30, 1999.
- The consolidated financial statements of PriCellular Corporation and
subsidiaries at December 31, 1997 and June 30, 1998, and for the years
ended December 31, 1996 and December 31, 1997 and for the six months ended
June 30, 1998.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement under the Securities Act with respect
to the sale of the Class A common stock offered by this prospectus.
The registration statement, including the attached exhibits and schedules,
that we filed with the Securities and Exchange Commission contains additional
information about us and our common stock. The rules and regulations of the
Securities and Exchange Commission allow us to omit certain information included
in the registration statement from this prospectus.
In addition, we file reports and other information with the Commission under
the Securities Exchange Act of 1934. You may read and copy this information at
the following locations of the Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. can be obtained by calling the Securities and Exchange
Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, such as us, who file electronically with the Securities and Exchange
Commission. The address of that site is http:\\www.sec.gov.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to give any information or make any representation
about us or this offering that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated into this document. Therefore, if anyone does give you information
of this sort, you should not rely on it. If you are in a jurisdiction where
offers to sell, or solicitations of offers to buy, the securities offered by
this document are unlawful, or if you are a person to whom it is unlawful to
direct these types of activities, then the offer presented in this document does
not extend to you.
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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-3
Consolidated balance sheets as of December 31, 1997 and
1998.................................................... F-4
Consolidated statements of operations for the years ended
December 31, 1996, 1997
and 1998................................................ F-6
Consolidated statements of stockholders' deficit for
the years ended December 31, 1996, 1997 and 1998........ F-8
Consolidated statements of cash flows for the years ended
December 31, 1996, 1997 and 1998........................ F-9
Notes to consolidated financial statements................ F-11
Report of independent public accountants.................. F-31
Consolidated balance sheet as of September 30, 1999....... F-32
Consolidated statements of operations for the nine months
ended September 30, 1998 (unaudited) and 1999........... F-34
Consolidated statement of stockholders' deficit for the
nine months ended September 30, 1999.................... F-35
Consolidated statements of cash flows for the nine months
ended September 30, 1998 (unaudited) and 1999........... F-36
Notes to consolidated financial statements................ F-38
SYGNET WIRELESS, INC.
Report of independent auditors............................ F-55
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-56
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-57
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-58
Notes to consolidated financial statements................ F-59
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
Report of independent auditors............................ F-67
Consolidated balance sheets as of December 31, 1998 and
September 30, 1999...................................... F-68
Consolidated statements of operations for the period from
February 26, 1998 to December 31, 1998 and
September 30, 1998 (unaudited) and for the nine months
ended September 30, 1999................................ F-70
Consolidated statements of stockholders' equity for the
period from February 26, 1998 to December 31, 1998 and
for the nine months ended September 30, 1999............ F-71
Consolidated statements of cash flows for the period from
February 26, 1998 to December 31, 1998 and
September 30, 1998 (unaudited) and for the nine months
ended September 30, 1999................................ F-72
Notes to consolidated financial statements................ F-73
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRICELLULAR CORPORATION AND SUBSIDIARIES (THE PREDECESSOR
COMPANY)
Report of independent auditors............................ F-87
Consolidated balance sheets as of December 31, 1997 and
June 30, 1998........................................... F-88
Consolidated statements of operations for the years ended
December 31, 1996 and 1997 and for the six months ended
June 30, 1998........................................... F-89
Consolidated statements of stockholders' equity for the
years ended December 31, 1996 and 1997 and for the six
months ended June 30, 1998.............................. F-90
Consolidated statements of cash flows for the years ended
December 31, 1996 and 1997 and for the six months ended
June 30, 1998........................................... F-91
Notes to consolidated financial statements................ F-93
</TABLE>
F-2
<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,
December 20, 1999
F-3
<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-4
<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-5
<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-6
<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-7
<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-8
<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-9
<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 interest 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-10
<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
F-11
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION: (CONTINUED)
under the credit facilities during such time period to fund planned capital
expenditures, its ongoing operations or other permissible uses.
The Company's ability to manage future growth will depend upon its ability
to monitor operations, control costs, maintain effective quality controls and
significantly expand the Company's internal management, technical and accounting
systems, all of which will result in higher operating expenses. Any failure to
expand these areas and to implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the growth of the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations.
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.
BUSINESS SEGMENT
The Company operates in one business segment pursuant to Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information."
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.
F-12
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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.
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-13
<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-14
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS
On November 10, 1999, the Company adopted a plan to distribute the stock of
Logix in January 2000, to the Company's Class A common stockholders and Class D
preferred stockholders in a tax free non-pro rata spin-off. The Company will not
recognize a gain on this distribution of Logix stock to its stockholders since
the distribution will be between entities under common control. Estimated
operating losses of Logix from November 10, 1999 to the date of disposition, net
of income tax benefit (currently estimated to be $12.5 million) will be accrued
and expensed as of November 10, 1999.
The Company's distribution of Logix stock to its stockholders may become
taxable to the Company if there is a greater than 50% change in ownership of
Logix within two years of the distribution. This contingent tax liability will
be recognized by the Company only if it becomes probable that such a change in
ownership of Logix will occur.
The wireline segment, or Logix and its subsidiaries, operates as an
integrated communications provider under the LOGIXSM brand name in Oklahoma and
Texas, owns local telephone exchanges in Oklahoma and operates regional fiber
optic transmission networks in Oklahoma, Texas and Colorado. Pursuant to
Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," the
consolidated financial statements have been restated for all periods presented
to reflect the wireline operations, assets and liabilities as discontinued
operations. The assets and liabilities of such operations have been classified
as "Net assets (liabilities) of discontinued operations" on the consolidated
balance sheets and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
($ 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>
F-15
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS (CONTINUED)
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 in accounting
principle, net................................ -- -- (699)
Income from discontinued operations............. 331 332 (27,110)
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Newly constructed
cellular systems are added to property, plant and equipment at cost which
includes contracted services, direct labor, materials overhead and any
capitalized interest. For the years ended December 31, 1996, 1997 and 1998,
interest capitalized was not material. Existing property, plant and equipment
purchased through acquisitions is recorded at its fair value at the date of the
purchase. Repairs, minor replacements and maintenance are charged to operations
as incurred. The provisions for depreciation are provided using the
straight-line method based on the estimated useful lives of the various classes
of depreciable property.
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.
F-16
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE:
On December 23, 1998, the Company's subsidiary, Dobson Tower Company,
obtained a $17,500,000 term loan maturing on December 22, 1999. Interest on the
term loan accrues at 8.0%. Proceeds were used to finance the Sygnet Acquisition
discussed in Note 9. The term loan is secured by all assets of Dobson Tower
Company.
6. LONG-TERM DEBT:
The Company's long-term debt as of December 31, 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>
INTEREST RATE
AMOUNT (WEIGHTED AVERAGE
OUTSTANDING AT RATE AT
MAXIMUM DECEMBER 31, DECEMBER 31,
CREDIT FACILITY AVAILABILITY 1998 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-17
<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
F-18
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Credit Facility to finance capital expenditures, consummate future acquisitions
and fund general corporate operations. The facilities will terminate in 2006.
The Dobson/Sygnet Credit Facilities, the DCOC Credit Facility and the DOC
Credit Facility require the Company to maintain certain financial ratios. The
failure to maintain such ratios would constitute an event of default,
notwithstanding the Company's ability to meet its debt service obligations.
In connection with the closing of the DOC Credit Facility, the Company
extinguished its 1997 Credit Facility and recognized a pretax loss of
approximately $3.3 million as a result of writing off previously capitalized
financing costs associated with the revolving credit facility. Such amount is
included in the Company's consolidated statement of operations, net of tax, for
the year ended December 31, 1998 as an extraordinary expense.
On February 28, 1997, the Company amended and restated its existing bank
credit agreement ("1996 Credit Facility") and established the 1997 Credit
Facility. In connection with the closing of the 1997 Credit 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
F-19
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
the principal amount of the DCC Senior Notes at 111.750% with proceeds from
equity offerings, provided that after any such redemption at least $104 million
remains outstanding.
OTHER NOTES PAYABLE
Other notes payable represents the amount financed with the United States
Government for nine PCS licenses as discussed in Note 9.
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. Any cash settlements from the Company's interest
rate hedges are treated as adjustments to interest expense and are shown as
operating activities in the statement of cash flows. There have been no cash
settlements from interest rate hedges as of December 31, 1998.
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-20
<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
- --------------------- ---------------- ----------- ----------- --------- ------------------ -----------
<S> <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
Additional Preferred Stock 184,000 64,646 $ 1.00 12.25% Cumulative $ 1,000
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
Class E Preferred Stock 405,000 -- $ 1.00 15% Cumulative $1,131.92
Class F Preferred Stock 205,000 30,000 $ 1.00 16% Cumulative $ 1,000
Class G Preferred Stock 62,000 37,853 $ 1.00 16% Cumulative $ 660.40
Class H Preferred Stock 62,000 -- $ 1.00 16% Cumulative $ 660.45
Other Preferred Stock 397,000 -- $ 1.00 -- --
--------- -------
2,500,000 713,199
<CAPTION>
OTHER
FEATURES,
RIGHTS,
PREFERENCES
CLASS REDEMPTION DATE AND POWERS
- --------------------- ---------------- ------------
<S> <C> <C>
Class A -- Voting
Class B -- Non-voting
Class C -- Non-voting
Senior
Exchangeable Jan. 15, 2008 Non-voting
Additional Jan. 15, 2008 Non-voting
Class A -- Non-voting
Class B -- Voting,
Convertible
Class C -- Non-voting
Class D after Convertible
Dec. 23, 2010
Class E after Non-voting
Dec. 23, 2010
Class F Dec. 31, 2010 Non-voting
Class G 90 days after an Non- voting,
initial public convertible
offering
Class H after Non-voting
Dec. 23, 2010
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
F-21
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' DEFICIT: (CONTINUED)
Holdings. The holders of the Class C common stock received 100,000 shares of
Class A preferred stock of Dobson Holdings. In addition, Dobson Holdings assumed
all DCC outstanding stock options, substituting shares of Dobson Holdings
Class B common stock for the stock subject to options. As a result, Dobson
Holdings is the parent company of DCC.
As part of the reorganization, the stock of certain subsidiaries was
distributed to Dobson Holdings so that DCC is the holding company for the
wireline and cellular subsidiaries. Additionally, DCC changed its corporate name
to DOC and Dobson Holdings changed its corporate name to DCC.
On March 19, 1996, the Company redeemed all of the shares of the Class A
Preferred for $5,913,000, which is reflected in the accompanying consolidated
statement of cash flows for the year ended December 31, 1996.
In conjunction with the execution of the amended and restated revolving
credit facility on March 19, 1996, as described in Note 6, the Company canceled
its then outstanding Class A and Class B common stock and authorized the capital
structure of the Company to consist of 1,000,000 shares of Class A voting common
stock, $1 par value per share, 31,000 shares of Class B common stock, $1 par
value per share, 59,130 shares of 10% cumulative, compounded, convertible,
redeemable Class A preferred stock, $100 par value per share, and 100,000 shares
of Class B convertible preferred stock ("Class B Preferred"), $1 par value per
share, 8% dividend that accrues on a daily basis. On the same date, the Company
issued 100,000 shares of Class B Preferred. The net proceeds from the issuance
of the Class B Preferred was approximately $9,400,000. In addition, the Company
issued 473,152 shares of Class A voting common stock to the holders of the
original Class A common stock. On November 15, 1996, the Company amended its
certificate of incorporation to eliminate Class A Preferred from its authorized
capital stock.
Holders of Class B Preferred are entitled to cumulative dividends as and
when declared by the board of directors of the Company and a liquidation
preference over the other classes of capital stock. The Class B Preferred
stockholders are also entitled to a dividend equal to the amount they would have
received had the Preferred Stock been converted into Class A common stock. Each
share of Class B Preferred is convertible into Class A common stock initially at
a ratio of one to one. Each share of Class B Preferred has voting rights
equivalent to Class A common stock, at a rate equal to the number of Class A
common shares into which the share of Class B Preferred is convertible at the
record date of such vote. In addition, the Class B Preferred stockholders have
the right, as a class, to elect two members of the board of directors of the
Company.
In February 1997, a $7.5 million dividend was paid on the Class A Common
Stock. As a result of the $7.5 million dividend, holders of Class B Preferred
were entitled to a "Make-Whole Dividend" of approximately $1.6 million. In lieu
of such Make-Whole Dividend, the holders of Class B Preferred received 100,000
shares of Class C Preferred Stock having a liquidation preference of $1,623,329.
9. ACQUISITIONS:
On February 28, 1997, the Company purchased the FCC cellular licenses for,
and certain assets relating to two MSAs and two RSAs located in Maryland and
Pennsylvania for $77.6 million. The properties are located immediately outside
the Washington/Baltimore metropolitan area.
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-22
<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 to Texas 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 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.
F-23
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS: (CONTINUED)
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, 1996, 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.
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
F-24
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
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-$150 -- --
------ --------- ----- ---------
</TABLE>
The following schedule shows the Company's net loss and net loss per share
for the last three years, had compensation expense been determined consistent
with the Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. The pro forma information presented below is based on
several assumptions and should not be viewed as indicative of the Company in
future periods.
<TABLE>
<CAPTION>
($ 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>
F-25
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
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>
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>
F-26
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TAXES: (CONTINUED)
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.
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
F-27
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS: (CONTINUED)
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.
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>
16. SUBSEQUENT EVENTS:
On March 16, 1999, the Company purchased certain assets and customers
relating to the Ohio 2 RSA for $3.9 million. This completes the acquisition of
the Ohio 2 market, which began on
F-28
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS: (CONTINUED)
September 2, 1998, when the Company acquired the FCC license of Ohio 2 RSA for
$39.3 million. Ohio 2 is located in north central Ohio and covers an estimated
population base of 262,300.
On June 24, 1999, the Company's wholly-owned subsidiary, Dobson Cellular of
Maryland, purchased the Maryland 1 RSA for $9.1 million. Maryland 1 is located
in the westernmost county of the state and a small section of West Virginia and
covers an estimated population base of 56,400.
On September 15, 1999, the Company purchased Arizona 1 RSA for
$24.0 million. Arizona 1 is located in the Northwest corner of the state and
covers an estimated population base of 135,000 as of September 30, 1999.
In October 1999, the Company entered into a memorandum of understanding with
AT&T Wireless, Inc. to establish an equally-owned joint venture that will
acquire, own and operate American Cellular Corporation. Management estimates
that the aggregate acquisition price for American Cellular Corporation will be
approximately $2.4 billion, including fees and expenses.
The Company plans to fund its share of the acquisition with non-recourse
bank debt at the joint venture level and cash contributions to the joint venture
of up to approximately $372.5 million each from the two partners. The Company
expects to raise its share of the cash contribution through the issuance of
additional equity securities. The acquisition is expected to close in the first
quarter of 2000.
In October 1999, Dobson Tower Company, a subsidiary of the Company,
completed the sale of substantially all of the towers acquired by Dobson Tower
Company in the Sygnet acquisition to American Tower Corporation for
approximately $38.7 million. In connection with the sale, another subsidiary of
the Company, Sygnet Communications, Inc. has agreed to lease the towers back
from American Tower Corporation for an initial term of ten years.
The Company has entered into definitive agreements to acquire four cellular
systems for an aggregate purchase price of approximately $159.0 million. These
acquisitions will be financed with borrowings under the Company's credit
facilities and are expected to close during the first quarter of 2000.
On December 14, 1999, the Company launched a tender offer for all of its
11 3/4% senior notes at a price of 117%. This offer will expire on January 14,
2000. Any premium paid for the tender of these senior notes will be recorded as
an extraordinary loss in the first quarter of 2000.
Management of the Company intends to complete a recapitalization of the
Company immediately prior to the closing of its planned initial public offering
of common stock in the first quarter of 2000. This recapitalization will
include:
- the conversion of outstanding pre-recapitalization Class D preferred stock
into one share of old Class A common stock and one share of Class E
preferred stock;
- the redemption of Class E preferred stock with cash and the issuance of
new Class A common stock;
- the conversion of old Class A common stock into Class B common stock;
- the retirement of 81,198 shares of old Class A common stock held as
treasury stock;
- the creation of the Class A common stock to be issued in the planned
initial public offering;
- a 111.44 for 1 stock split of new Class B common stock;
F-29
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS: (CONTINUED)
- the retirement of each share of outstanding pre-capitalization Class A
preferred stock, which is owned by one of the Company's subsidiaries;
- the creation of a new Class D common stock to be issued to option holders
under the Company's amended 1996 stock option plan;
- the amendment of the 1996 stock option plan to permit the issuance of
options exercisable into Class D common stock; and
- the conversion of outstanding options exercisable into old Class B common
stock into options exercisable into Class D common stock.
The pre-capitalization Class D preferred stock will be retired immediately
following its conversion to old Class A common stock and Class E preferred
stock. Management of the Company plans to redeem the Class E preferred stock
with the proceeds from its offering. The Class E preferred stock will be retired
immediately following its redemption. Upon completion of this offering and the
planned use of the proceeds therefrom, the Company would have outstanding only
Class A common stock, Class B common stock, 12 1/4% senior preferred stock and
13% senior preferred stock.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Dobson Communications Corporation:
We have audited the accompanying consolidated balance sheet of Dobson
Communications Corporation (an Oklahoma corporation) and subsidiaries as of
September 30, 1999, and the related consolidated statements of operations,
stockholders' deficit and cash flows for the nine months then ended. 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dobson
Communications Corporation and subsidiaries as of September 30, 1999, and the
results of their operations and their cash flows for the nine months then ended,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
December 20, 1999
F-31
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 339,308
Accounts receivable-
Due from customers, net of allowance for doubtful
accounts of $1,527,105.................................. 54,340,677
Restricted cash and investments........................... 23,136,174
Inventory................................................. 6,615,531
Prepaid expenses and other................................ 2,073,273
Deferred income taxes..................................... 1,206,000
--------------
Total current assets.................................. 87,710,963
--------------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 187,291,097
--------------
OTHER ASSETS:
Receivables--Affiliates................................... 815,070
Notes receivable--Affiliates.............................. 7,384,910
Restricted investments.................................... 34,635,000
Cellular license acquisition costs, net of accumulated
amortization of $110,186,947............................ 1,227,578,926
Deferred financing costs, net of accumulated amortization
of $8,125,421........................................... 69,017,136
Other intangibles, net of accumulated amortization of
$10,069,890............................................. 48,138,723
Investments in unconsolidated subsidiaries and other...... 3,810,895
--------------
Total other assets.................................... 1,391,380,660
--------------
Total assets.......................................... $1,666,382,720
==============
</TABLE>
F-32
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 30,938,111
Accrued expenses.......................................... 25,031,370
Note payable.............................................. 17,500,000
Deferred revenue and customer deposits.................... 7,268,293
Current portion of long-term debt......................... 2,113,960
Accrued dividends payable................................. 21,622,406
--------------
Total current liabilities............................. 104,474,140
--------------
Net liabilities of discontinued operations.................. 48,844,403
Long-term debt, net of current portion...................... 1,039,843,580
Deferred tax liabilities.................................... 216,563,000
Minority interests.......................................... 27,109,750
Commitments (Note 14)
Senior exchangeable preferred stock, net.................... 440,797,350
Class D convertible preferred stock......................... 85,000,000
STOCKHOLDERS' DEFICIT:
Class A Preferred Stock................................... 314,286
Class A Common Stock, $.001 par value, 1,438,000 shares
authorized, 573,152 issued and 491,954 outstanding...... 573
Paid-in capital........................................... 18,298,072
Retained deficit.......................................... (258,736,773)
--------------
(240,123,842)
--------------
Less--
Class A Common Stock held in treasury (81,198 shares), at
cost.................................................... (56,125,661)
--------------
Total stockholders' deficit........................... (296,249,503)
--------------
Total liabilities and stockholders' deficit........... $1,666,382,720
==============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-33
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Service revenue........................................... $ 47,769,305 $ 117,891,735
Roaming revenue........................................... 45,916,023 107,295,804
Equipment revenue and other............................... 2,660,727 9,952,331
------------ -------------
Total operating revenues................................ 96,346,055 235,139,870
------------ -------------
OPERATING EXPENSES:
Cost of service........................................... 22,603,067 35,762,477
Cost of equipment......................................... 5,166,528 18,561,827
Marketing and selling..................................... 14,855,588 34,957,280
General and administrative................................ 16,219,389 40,795,364
Depreciation and amortization............................. 29,713,544 100,019,510
------------ -------------
Total operating expenses................................ 88,558,116 230,096,458
------------ -------------
OPERATING INCOME............................................ 7,787,939 5,043,412
INTEREST EXPENSE............................................ (25,039,213) (82,364,725)
OTHER INCOME, net........................................... 3,303,914 3,411,347
------------ -------------
LOSS BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES,
INCOME TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEMS..................................................... (13,947,360) (73,909,966)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES................ (1,963,308) (2,124,884)
------------ -------------
LOSS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEMS....................................... (15,910,668) (76,034,850)
INCOME TAX BENEFIT.......................................... 4,864,070 28,891,955
------------ -------------
LOSS FROM CONTINUING OPERATIONS............................. (11,046,598) (47,142,895)
LOSS FROM DISCONTINUED OPERATIONS, net of income tax benefit
of $7,267,566 and $25,626,241 in 1998 and 1999,
respectively.............................................. (17,184,832) (41,811,237)
------------ -------------
LOSS BEFORE EXTRAORDINARY ITEMS............................. (28,231,430) (88,954,132)
EXTRAORDINARY EXPENSE, net of income tax benefit of $671,000
in 1998................................................... (2,643,439) --
------------ -------------
NET LOSS.................................................... (30,874,869) (88,954,132)
DIVIDENDS ON PREFERRED STOCK................................ (16,748,786) (50,512,778)
------------ -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.................. $(47,623,655) $(139,466,910)
============ =============
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE:
Before discontinued operations and extraordinary
expense................................................. $ (58.74) $ (198.51)
Discontinued operations................................... (36.32) (84.99)
Extraordinary expense..................................... (5.59) --
------------ -------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER COMMON
SHARE..................................................... $ (100.65) $ (283.50)
============ =============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 473,152 491,954
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CLASS A CLASS A
PREFERRED STOCK COMMON STOCK TREASURY
------------------- ------------------- PAID-IN STOCK, AT RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL COST DEFICIT
-------- -------- -------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998........ 314,286 $314,286 573,152 $573 $18,298,072 $(56,125,661) $(119,269,863)
Net loss............... -- -- -- -- -- -- (88,954,132)
Preferred stock
dividend............. -- -- -- -- -- -- (50,512,778)
------- -------- ------- ---- ----------- ------------ -------------
SEPTEMBER 30, 1999....... 314,286 $314,286 573,152 $573 $18,298,072 $(56,125,661) $(258,736,773)
======= ======== ======= ==== =========== ============ =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-35
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations....................... $ (11,046,598) $(47,142,895)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization......................... 29,713,544 100,019,510
Amortization of bond premium and financing cost....... 1,398,277 4,871,321
Deferred income taxes and investment tax credits,
net................................................. (8,053,765) (28,869,000)
Minority interests in income of subsidiaries.......... 2,068,627 2,124,884
Interest on restricted investments.................... (1,130,925) (2,772,314)
Other................................................. 20,395 99,850
Changes in current assets and liabilities-
Accounts receivable..................................... (10,306,742) (11,041,109)
Inventory............................................... (871,752) (1,457,019)
Prepaid expenses and other.............................. 801,766 (46,735)
Accounts payable........................................ 4,884,350 (16,598,561)
Accrued expenses........................................ 1,500,999 10,809,064
Deferred revenue and customer deposits.................. 1,279,125 1,529,912
------------- ------------
Net cash provided by operating activities........... 10,257,301 11,526,908
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (23,792,922) (40,173,598)
Acquisitions.............................................. (200,790,589) (46,437,966)
Decrease in payable--Affiliates........................... -- (5,011,438)
Increase in receivables--Affiliates....................... (10,056,711) (924,718)
Acquisition escrow deposit................................ (57,150,000) --
Investments in unconsolidated subsidiaries and other...... (1,425,418) (857,992)
Proceeds from the sale of assets.......................... 6,700 25,259
------------- ------------
Net cash used in investing activities............... (293,208,940) (93,380,453)
------------- ------------
</TABLE>
F-36
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. $284,000,000 $ 79,000,000
Repayments of long-term debt.............................. (171,424,854) (141,098,664)
Cash dividends............................................ -- (3,471,621)
Issuance of preferred stock............................... 175,000,000 170,000,000
Redemption of preferred stock............................. -- (55,000,000)
Purchase of restricted investments........................ 810,012 --
Maturities of restricted investments...................... 9,400,000 19,134,000
Deferred financing costs.................................. (12,544,874) (8,694,596)
------------ -------------
Net cash provided by financing activities............... 285,240,284 59,869,119
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 2,288,645 (21,984,426)
CASH AND CASH EQUIVALENTS, beginning of year................ 2,752,399 22,323,734
------------ -------------
CASH AND CASH EQUIVALENTS, end of year...................... $ 5,041,044 $ 339,308
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest (net of amounts capitalized)................... $ 19,817,872 $ 71,506,299
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Stock dividend paid through the issuance of preferred
stock................................................... $ 28,308,000 $ 10,513,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<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 wireless telephone services.
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 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
wireless telecommunications service. However, in several of its markets, the
Company holds less than 100% of the equity ownership. The minority stockholders'
and partners' shares of income or losses in those markets are reflected in the
consolidated statements of operations as "minority interests in income of
subsidiaries." For financial reporting purposes, the Company consolidates each
subsidiary and partnership in which it has a controlling interest (greater than
50%). Significant intercompany accounts and transactions have been eliminated.
Investments in unconsolidated partnerships where the Company does not have a
controlling interest are accounted for under the equity method.
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. The books and
records of these partnerships are also maintained by the Company.
BUSINESS SEGMENTS
The Company operates in one business segment pursuant to Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information."
F-38
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents on the accompanying consolidated balance sheet
includes cash and short-term investments with original maturities of three
months or less.
INVENTORY
The Company values its inventory at the lower of cost or market on the
first-in, first-out method of accounting.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses potential impairments of long-lived assets, certain
identifiable intangibles and goodwill when there is evidence that events or
changes in circumstances indicate that an asset's carrying value may not be
recoverable. An impairment loss is recognized when the sum of the expected
future net cash flows is less than the carrying amount of the asset. The amount
of any recognized impairment would be based on the estimated fair value of the
asset subject to impairment compared to the carrying amount of such asset. No
such losses have been identified by the Company.
CELLULAR LICENSE ACQUISITION COSTS
Cellular license acquisition costs consist of amounts paid to acquire FCC
licenses to provide cellular services. Cellular license acquisition costs are
being amortized on a straight-line basis over ten to fifteen years. Amortization
expense of $19,642,000 (unaudited) and $66,206,738 was recorded in the nine
months ended September 30, 1998 and 1999, 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 FINANCING COSTS
Deferred financing costs consist of fees incurred to secure long-term debt.
Deferred financing costs are being amortized on a straight-line basis over the
terms of the debt. Amortization expense related to these costs of $805,558
(unaudited) and $4,773,465 was recorded in the nine months ended September 30,
1998 and 1999, 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 $765,996
(unaudited) and $7,998,843 was recorded in the nine months ended September 30,
1998 and 1999, respectively.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included as marketing and
selling expenses in the accompanying consolidated statements of operations.
F-39
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company files a consolidated income tax return. Income taxes are
allocated among the various entities included in the consolidated tax return, as
agreed, based on the ratio of each entity's taxable income (loss) to
consolidated taxable income (loss). Deferred income taxes reflect the estimated
future tax effects of differences between financial statement and tax bases of
assets and liabilities at year-end.
REVENUE RECOGNITION
The Company records service revenues over the period they are earned. The
cost of providing service is recognized as incurred.
Airtime and toll revenue is billed in arrears. The Company accrued estimated
unbilled revenues for services provided of approximately $3,445,000 as of
September 30, 1999, which are included in accounts receivable in the
accompanying consolidated balance sheet. Monthly access charges are billed in
advance and are reflected as deferred revenue on the accompanying consolidated
balance sheet. 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.
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
65% and 63% of the Company's cellular roaming revenue was earned from three
cellular carriers during the nine months ended September 30, 1998 and 1999,
respectively.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements for the nine
months ended September 30, 1998, have been prepared in accordance with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
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
F-40
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. Under SFAS 133, the Company would
record an asset of $0.3 million relating to an interest rate hedge valuation at
September 30, 1999. In June 1999, the Financial Accounting Standards Board
issued SFAS No. 137 which amended SFAS 133 by deferring the effective date to
fiscal years beginning after June 15, 2000. The Company has not determined the
timing or method of adoption of SFAS 133.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously presented 1998
balances to conform them to the 1999 presentation.
3. DISCONTINUED OPERATIONS
On November 10, 1999, the Company adopted a plan to distribute the stock of
Logix in January 2000, to the Company's Class A common stockholders and Class D
preferred stockholders in a tax free non-pro rata spin-off. The Company will not
recognize a gain on this distribution of Logix stock to its stockholders since
the distribution will be between entities under common control. Estimated
operating losses of Logix from November 10, 1999 to the date of disposition, net
of income tax benefit (currently estimated to be $12.5 million) will be accrued
and expensed as of November 10, 1999.
The Company's distribution of Logix stock to its stockholders may become
taxable to the Company if there is a greater than 50% change in ownership of
Logix within two years of the distribution. This contingent tax liability will
be recognized by the Company only if it becomes probable that such a change in
ownership of Logix will occur.
The wireline segment, or Logix and its subsidiaries, operates as an
integrated communications provider under the LOGIX(SM) 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
F-41
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS (CONTINUED)
(liabilities) of discontinued operations" on the condensed consolidated balance
sheets and consist of the following as of September 30, 1999 (dollars in
thousands):
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 2,539
Restricted investments--current............................. 40,186
Other current assets........................................ 25,826
Property, plant and equipment, net.......................... 115,469
Restricted investments--non-current......................... 41,382
Goodwill.................................................... 125,386
Other assets................................................ 60,399
--------
Total assets.............................................. 411,187
Current liabilities......................................... 39,759
Long-term debt, net of current portion...................... 420,162
Other liabilities........................................... 110
--------
Total liabilities......................................... 460,031
--------
Net liabilities of discontinued operations.................. $(48,844)
========
</TABLE>
The net loss from operations of the wireline segment was classified on the
consolidated statements of operations as "Loss from discontinued operations."
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
----------- --------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
Net revenues........................................... $ 40,176 $ 85,359
Loss before income taxes............................... (23,753) (67,437)
Income tax benefit..................................... 7,268 25,626
Cumulative effect of change in accounting principle.... (699) --
Loss from discontinued operations...................... (17,184) (41,811)
</TABLE>
The Company initially reflected the spin-off of Logix as discontinued
operations in its September 30, 1998 financial statements and continued this
treatment through September 30, 1999. In retrospect, this presentation was
premature as the Company did not meet all the criteria for discontinued
operations treatment as provided for in APB No. 30 until the fourth quarter of
1999. If the Logix spin-off had not been accounted for as discontinued
operations, the loss from continuing operations before extraordinary items would
have been as follows:
<TABLE>
<S> <C> <C>
Nine Months Ended September 30, 1998................. $(28,231,430)
Year Ended December 31, 1998......................... $(50,395,307)
Three Months Ended March 31, 1999.................... $(33,744,791)
Six Months Ended June 30, 1999....................... $(63,213,877)
Nine Months Ended September 30, 1999................. $(88,954,132)
</TABLE>
F-42
<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 capitalized
interest. For the nine months ended September 30, 1999, interest capitalized was
not material. Existing property, plant and equipment purchased through
acquisitions is recorded at its fair value at the date of the purchase. Repairs,
minor replacements and maintenance are charged to operations as incurred. The
provisions for depreciation are provided using the straight-line method based on
the estimated useful lives of the various classes of depreciable property.
Listed below are the major classes of property, plant and equipment and
their estimated useful lives, in years, as of September 30, 1999:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C> <C>
Wireless systems and equipment...................... 2 - 10 $178,848,900
Buildings and improvements.......................... 5 - 40 26,386,951
Furniture and office equipment...................... 5 - 10 14,726,642
Vehicles, aircraft and other work equipment......... 3 - 10 3,355,878
Plant under construction............................ 10,588,900
Land................................................ 2,785,568
------------
Property, plant and equipment..................... 236,692,839
Accumulated depreciation............................ 49,401,742
------------
Property, plant and equipment, net................ $187,291,097
============
</TABLE>
5. NOTE 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. Subsequent to September 30, 1999, the Company completed the sale of
substantially all of the towers and repaid this note payable in its entirety as
discussed in Note 16.
6. LONG-TERM DEBT:
The Company's long-term debt as of September 30, 1999, consisted of the
following:
<TABLE>
<S> <C>
Revolving credit facilities................................. $ 678,000,000
DCC Senior Notes............................................ 160,000,000
Dobson/Sygnet Senior Notes.................................. 200,000,000
Other notes payable......................................... 3,957,540
--------------
Total debt................................................ 1,041,957,540
Less--Current maturities.................................... (2,113,960)
--------------
Total long-term debt...................................... $1,039,843,580
==============
</TABLE>
F-43
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
REVOLVING CREDIT FACILITIES
The Company's revolving credit facilities consist of the following:
<TABLE>
<CAPTION>
AMOUNT INTEREST RATE
MAXIMUM OUTSTANDING AT (WEIGHTED AVERAGE RATE AT
CREDIT FACILITY AVAILABILITY SEPTEMBER 30, 1999 SEPTEMBER 30, 1999)
- --------------- ------------ ------------------ -------------------------
<S> <C> <C> <C>
Dobson/Sygnet Credit Facility............. $430,000,000 $406,000,000 8.7%(1)
DCOC Credit Facility...................... 160,000,000 133,000,000 6.5%
DOC Credit Facility....................... 250,000,000 139,000,000 7.0%
</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 financing pursuant to senior secured credit facilities
("Dobson/Sygnet Credit Facility") 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.
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>
F-44
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
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
$250.0 million senior secured credit facility (the "DOC Credit Facility"). On
May 10, 1999, the commitment level and outstanding borrowings on the DCOC Credit
Facility were reduced from the established amount of $200.0 million to
$100.0 million. Subsequently, on July 2, 1999, the Company's lenders increased
the DCOC credit facility commitment level from $100.0 million to
$160.0 million. Although the commitment levels have changed, the obligations
under the DCOC Credit Facility remain secured by all current and future assets
of DCOC. In addition, the DOC Credit Facility remains 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 Bank 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 Dobson/Sygnet Credit Facility, the DCOC Credit Facility and the DOC
Credit Facility requires the Company to maintain certain financial ratios. The
failure to maintain such ratios would constitute an event of default,
notwithstanding the Company's ability to meet its debt service obligations.
The Company has received a commitment from Bank of America, N.A. and its
affiliate, Banc of America Securities LLC, on behalf of a group of banks, to
provide the Company with an $800.0 million credit facility, the proceeds of
which will be used primarily to consolidate the indebtedness of the DCOC and DOC
Credit Facilities, to pay the cash portion of certain of its pending
acquisitions and to fund the Company's expected repurchase of its outstanding
$160.0 million principal amount of 11 3/4% DCC Senior Notes due 2007. This new
credit facility will include a $300.0 million revolving credit facility and a
$500.0 million term loan facility, both of which will mature in 2007.
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 nine months ended September 30, 1998, as an extraordinary expense.
SENIOR NOTES
On December 23, 1998, the Company's subsidiary issued $200.0 million of
12.25% Senior Notes maturing in 2008 ("Dobson/Sygnet Senior Notes"). The net
proceeds were used to finance the Sygnet Acquisition described above and to
purchase 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
F-45
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
balance sheet. 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 $130.0 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 above 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 sheet. The DCC Senior Notes are redeemable at the option of the Company
in whole or in part, on or after April 15, 2002, initially at 105.875%. Prior to
April 15, 2000, the Company may redeem up to 35% of the principal amount of the
DCC Senior Notes at 111.750% with proceeds from equity offerings, provided that
after any such redemption at least $104 million remains outstanding.
OTHER NOTES PAYABLE
Other notes payable represents the amount financed with the United States
Government for nine PCS licenses as discussed in Note 9.
Minimum future payments of long-term debt for the years subsequent to
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
- -------------
<S> <C>
2000........................................................ $ 2,160,317
2001........................................................ 21,499,070
2002........................................................ 14,714,502
2003........................................................ 25,244,221
2004........................................................ 39,838,341
2005 and thereafter......................................... 938,501,089
--------------
$1,041,957,540
==============
</TABLE>
INTEREST RATE HEDGES
In March 1999, the Company 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 approximately 5.48% plus a
factor used on our leverage (approximately 8.76% at September 30, 1999). The
term of the interest rate swap is 24 months. In June 1999, the Company entered
into an interest rate cap agreement terminating on June 14, 2001. The cap
agreement minimizes the Company's interest rate exposure by setting a maximum
rate of 7.50% plus a factor used on our leverage (approximately 8.88% at
September 30, 1999) for $160 million of its indebtedness. Any cash settlements
from the Company's interest rate hedges are treated as adjustments to interest
expense and are shown as operating activities in the statements of cash flows.
There have been no cash settlements from interest rate hedges as of
September 30, 1999.
F-46
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RESTRICTED CASH AND INVESTMENTS:
Restricted cash and investments consist of interest pledge deposits for the
Dobson/Sygnet Senior Notes. The Dobson/Sygnet Senior Notes interest pledge
deposit of approximately $57.8 million includes the initial deposit of
approximately $67.7 million, net of interest earned, and payments issued to
bondholders. Amortization expense of $237,737 (unaudited) and $604,407 was
recorded for the nine months ended September 30, 1998 and 1999, respectively,
for bond premiums recorded with the purchase of the restricted investments. At
September 30, 1999, the carrying value of these investments exceeded the market
value by approximately $639,300.
8. STOCKHOLDERS' DEFICIT:
As of September 30, 1999, the Company's authorized and issued capital stock
is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
# OF SHARES # OF SHARES PAR VALUE PREFERENCE
CLASS TYPE AUTHORIZED ISSUED PER SHARE DIVIDENDS PER SHARE
- --------------------- ---------------- ----------- ----------- --------- ------------------ -----------
<S> <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 550,000 209,647 $ 1.00 12.25% Cumulative $ 1,000
Additional Preferred Stock 184,000 69,225 $ 1.00 12.25% Cumulative $ 1,000
Senior
Exchangeable Preferred Stock 500,000 175,402 $ 1.00 13% Cumulative $ 1,000
Class A Preferred Stock 450,000 314,286 $ 1.00 5% Non-cumulative $ 70
Class D Preferred Stock 85,000 75,094 $ 1.00 15% Cumulative $1,131.92
Class E Preferred Stock 405,000 -- $ 1.00 15% Cumulative $1,131.92
Other Preferred Stock 497,000 -- $ 1.00 -- --
--------- -------
2,671,000 843,654
========= =======
<CAPTION>
OTHER
FEATURES,
RIGHTS,
PREFERENCES
CLASS REDEMPTION DATE AND POWERS
- --------------------- ---------------- ------------
<S> <C> <C>
Class A -- Voting
Class B -- Non-voting
Class C -- Non-voting
Senior
Exchangeable Jan. 15, 2008 Non-voting
Additional Jan. 15, 2008 Non-voting
Senior
Exchangeable May 1, 2009 Non-voting
Class A -- Non-voting
after
Class D Dec. 23, 2010 Convertible
after
Class E Dec. 23, 2010 Non-voting
Other -- --
</TABLE>
In May 1999, the Company issued 170,000 shares of 13% senior exchangeable
preferred stock manditorily redeemable in 2009 for $1,000 per share. The net
proceeds from the private offering of the preferred stock were used to redeem
the outstanding shares of the Company's Class F and Class G Preferred Stock, to
reduce bank debt at DCOC and for general corporate purposes, including
acquisitions. Holders of the preferred stock are entitled to cumulative
quarterly dividends from the date of issuance and a liquidation preference of
$1,000 per share with rights over the other classes of capital stock and equal
to the 12.25% Senior Exchangeable Preferred Stock. On or before May 1, 2004, the
Company may pay dividends, at its option, in cash or in additional shares having
an aggregate liquidation preference equal to the amount of such dividends.
Additionally, the preferred stock is redeemable at the option of the Company on
or after May 1, 2004. Holders of the preferred stock have no voting rights.
F-47
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' DEFICIT: (CONTINUED)
Through September 30, 1999, the Company issued cumulative quarterly
dividends in the form of 39,226 and 5,402 additional shares of 12.25% and 13.00%
Senior Exchangeable preferred stock, respectively (resulting in a total
liquidation preference of $286.3 million and $179.1 million, respectively, as of
September 30, 1999) which represented non-cash financing activity, and thus are
not included in the accompanying consolidated statements of cash flows.
9. ACQUISITIONS:
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet acquired
Sygnet Wireless, Inc. for $337.5 million, subject to adjustment. The Sygnet
markets include cellular systems in Ohio, Pennsylvania and New York covering an
estimated population base of 2.4 million people.
On March 16, 1999, the Company purchased certain assets and customers
relating to the Ohio 2 RSA for $3.9 million. This completes the acquisition of
the Ohio 2 market, which began on September 2, 1998, when the Company acquired
the FCC license of Ohio 2 RSA for $39.3 million. Ohio 2 is located in north
central Ohio and covers an estimated population base of 262,300.
On June 24, 1999, the Company's wholly-owned subsidiary, Dobson Cellular of
Maryland, purchased the Maryland 1 RSA for $9.1 million. Maryland 1 is located
in the westernmost county of the state and a small section of West Virginia and
covers an estimated population base of 56,400.
On September 15, 1999, the Company purchased Arizona 1 RSA for $24 million.
Arizona 1 is located in the Northwest corner of the state and covers an
estimated population base of 135,000 as of September 30, 1999.
The acquisition transactions were accounted for as purchases and,
accordingly, their results of operations have been included in the accompanying
consolidated statements of operations from the respective dates of acquisition.
The unaudited pro forma information set forth below includes all acquisitions
for the period from January 1, 1998 through September 30, 1999, as if the
purchases occurred at the beginning of each period presented. The unaudited pro
forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the acquisitions been consummated at that time:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
------------ ---------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Operating revenue...................................... $200,738 $245,421
Loss before discontinued operations and extraordinary
items................................................ (71,094) (46,742)
Net loss............................................... (117,272) (93,356)
Net loss applicable to common stockholders............. (140,792) (143,869)
Basic net loss applicable to common stockholders per
common share......................................... $(286.19) $(292.44)
</TABLE>
F-48
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS: (CONTINUED)
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, which began in 1999.
Subsequent to September 30, 1999, the Company entered into a definitive
agreement to sell our nine PCS licenses for $1.1 million plus the assumption of
these notes payable.
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
$193,000 (unaudited) and $619,000 for the nine months ended September 30, 1998
and 1999, 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.
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 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.
F-49
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
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 at December 31,
1998........................... 29,767 $100-$665 2,414 $400-$420
------ --------- ----- ---------
Exercisable at December 31,
1998........................... 7,122 $100-$150 -- --
------ --------- ----- ---------
Granted.......................... -- -- 1,812 $ 420
Exercised........................ -- -- -- --
Canceled......................... 1,207 $ 100 -- --
------ --------- ----- ---------
Outstanding September 30, 1999... 28,560 $100-$665 4,226 $400-$420
------ --------- ----- ---------
Exercisable at September 30,
1999........................... 10,629 $100-$300 482 $400-$420
------ --------- ----- ---------
</TABLE>
The following schedule shows the Company's net loss and net loss per share
for each of the nine months ended September 30, 1998 and 1999, respectively, had
compensation expense been determined consistent with SFAS No. 123. The pro forma
information presented below is based on several assumptions and should not be
viewed as indicative of the Company in future periods.
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) 1998 1999
- ---------------------------------------------- ----------- ---------
(UNAUDITED)
<S> <C> <C>
Net loss applicable to common stockholders:
As reported......................................... $(47,624) $(139,467)
Pro forma........................................... $(47,938) $(139,854)
Basic net loss applicable to common stockholders per
common share:
As reported......................................... $(100.65) $ (283.50)
Pro forma........................................... $(101.32) $ (284.28)
</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 options granted in 1999:
<TABLE>
<CAPTION>
CLASS CLASS
(AMOUNTS EXPRESSED IN PERCENTAGES) B C
- ---------------------------------- -------- --------
<S> <C> <C>
Interest rate.............................................. -- 5.03%
Dividend yield............................................. -- --
Expected volatility........................................ -- 44.67%
</TABLE>
The weighted average fair value of options granted using the Black-Scholes
option pricing model for Class C in 1999 was $267.37 assuming an expected life
of ten years.
F-50
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TAXES:
The benefits for income taxes for the nine months ended September 30, 1998
and 1999, were as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Federal income taxes--
Deferred........................................ $(4,096,000) $(24,330,000)
State income taxes (current and deferred)......... (768,000) (4,562,000)
----------- ------------
Total income tax benefit...................... $(4,864,000) $(28,892,000)
=========== ============
</TABLE>
The benefits for income taxes for the nine months ended September 30, 1998
and 1999, differ from amounts computed at the statutory rate as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Income taxes at statutory rate (34%).............. $(5,410,000) $(25,852,000)
State income taxes, net of Federal income tax
effect.......................................... (636,000) (3,176,000)
Losses for which no benefit is recognized......... 1,608,000 --
Other, net........................................ (426,000) 136,000
----------- ------------
$(4,864,000) $(28,892,000)
=========== ============
</TABLE>
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at September 30, 1999, were as follows:
<TABLE>
<S> <C>
Current deferred income taxes:
Allowance for doubtful accounts receivable................ $ 619,000
Accrued liabilities....................................... 587,000
-------------
Net current deferred income tax assets.................. 1,206,000
-------------
Noncurrent deferred income taxes:
Fixed assets.............................................. (5,099,000)
Intangible assets......................................... (274,358,000)
Tax credits and carryforwards............................. 62,894,000
-------------
Net noncurrent deferred income tax asset (liability).... (216,563,000)
-------------
Total deferred income tax liabilities................... $(215,357,000)
=============
</TABLE>
At September 30, 1999, the Company had NOL carryforwards of approximately
$163 million, which may be utilized to reduce future Federal income taxes
payable.
12. RELATED PARTY TRANSACTIONS:
At September 30, 1999, the Company had notes and interest receivable of
$7,384,910 due from related parties, including $285,908 from the Company's
directors and officers. The notes bear interest at various interest rates
ranging from 4% to 14.5% at September 30, 1999.
F-51
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. ACCRUED EXPENSES:
Accrued expenses consist of the following at September 30, 1999:
<TABLE>
<S> <C>
Interest.................................................... $16,704,497
Sygnet acquisition costs (see Note 9)....................... 2,934,684
Vacation, wages and other................................... 5,392,189
-----------
Total accrued expenses.................................... $25,031,370
===========
</TABLE>
14. COMMITMENTS:
The Company entered into an equipment supply agreement on December 6, 1995,
and as last amended on January 5, 1999, 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
$27.8 million remained at September 30, 1999.
The Company entered into an additional equipment supply agreement with a
second vendor on January 13, 1998. The Company agreed to purchase approximately
$81 million of cell sites and switching equipment between January 13, 1998 and
January 12, 2002, to update the cellular systems for the newly acquired and
existing MSAs and RSAs. Of this commitment, approximately $33.2 million remained
at September 30, 1999.
Future minimum lease payments required under operating leases that have an
initial or remaining noncancellable lease term in excess of one year at
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ------------------
<S> <C>
December 31, 1999........................................... $ 2,485,077
YEARS ENDED:
2000........................................................ $ 9,114,245
2001........................................................ 7,608,863
2002........................................................ 5,925,882
2003........................................................ 5,041,652
2004........................................................ 4,106,595
2005 and thereafter......................................... 21,931,952
</TABLE>
Lease expense under the above leases was approximately $2.1 million
(unaudited) and $5.5 million for the nine months ended September 30, 1998 and
1999, 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-52
<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 September 30, 1999:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Revolving credit facilities...................... $678,000,000 $678,000,000
Dobson/Sygnet Senior Notes....................... 200,000,000 209,500,000
DCC Senior Notes................................. 160,000,000 168,000,000
Other notes payable.............................. 3,957,540 3,993,771
Interest rate hedge.............................. -- 299,580
</TABLE>
16. SUBSEQUENT EVENTS:
In October 1999, the Company entered into a memorandum of understanding with
AT&T Wireless, Inc. to establish an equally-owned joint venture that will
acquire, own and operate American Cellular Corporation. Management estimates
that the aggregate acquisition price for American Cellular Corporation will be
approximately $2.4 billion, including fees and expenses.
The Company plans to fund its share of the acquisition with non-recourse
bank debt at the joint venture level and cash contributions to the joint venture
of up to approximately $372.5 million each from the two partners. The Company
expects to raise its share of the cash contribution through the issuance of
additional equity securities. The acquisition is expected to close in the first
quarter of 2000.
In October 1999, Dobson Tower Company, a subsidiary of the Company,
completed the sale of substantially all of the towers acquired by Dobson Tower
Company in the Sygnet acquisition to American Tower Corporation for
approximately $38.7 million. In connection with the sale, another subsidiary of
the Company, Sygnet Communications, Inc. has agreed to lease the towers back
from American Tower Corporation for an initial term of ten years.
The Company has entered into definitive agreements to acquire four cellular
systems for an aggregate purchase price of approximately $159.0 million. These
acquisitions will be financed with borrowings under the Company's credit
facilities and are expected to close during the first quarter of 2000.
On December 14, 1999, the Company launched a tender offer for all of its
11 3/4% Senior Notes at a price of 117%. This offer will expire on January 14,
2000. Any premium paid for the tender of these Senior Notes will be recorded as
an extraordinary loss in the first quarter of 2000.
Management of the Company intends to complete a recapitalization of the
Company immediately prior to the closing of its planned initial public offering
of common stock in the first quarter of 2000. This recapitalization will
include:
- the conversion of outstanding pre-recapitalization Class D preferred stock
into one share of old Class A common stock and one share of Class E
preferred stock;
- the redemption of Class E preferred stock with cash and the issuance of
new Class A common stock;
- the conversion of old Class A common stock into Class B common stock;
F-53
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS: (CONTINUED)
- the retirement of 81,198 shares of old Class A common stock held as
treasury stock;
- the creation of the Class A common stock to be issued in the planned
initial public offering;
- a 111.44 for 1 stock split of new Class B common stock;
- the retirement of each share of outstanding pre-capitalization Class A
preferred stock, which is owned by one of the Company's subsidiaries;
- the creation of a new Class D common stock to be issued to option holders
under the Company's amended 1996 stock option plan;
- the amendment of the 1996 stock option plan to permit the issuance of
options exercisable into Class D common stock; and
- the conversion of outstanding options exercisable into old Class B common
stock into options exercisable into Class D common stock.
The pre-capitalization Class D preferred stock will be retired immediately
following its conversion to old Class A common stock and Class E preferred
stock. Management of the Company plans to redeem the Class E preferred stock
with the proceeds from its offering. The Class E preferred stock will be retired
immediately following its redemption. Upon completion of this offering and the
planned use of the proceeds therefrom, the Company would have outstanding only
Class A common stock, Class B common stock, 12 1/4% senior preferred stock and
13% senior preferred stock.
F-54
<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-55
<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-56
<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>
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, SYGNET WIRELESS,
INC. INC.
-------------------- --------------------- NOTE
CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE
-------------------- --------------------- PAID-IN EARNINGS FROM OFFICER/
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER
--------- -------- ---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1996...................... -- $ -- -- $ -- $ 4,170,368 $ 753,675 $(249,952)
Net loss.................. (5,288,375)
Dividends declared........ (261,625)
Corporate merger.......... 48,840
Retirement of treasury
stock................... (1,718,991)
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>
TREASURY STOCK
----------------------
SHARES AMOUNT
-------- -----------
<S> <C> <C>
Balance as of January 1,
1996...................... 48,197 $(1,718,991)
Net loss..................
Dividends declared........
Corporate merger..........
Retirement of treasury
stock................... (48,197) 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-57
<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-58
<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 region 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
F-59
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
$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.
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.
F-60
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
F-61
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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.
F-62
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
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 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.
F-63
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE PREFERRED STOCK AND WARRANTS (CONTINUED)
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.
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,
F-64
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
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.
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-65
<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
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 1999.
F-66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Cellular Corporation
We have audited the consolidated balance sheets of American Cellular
Corporation and subsidiaries (the Company) as of December 31, 1998 and
September 30, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from February 26, 1998 (Date
of Formation) to December 31, 1998 and the nine months ended September 30, 1999.
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 financial position of
American Cellular Corporation and subsidiaries at December 31, 1998 and
September 30, 1999, and the consolidated results of its operations and its cash
flows and for the period from February 26, 1998 (Date of Formation) to
December 31, 1998 and the nine months ended September 30, 1999, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
December 1, 1999
F-67
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 34,015 $ 43,330
Restricted short-term investments......................... 26,550 27,729
Accounts receivable, net of allowance for doubtful
accounts of $2,084 in 1998 and $1,062 in 1999........... 26,494 39,367
Inventories............................................... 2,005 4,117
Prepaids and other current assets......................... 1,569 2,128
---------- ----------
Total current assets........................................ 90,633 116,671
Cellular facilities, equipment, and other, net.............. 159,792 177,703
Other assets................................................ 1,267,175 1,203,756
---------- ----------
Total assets................................................ $1,517,600 $1,498,130
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-68
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,000 $ 4,000
Accounts payable.......................................... 6,022 5,457
Interest payable.......................................... 22,061 28,359
Accrued operating expenses................................ 16,620 12,407
Income and other taxes payable............................ 3,398 7,679
Deferred revenue.......................................... 6,170 5,926
Other current liabilities................................. 989 1,307
---------- ----------
Total current liabilities................................... 58,260 65,135
Long-term debt.............................................. 1,195,971 1,193,134
Deferred income taxes....................................... -- 3,977
Stockholders' equity:
Series A cumulative redeemable preferred stock, $0.01 par
value,
$100 liquidation value, net of $2,000 notes receivable
from
stockholders; authorized 5,000,000 shares; 3,250,000
shares
issued and outstanding, including accrued dividends of
$21,375
at December 31, 1998 and $53,862 at September 30,
1999.................................................... 344,375 376,862
Common Stock, $0.01 par:
Class A: Authorized 475,000 shares; 250,000 shares
issued
and outstanding at December 31, 1998 and 254,672
shares
issued and outstanding at September 30, 1999.......... 3 3
Class B: Authorized 25,000 shares; 19,687 shares issued
and 19,387 shares outstanding at December 31, 1998 and
15,315 shares issued and 14,715 shares outstanding at
September 30, 1999.................................... -- --
Additional paid-in capital.............................. 25,191 25,191
Accumulated deficit....................................... (106,200) (166,172)
---------- ----------
Total stockholders' equity.................................. 263,369 235,884
---------- ----------
Total liabilities and stockholders' equity.................. $1,517,600 $1,498,130
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-69
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 26, FEBRUARY 26,
1998 (DATE OF 1998 (DATE OF NINE MONTHS
FORMATION) TO FORMATION) TO ENDED
DECEMBER 31, SEPTEMBER 30 SEPTEMBER 30,
1998 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES
Subscriber revenues.................................... $ 58,922 $ 27,828 $ 92,346
Roaming revenues....................................... 36,542 19,592 75,989
Toll revenues.......................................... 19,180 10,163 30,409
Equipment sales........................................ 3,740 1,682 7,087
Other.................................................. 4,025 1,840 6,238
-------- -------- --------
Total revenues......................................... 122,409 61,105 212,069
COSTS AND EXPENSES
Cost of cellular service............................... 10,917 4,922 18,154
Cost of equipment sold................................. 7,271 3,246 13,128
General and administrative............................. 19,262 8,974 32,565
Sales and marketing.................................... 18,363 7,410 21,972
Depreciation and amortization.......................... 45,569 22,506 72,607
Nonrecurring charges................................... 4,355 4,154 --
-------- -------- --------
Total costs and expenses............................... 105,737 51,212 158,426
-------- -------- --------
Operating income....................................... 16,672 9,893 53,643
OTHER INCOME (EXPENSE)
Interest expense....................................... (61,477) (33,864) (80,620)
Interest income........................................ 5,036 3,744 3,454
Other income (expense), net............................ (100) 250 82
-------- -------- --------
(56,541) (29,870) (77,084)
-------- -------- --------
Loss before provision for income taxes................. (39,869) (19,977) (23,441)
Provision for income taxes............................. (530) -- (4,044)
-------- -------- --------
Net loss............................................... $(40,399) $(19,977) $(27,485)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-70
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A CLASS A CLASS B
-------------------- ------------------- ---------------------
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- -------- -------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contributions............. 3,250,000 $323,000 250,000 $3 -- $ -- $24,997 $ --
Capital contributions,
net....................... -- -- -- -- 19,387 -- 194 --
Excess purchase price over
predecessor basis......... -- -- -- -- -- -- -- (44,426)
Accrued preferred stock
dividends................. -- 21,375 -- -- -- -- -- (21,375)
Net loss for the period from
February 26, 1998 (Date of
Formation) to
December 31, 1998......... -- -- -- -- -- -- -- (40,399)
--------- -------- ------- -- ------ ---------- ------- ---------
Balance at December 31,
1998...................... 3,250,000 344,375 250,000 3 19,387 -- 25,191 (106,200)
Conversion of Class B
stock..................... -- -- 4,672 -- (4,672) -- -- --
Accrued preferred stock
dividends................. -- 32,487 -- -- -- -- -- (32,487)
Net loss for the nine months
ended September 30,
1999...................... -- -- -- -- -- -- -- (27,485)
--------- -------- ------- -- ------ ---------- ------- ---------
Balance at September 30,
1999...................... 3,250,000 $376,862 254,672 $3 14,715 $ -- $25,191 $(166,172)
========= ======== ======= == ====== ========== ======= =========
</TABLE>
See notes to consolidated financial statements.
F-71
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 26, 1998 FEBRUARY 26, 1998 NINE MONTHS
(DATE OF FORMATION) (DATE OF FORMATION) ENDED
TO DECEMBER 31, TO SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------------- ------------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $ (40,399) $ (19,977) $(27,485)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
expense................................ 45,569 22,506 72,607
Amortization of deferred financing
costs.................................. 2,393 2,264 3,306
Deferred income tax expense............ -- -- 3,977
Accretion of discount on Senior
Notes.................................. 137 88 163
Amortization of premium on restricted
investments............................ 222 199 229
Amortization of covenant not to
compete................................ (500) -- --
Change in working capital components:
Accounts receivable.................. 2,666 (3,642) (12,873)
Inventories.......................... (1,211) (492) (2,112)
Prepaids and other current assets.... 297 (1) (559)
Accounts payable..................... 2,074 (1,351) (565)
Interest payable..................... 22,061 28,175 6,298
Accrued operating expenses........... (472) 4,005 (4,213)
Income and other taxes payable....... (19) 298 4,281
Deferred revenue..................... 1,537 1,084 (244)
Other current liabilities............ 940 399 318
----------- ----------- --------
Net cash provided by operating
activities............................... 35,295 33,555 43,128
INVESTING ACTIVITIES
Acquisition of cellular operations, net of
cash acquired............................ (1,418,741) (1,418,741) --
Purchase of fixed assets................... (24,260) (6,625) (43,581)
Change in restricted investments, net...... (69,744) (82,612) 12,187
----------- ----------- --------
Net cash used in investing activities...... (1,512,745) (1,507,978) (31,394)
FINANCING ACTIVITIES
Proceeds from sale of preferred and common
stock.................................... 348,194 348,194 --
Proceeds from issuance of Senior Notes..... 282,834 282,834 --
Borrowings against (repayment on) credit
facility................................. 916,000 916,000 (2,000)
Deferred financing costs................... (35,563) (35,563) (419)
----------- ----------- --------
Net cash provided by (used in) financing
activities............................... 1,511,465 1,511,465 (2,419)
----------- ----------- --------
Increase in cash and cash equivalents...... 34,015 37,042 9,315
Cash and cash equivalents at beginning of
period................................... -- -- 34,015
----------- ----------- --------
Cash and cash equivalents at end of
period................................... $ 34,015 $ 37,042 $ 43,330
=========== =========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest................................. $ 36,886 $ 70,819
Income taxes............................. 351 1,130
</TABLE>
See notes to consolidated financial statements.
F-72
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION, BASIS OF PRESENTATION, AND PENDING SALE OF BUSINESS
American Cellular Corporation, a Delaware corporation, was formed on
February 26, 1998 to acquire the operations of PriCellular Corporation (see Note
3). American Cellular Corporation and Subsidiaries (the Company), is principally
engaged in the ownership and operation of cellular telephone systems. The
Company operates in one business segment pursuant to Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an
Enterprise and Related Information."
The consolidated financial statements include the assets, liabilities, and
results of operations of entities in which the Company has a controlling
interest. All significant intercompany balances and transactions have been
eliminated.
PENDING SALE OF BUSINESS
On October 5, 1999, American Cellular Corporation entered into an Agreement
and Plan of Merger, (the Merger Agreement) pursuant to which a newly-formed
joint venture of Dobson Communications Corporation and AT&T Wireless Systems,
Inc. will, subject to the terms and conditions set forth in the Merger
Agreement, acquire the Company by merging a wholly owned subsidiary of the joint
venture with and into the Company (the Merger). Pursuant to the Merger
Agreement, each share of Class A common stock, par value $.01 per share, of the
Company will, at the effective time of the Merger (the Effective Time), be
converted into the right to receive $3,244.24 per share in cash, plus interest
thereon for the period commencing January 1, 2000 through and including the
closing date at a rate of 8% per annum (the Common Stock Purchase Price). As
provided in the Merger Agreement, the Common Stock Purchase Price is subject to
adjustment in the event shares of common stock are repurchased by the Company
pursuant to stock repurchase rights prior to the Effective Time.
The Merger Agreement further provides that each share of nonvoting Class B
common stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time will become fully vested and will
automatically be converted into one share of Class A common stock at the
Effective Time in accordance with the terms of the grant thereof and, as such,
will there upon be subject to conversion into the right to receive the Common
Stock Purchase Price. In addition, each share of nonvoting Series A Preferred
Stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time will, consistent with the terms of such
preferred stock designated in the Company's certificate of incorporation, be
converted at the Effective Time into the right to receive $100 per share in cash
plus all accrued but unpaid dividends thereon to and including the Effective
Time.
Concurrent with the execution of the Merger Agreement, certain stockholders
of the Company executed a stockholder Voting Agreement, dated as of October 5,
1999, pursuant to which, among other things, such stockholders agreed to vote
all shares beneficially owned by such persons in favor of the Merger and each of
the other transactions contemplated by the Merger Agreement at any meeting of
the Company's stockholders in connection with the Merger (or otherwise to
consent in writing thereto, as the case may be). A majority of the stockholders
of the Company voted to approve the Merger Agreement and the transactions
contemplated thereby, including the Merger, at a meeting of the stockholders
held on October 5, 1999.
F-73
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
1. ORGANIZATION, BASIS OF PRESENTATION, AND PENDING SALE OF BUSINESS (CONTINUED)
The completion of the Merger, which is expected to close in the first
quarter of 2000, is subject to certain conditions, including the expiration or
earlier termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Acts of 1976, as amended, and the approval of the Federal
Communications Commission.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The financial information for the period from February 26, 1998 (date of
formation) to September 30, 1998, is unaudited but includes all adjustments
consisting only of normal and recurring accruals that mangement considers
necessary for a fair presentation of its consolidated operating results and cash
flows. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the Rules and Regulations of the
Securities and Exchange Commission. The results of the interim periods are not
necessarily indicative of future results.
USE OF ESTIMATES
The preparation of the 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted investments,
accounts receivable, and accounts payable approximate fair value. See Note 5 for
fair value of long-term debt.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market. Inventories consist primarily of cellular telephones and accessories.
CELLULAR FACILITIES, EQUIPMENT, AND OTHER
Cellular facilities, equipment, and other fixed assets are recorded at cost,
including labor associated with construction. Depreciation is computed using the
straight-line method over the estimated useful lives, typically three to seven
years.
INVESTMENTS IN CELLULAR OPERATIONS
The Company owns a 44.5% interest in a joint venture with SBC
Communications, Inc. (SBC). Under the terms of the joint venture agreement, the
Company recorded preferential distributions which
F-74
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
totaled $2.6 million for the period from June 25, 1998, the date of the
PriCellular acquisition, through December 31, 1998 and $4.4 million for the nine
months ended September 30, 1999, which are included in other revenues, SBC has
operating control of the properties and, accordingly, the Company accounts for
its investment using the cost method. The Company also had an option to put its
joint venture interest to SBC which it exercised for $39.1 million on
December 1, 1999. The sale of the Company's investment, which is expected to
close in the first quarter of 2000, will result in a pretax gain of
approximately $3.6 million.
OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Goodwill/cellular licenses.................................. $1,175,479 $1,175,479
Investments in cellular operations.......................... 35,531 35,531
Deferred financing costs.................................... 35,563 35,982
Restricted investments...................................... 42,972 29,377
Subscriber lists............................................ 11,233 11,233
Accumulated amortization.................................... (33,603) (83,846)
---------- ----------
$1,267,175 $1,203,756
========== ==========
</TABLE>
Goodwill/cellular licenses represent the excess of purchase price over the
fair market value assigned to the net tangible and identifiable intangible
assets of the business acquired.
The Company uses a 20-year life to amortize goodwill/cellular licenses.
Accumulated amortization of goodwill/cellular licenses was approximately
$29.3 million and $73.5 million as of December 31, 1998 and September 30, 1999,
respectively. The Company periodically reviews the carrying value of goodwill/
cellular licenses to determine whether such amounts are recoverable based on
undiscounted future cash flows of the Company in order to determine whether a
reduction to fair value is necessary. The Company has determined that no such
reductions were necessary through September 30, 1999.
Deferred financing costs primarily represent underwriting and related fees
incurred in connection with the issuance of the Company's long-term debt. These
costs are amortized using the effective yield method and the amortization
expense is included in interest expense. Accumulated amortization of deferred
financing costs was approximately $2.4 million and $5.7 million as of
December 31, 1998 and September 30, 1999, respectively.
Approximately $82.4 million of the proceeds from the issuance of the 10.5%
Senior Notes (see Note 5) was used to acquire certain treasury securities
sufficient to pay the first six scheduled interest payments of those notes.
Approximately $12.7 million of securities were sold in 1998 and $12.9 million of
securities were sold in 1999 to satisfy the interest payments with no realized
gain or loss. These securities are held in an escrow account pursuant to a
Pledge Escrow and Assignment Agreement. The restricted investments are
classified in the balance sheet according to their maturities. These treasury
F-75
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities mature through May 2001, bear interest rates from 5.625% to 6.375%,
and are considered as held to maturity.
The Company amortizes subscriber lists over a three-year period. Accumulated
amortization was approximately $1.9 million and $4.7 million as of December 31,
1998 and September 30, 1999, respectively.
REVENUE RECOGNITION
The Company earns revenue by providing access to its cellular system and for
usage of its cellular system (collectively subscriber revenues), for providing
service to customers from other cellular systems who roam through the service
area (roaming revenues), and for long-distance calls placed by the Company's
customers and those of other carriers within the Company's service area (toll
revenues). Access revenue is billed one month in advance and is recognized when
earned. Airtime, long-distance, and roaming revenues are recognized when the
service is rendered. Equipment sales are recognized on delivery of the equipment
to the customer.
ADVERTISING COSTS
Advertising costs relating to new subscribers are expensed in the period in
which they are incurred. Advertising expense amounted to $3.7 million and
$4.9 million for the periods ended December 31, 1998 and September 30, 1999,
respectively.
COMPREHENSIVE LOSS
In 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income."
Net loss for the periods ended December 31, 1998 and September 30, 1999, are the
same as comprehensive loss defined pursuant to SFAS No. 130.
CONCENTRATIONS OF CREDIT RISK
No single customer is large enough to pose a significant financial risk to
the Company. The Company maintains an allowance for losses based on the expected
collectibility of accounts receivable. Credit losses have been within
management's expectations.
PENDING ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
will be adopted by the Company effective January 1, 2001. The Statement will
require the Company to recognize all derivatives, including interest rate swaps
and collars, on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
Statement 133 will be on the results of operations and financial position of the
Company.
F-76
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain items have been reclassified in the December 31, 1998 consolidated
financial statements to conform to the current presentation.
3. ACQUISITION OF PRICELLULAR CORPORATION
On June 25, 1998, the Company acquired PriCellular Corporation (PCC)
pursuant to an Agreement and Plan of Merger (the Merger Agreement) dated
March 6, 1998 for approximately $1.5 billion. The acquisition was accounted for
utilizing the purchase method of accounting. The results of operations for PCC
are included in the Company's consolidated statements of operations beginning
July 1, 1998. The results of operations do not differ materially than if the
closing date had been used.
The allocation of the purchase price to the fair value of net assets
acquired is as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 51,460
Accounts receivable......................................... 29,160
Cellular facilities and equipment........................... 149,891
Investment in cellular operations........................... 35,531
Other assets................................................ 2,660
Goodwill.................................................... 1,175,479
Subscriber lists............................................ 11,233
Excess purchase price over predecessor basis................ 44,426
Total liabilities assumed................................... (29,639)
----------
Total merger consideration.................................. 1,470,201
Less:
Cash acquired............................................. 51,460
----------
Total cash paid............................................. $1,418,741
==========
</TABLE>
PCC had been partially owned (6.39%) by a group of investors, which also own
approximately 27.2% of the Company (the 6.39% is considered to be the continuing
ownership interest). The cost to acquire the continuing ownership interest in
the net assets of PCC in excess of the predecessor basis has been reflected as a
reduction of stockholders' equity of the Company pursuant to generally accepted
accounting principles.
Nonrecurring charges recorded in the period ended December 31, 1998
represent stay-on bonuses paid by American Cellular Corporation to retain
employees through the completion of the Merger.
F-77
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
4. CELLULAR FACILITIES, EQUIPMENT, AND OTHER
The components of the Company's cellular facilities, equipment, and other
include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1998 1999
----------- ------------
<S> <C> <C>
Cellular facilities and equipment......................... $165,522 $206,187
Furniture and other....................................... 8,629 11,501
-------- --------
174,151 217,688
Less accumulated depreciation............................. (14,359) (39,985)
-------- --------
$159,792 $177,703
======== ========
</TABLE>
Depreciation expense was $14.4 million and $25.7 million for the periods
ended December 31, 1998 and September 30, 1999, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1998 FMV 1999 FMV
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Borrowings under Credit Facility:
Revolver Loans........................ $ 66,000 $ 66,000 $ 66,000 $ 66,000
Tranche A Term Loans.................. 50,000 450,000 450,000 450,000
Tranche B Term Loans.................. 200,000 200,000 199,000 199,000
Tranche C Term Loans.................. 200,000 200,000 199,000 199,000
10.5% Senior Notes due 2008............. 282,971 276,450(1) 283,134 292,838(1)
---------- ---------- ---------- ----------
1,198,971 $1,192,450 $1,197,134 $1,206,838
========== ==========
Less: Current portion................... (3,000) (4,000)
---------- ----------
$1,195,971 $1,193,134
========== ==========
</TABLE>
- ------------------------
(1) Based on quoted market price.
The bank syndicated Credit Facility provides a subsidiary of the Company up
to $1 billion in four tranches ($450 million on Tranche A, $200 million for each
Tranche B and C, and up to $150 million on the Revolver). Payments under the
Credit Facility are due quarterly, in varying installments through
December 2007. Additional payments are required for excess cash flow pursuant to
the Credit Facility agreement. Interest is payable quarterly at the adjusted
prime rate, plus the applicable margin for each tranche (0.625% for the Revolver
and Tranche A, 1.5% for Tranche B, and 1.75% for Tranche C) or LIBOR, plus the
applicable margin for each tranche (1.625% for the Revolver and Tranche A, 2.5%
for Tranche B, and 2.75% for Tranche C), based on the subsidiary consolidated
leverage ratio. As of September 30, 1999, the interest rates applicable on the
tranches of the Credit Facility ranged from approximately 7.23% to 8.35%,
yielding a weighted-average rate of 7.76%. In addition, commitment fees of
0.375% on the unutilized portion of the Revolver are payable quarterly. At
September 30, 1999,
F-78
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
5. LONG-TERM DEBT (CONTINUED)
the Company had $84.0 million available under the Revolver Loans of the Credit
Facility. Substantially all of the subsidiaries assets are pledged as collateral
to the Credit Facility. The Credit Facility contains several financial covenants
related to the subsidiary's leverage and debt service ratios and restrictions on
the subsidiary's incurrence of additional debt, payment of dividends, incurrence
of liens, and payments and transfers of net assets from the subsidiary to the
Company. Restricted net assets of the Company approximated $465.5 million and
$463.2 million as of December 31, 1998 and September 30, 1999, respectively.
On May 13, 1998, the Company issued approximately $285.0 million aggregate
principal amount of 10.5% Senior Notes (the Notes), due 2008. The Notes are
unsecured and subordinated to the Credit Facility. Approximately $82.4 million
of the proceeds were used to purchase treasury securities that were placed in an
escrow account (see Note 2). The remaining funds were used to finance the
acquisition of PCC. The Notes were issued at a price of 99.24% million or
$282.8 million. The original issue discount on the Notes accretes, compounded
semiannually, to yield an effective rate of 10.63%. Interest is payable
semiannually on each May 15 and November 15. The first six scheduled interest
payments on the Notes will be funded from the securities held in escrow.
The Notes are subject to redemption at any time on or after May 15, 2003, at
the option of the Company, in amounts of $1,000 at the following redemption
prices, if redeemed during the 12 month period beginning May 15 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICES
- ---- ----------
<S> <C>
2003..................................................... 105.25%
2004..................................................... 103.50
2005..................................................... 101.75
Thereafter............................................... 100.00
</TABLE>
The holders of record receive the redemption price plus any accrued and
unpaid interest. In addition, at any time prior to May 15, 2001, the Company may
use the net cash proceeds of one or more equity offerings to redeem up to an
aggregate 35% of the principal amount of Notes originally issued at a redemption
price equal to 110.50%, plus any accrued and unpaid interest.
As part of its interest rate risk management program, the Company utilizes
interest rate swap and collar agreements to hedge variable interest rate risk
under the Credit Facility. Net interest paid or received related to such
agreements is recorded using the accrual method and as an adjustment to interest
expense. At December 31, 1998 and September 30, 1999, the Company had interest
rate collars with an aggregate notional amount of $700 million and
$656.3 million, respectively, effectively fixing the interest rate between 5.38%
and 6.00%, expiring in 2001. At December 31, 1998 and September 30, 1999, the
Company had an interest rate swap with a notional amount of $100 million and
$93.8 million, respectively, effectively fixing the interest rate to 5.84%,
expiring in 2001. The Company has not incurred any gains or losses on
terminations of interest rate agreements. The fair market value of the Company's
interest rate agreements is $(11.6) million and $2.7 million at December 31,
1998 and September 30, 1999, respectively, based on current underlying spot
rates.
F-79
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
5. LONG-TERM DEBT (CONTINUED)
The maturities of the Company's long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
Three months ended December 31, 1999.................... $ 1,000
Years ended:
2000.................................................. 4,000
2001.................................................. 49,000
2002.................................................. 49,000
2003.................................................. 71,500
Thereafter............................................ 1,022,634
----------
$1,197,134
==========
</TABLE>
6. INCOME TAXES
The significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax liabilities:
Cellular facilities, equipment, and other................. (26,055) $(25,165)
Intangible assets......................................... (5,393) (9,329)
State and local deferred taxes............................ (5,656) (6,420)
Investment in joint venture............................... (4,312) (2,514)
Interim provision for utilization of preacquisition net
operating loss carryforwards............................ -- (3,977)
Other..................................................... (2,571) (5,032)
Deferred tax assets:
Net operating loss carryforwards.......................... 76,362 79,585
Accruals.................................................. 3,376 1,963
Other..................................................... 1,324 1,878
-------- --------
Net deferred tax assets..................................... 37,075 30,989
Valuation allowance......................................... (37,075) (34,966)
-------- --------
Net deferred tax liability.................................. $ -- $ (3,977)
======== ========
</TABLE>
At September 30, 1999, the Company had federal tax net operating loss
carryforwards (NOLs) of approximately $207.0 million which are available to
offset future federal taxable income. NOLs begin expiring in the year 2007
through 2019 as follows: 2007--$1.3 million; 2009--$2.7 million; 2010--
$1.7 million; 2011--$5.6 million; 2012--$20.8 million; 2018--$174.7 million, and
2019--$0.2 million. At September 30, 1999, the Company had state tax NOLs of
approximately $128.0 million.
The Company established a valuation allowance in accordance with generally
accepted accounting principles. The Company continually reviews the adequacy of
the valuation allowance and recognizes
F-80
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
6. INCOME TAXES (CONTINUED)
the benefits of deferred tax assets only as assessment indicates that it is more
likely than not that the deferred tax assets will be realized.
A reconciliation of the income tax provision based upon the federal
statutory rate to the actual income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26,
1998 (DATE OF NINE MONTHS
FORMATION) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
<S> <C> <C>
Income tax benefit at federal statutory rate.............. $(13,954) $(8,228)
Effect of:
State income tax expense, net of federal benefit........ 344 628
Amortization of goodwill/cellular licenses.............. 6,459 11,627
Increase in valuation allowance......................... 7,681 --
Other................................................... -- 17
-------- -------
Income tax expense........................................ $ 530 $ 4,044
======== =======
</TABLE>
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 26,
1998 (DATE OF NINE MONTHS
FORMATION) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
<S> <C> <C>
Current taxes:
Federal................................................. $ -- $ --
State................................................... 530 67
---- ------
Total current taxes....................................... 530 67
Deferred taxes:
Federal................................................. -- 3,076
State................................................... -- 901
---- ------
Total deferred taxes...................................... -- 3,977
---- ------
Total tax provision....................................... $530 $4,044
==== ======
</TABLE>
For the nine months ended September 30, 1999, the Company has recorded an
interim deferred tax provision of $3,977,000 related to the utilization of
preacquisition net operating loss carryforwards. Utilization of such
preacquisition tax benefits has not resulted in a reduction to goodwill in
accordance with SFAS No. 109, "Accounting for Income Taxes" because the Company
expects taxable losses for the fourth quarter that will offset these amounts.
Rather, the liability associated with this provision has been reflected as part
of deferred taxes. Provided such fourth quarter losses are incurred, the interim
provision will be reversed in the fourth quarter. If such losses do not occur,
or are not as large as expected, the interim provision will be adjusted and the
deferred tax liability will be reclassified as a
F-81
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
6. INCOME TAXES (CONTINUED)
reduction to goodwill. Similarly, to the extent preacquisition tax benefits are
utilized in the future, goodwill established at the date of the acquisition will
be reduced.
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company issued 3,250,000 shares of Series A Preferred Stock for gross
proceeds of $325 million. The preferred stock accrues dividends daily at the
rate of 12% per annum, compounded quarterly. Such dividends shall accrue and be
cumulative on the stated value of $100 per share. Dividends shall be payable
quarterly, in arrears, on the last day of each December, March, June, and
September. Dividends shall be paid in cash. If the payment does not occur on a
regular dividend date, dividends shall accrue to the final payment date.
The holders of Series A Preferred Stock have preference and priority over
the holders of shares of any stock of the Company ranking junior to the
Series A Preferred Stock, with respect to the payment of dividends or
distribution of assets, whether upon liquidation, dissolution, winding up, or
otherwise (Junior Stock). No dividend or distribution shall be declared or paid,
either directly or indirectly, nor shall any Junior Stock, or any warrants,
rights, calls, or options exercisable or convertible into any Junior Stock be
redeemed, purchased, retired, or otherwise acquired for any consideration,
unless as of such date the Company has paid all dividends accrued and payable to
date on the Series A Preferred Stock.
If the Company shall adopt a plan of liquidation, dissolution, or winding
up, no distribution shall be made to the holders of shares of Junior Stock,
unless the holders of Series A Preferred Stock have received in cash the stated
value, $100 per share, plus all accrued but unpaid dividends thereon.
The Company shall have the right to redeem outstanding shares of Series A
Preferred Stock at any time in aggregate amounts of $5 million or more at any
one time. The redemption price shall be $100 per share plus the amount of all
accrued and unpaid dividends through the redemption date.
The Series A Preferred Stock have no voting rights, except certain actions
in which each share of Series A Preferred Stock shall have one vote.
The notes receivable from two stockholders related to the Series A Preferred
Stock bear interest at 6%.
CLASS B COMMON STOCK
The Company has reserved 21,739 shares of its Class B Common Stock for
issuance to certain of its employees. As of December 31, 1998 and September 30,
1999, 19,387 and 14,715 shares are outstanding, respectively. The shares vest in
equal, annual increments over a four-year period starting on the date of
issuance. The shares are convertible into shares of Class A Common Stock on a
one-to-one basis, and automatically convert when vested. No shares were vested
as of December 31, 1998. As of September 30, 1999, 4,672 shares have vested.
F-82
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
7. STOCKHOLDERS' EQUITY (CONTINUED)
OTHER
Upon termination of employment without cause, certain employees have the
right to put their Class A and B Common Stock and Series A Preferred Stock at
the fair market value, provided the Company will have the right to pay certain
amounts by issuing shares of Series A Preferred Stock.
8. LEASE COMMITMENTS
Minimum rental commitments as of September 30, 1999, for all noncancelable
operating leases, consisting principally of leases for office space, real
estate, and tower space, were as follows (in thousands):
<TABLE>
<S> <C>
Three months ended December 31, 1999........................ $ 1,355
Years ended:
2000...................................................... 4,673
2001...................................................... 4,063
2002...................................................... 3,573
2003...................................................... 3,137
Thereafter................................................ 14,994
-------
$31,795
=======
</TABLE>
Total rent expense amounted to approximately $2.7 million and $4.2 million
for the periods ended December 31, 1998 and September 30, 1999, respectively.
9. RELATED PARTIES
The Company obtains customer information management and billing services
from a vendor in which two of the Company's directors have an indirect and
noncontrolling ownership interest. Since June 25, 1998, services provided to the
Company by this vendor pursuant to the terms of a license agreement, totaled
$4.9 million for the period from June 25, 1998 to December 31, 1998 and
$6.7 million for the nine months ended September 30, 1999.
10. YEAR 2000 (UNAUDITED)
YEAR 2000 ISSUES
The term "Year 2000 problem" is a general term used to describe the various
problems that may result from the improper processing of dates and
time-sensitive calculations by computers and other machinery as the Year 2000 is
reached. These problems generally arise from the fact that most of the world's
computer hardware and software has historically used only two digits to identify
the year component of a date. This will often result in a computer reading a
date of "00" as meaning 1900, and not 2000. Problems may also arise from other
sources, including the use of special codes and conventions in software that
make use of a date field.
The Company's Year 2000 issue is primarily the result of the Company's
reliance on third-party vendors for the major systems integral to its
operations. These systems include all hardware and
F-83
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
10. YEAR 2000 (UNAUDITED) (CONTINUED)
software directly related to the Company's cellular networks, interconnect
systems which provide for the delivery of data and voice messaging between the
Company's networks and networks of other carriers, information management
systems that provide customer support and billing functionality, and other
administrative systems that support the operations. The Company is also reliant
upon third-party manufacturers that provide cellular telephone equipment and
accessories that are sold to the Company's subscribers. The Company is working
with its vendors to ensure Year 2000 compliance of these systems. However, if
required modifications to these systems are not completed, the Year 2000 issue
could have a material impact on the operations of the Company.
STATUS OF BECOMING YEAR 2000 COMPLIANT
The Company's Year 2000 readiness program involves the following four
phases: system assessment, remediation, testing, and implementation. To date,
the Company has substantially completed its assessment of all systems that could
be significantly affected by the Year 2000 issue. The assessment indicated all
of the systems could be affected because of the heavy reliance on information
technology products and services. The assessment also indicated that hardware
and software used in administrative operations are also at risk. The Company has
been gathering information about the Year 2000 compliance status of its vendors
that support these systems. The Company's vendors are at various stages in their
Year 2000 compliance programs, and there is no assurance that each vendor will
achieve its goals. Additionally, the Company has identified all carriers that
provide direct interconnect services for local or long distance telephone
services and requested certification as to Year 2000 compliance. However, there
is no assurance that the Company will be able to test these systems beyond the
representations of these carriers.
While management considers that the assessment phase of the Company's Year
2000 program is substantially completed, the Company will continue to review all
areas of operations to identify any other potential Year 2000 issues. In
addition, any new system that may be implemented during the remainder of the
year will be evaluated for Year 2000 compliance prior to the deployment of the
system.
In the remediation phase, the Company is determining the Year 2000
compliance status of each component of each system identified as a risk during
the assessment phase. This process includes contacting each vendor and obtaining
representations regarding the Year 2000 compliance of that vendor's products as
it impacts the Company systems. In the event that a product is determined to be
noncompliant, the Company is requesting information as to the vendor's
procedures to bring the product into compliance. The Company's vendors are at
various stages in their Year 2000 compliance programs, and there is no assurance
that each vendor will achieve its goals. This phase is approximately 98.8%
completed overall and is expected to be 100% completed by November 1999.
In the testing phase, the Company is performing its own evaluation of Year
2000 compliance and, to the extent possible, testing each system or component in
a forward date environment to insure compliance of the system. Although the
Company can verify Year 2000 compliance of its systems in this fashion, the
complexity and variability of systems to which the Company interconnects
prohibits the testing of the telecommunications network as a whole. For example,
the failure of a local power grid or local exchange carrier as a result of a
Year 2000 event will adversely affect the performance of the
F-84
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
10. YEAR 2000 (UNAUDITED) (CONTINUED)
Company's cellular network. This phase is approximately 98.8% completed overall
and is expected to be 100% completed by November 1999.
The implementation phase involves the deployment of Year 2000 compliant
software upgrades and patches into the operating systems, the development of
contingency plans and work around procedures for those systems found to be
noncompliant and the replacement of noncompliant hardware and software used in
administrative support functions. This phase is approximately 98.8% completed
overall and is expected to be 100% completed by November 1999.
No system that are considered to be material to the operations and that are
not expected to be Year 2000 compliant have been identified. Set forth below is
a table of the various systems of the Company and the level of completion of
each of the phases of the Company's Year 2000 readiness program with respect to
each system:
<TABLE>
<CAPTION>
COMPLIANCE PROGRAM PHASE
---------------------------------------------------------------------------------
SYSTEMS ASSESSMENT REMEDIATION TESTING IMPLEMENTATION
- ------- --------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cellular networks..... 100% completed 96.8% completed 96.8% completed 96.8% completed
Expected completion Expected completion Expected completion
date November 1999 date November 1999 date November 1999
Interconnect 100% completed 99.1% completed 0% completed 99.1% completed
systems............. Expected completion Expected completion Expected completion
date November 1999 date not applicable date November 1999
Information management 100% completed 99.3% completed 99.3 completed 99.3% completed
system.............. Expected completion Expected completion Expected completion
date November 1999 date November 1999 date November 1999
Other administrative 100% completed 99.9% completed 99.9% completed 99.9% completed
systems............. Expected completion Expected completion Expected completion
date November 1999 date November 1999 date November 1999
</TABLE>
COSTS RELATED TO YEAR 2000 COMPLIANCE
The Company will utilize internal resources in completing its Year 2000
readiness plan. Company personnel are assigned specific tasks relating to Year
2000 compliance on the basis of technical skill and availability. The Company
does not account for the time spent on Year 2000 compliance as a separate item
as these costs are not incremental to the operations. The Company has budgeted
for software upgrade costs relating to vendor software of approximately
$100,000. The Company also anticipates an additional $100,000 required to
replace administrative hardware and software that are not Year 2000 compliant.
As of October 31, 1999, actual expenditures or these items were approximately
$75,000.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
Management believes that it has an effective program in place to resolve
those Year 2000 issues in which it can exert significant influence. As noted in
the table above, the program is not yet completed. In the event the Company does
not complete the additional phases of the program, the Company
F-85
<PAGE>
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
10. YEAR 2000 (UNAUDITED) (CONTINUED)
would be unable to provide cellular telephone service, invoice customers, or
collect payments. Disruption of cellular service would also negatively impact
customer satisfaction, which may impact future sales and growth of the
operations. In addition, disruptions in the economy generally resulting from
Year 2000 issues could materially adversely affect the Company. The amount of
potential liability or lost revenue to the Company cannot be reasonably
estimated at this time.
YEAR 2000 CONTINGENCY PLANS
The Company is in the process of developing contingency plans with its
primary vendors for cellular network operations and information management
services. These plans include detail recovery plans, vendor contacts, and work
around procedures upon the occurrence of a Year 2000 event. The Company will
continue to evaluate the necessity and adequacy of its contingency plans as
additional information relating to the Year 2000 readiness of its vendors
becomes available.
YEAR 2000 FORWARD-LOOKING STATEMENTS
The foregoing Year 2000 discussions contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and dates by which
the Company expects to complete certain actions, are based on management's best
current estimates, which are derived utilizing numerous assumptions about future
events, including continued availability of certain resources, representations
derived from third parties and other factors. However, there can be no guarantee
that these estimates will be achieved, and the actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the ability to identify
and remediate all relevant information technology and noninformation technology
systems, results of Year 2000 testing, adequate resolution of Year 2000 issues
by business and other third parties who are service providers, suppliers or
customers of the Company, unanticipated system costs, the adequacy of and the
ability to develop and implement contingency plans and similar uncertainties.
The "forward-looking statements" made in the foregoing Year 2000 discussion
speak only as to the date such statements are made, and the Company undertakes
no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. The foregoing information constitutes a Year
2000 readiness disclosure under the Year 2000 Information and Readiness
Disclosure Act.
F-86
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
PriCellular Corporation
We have audited the consolidated balance sheets of PriCellular Corporation
and subsidiaries as of December 31, 1997 and June 30, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1997 and for the six
months ended June 30, 1998. 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 financial position of
PriCellular Corporation and subsidiaries at December 31, 1997 and June 30, 1998,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1997 and for the six months
ended June 30, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 15, 1999
F-87
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 61,357 $ 51,460
Accounts receivable (less allowance of $1,686 and
$2,185)................................................. 19,465 29,160
Inventory................................................. 2,232 794
Other current assets...................................... 1,797 2,269
-------- --------
Total current assets........................................ 84,851 83,683
Fixed assets:
Cellular facilities and equipment......................... 123,935 139,677
Furniture and equipment................................... 10,221 14,996
-------- --------
134,156 154,673
Less accumulated depreciation............................. (29,302) (39,548)
-------- --------
Net fixed assets............................................ 104,854 115,125
Investment in cellular operations........................... 37,017 35,531
Cellular licenses (less accumulated amortization of $23,119
and $30,426).............................................. 493,315 559,981
Deferred financing costs (less accumulated amortization of
$5,191 and $7,496)........................................ 13,352 12,282
Cash committed for the acquisition of cellular operations... 13,000 --
Other assets................................................ 1,267 256
-------- --------
Total assets................................................ $747,656 $806,858
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 28,046 $ 20,416
Deferred revenue.......................................... 4,242 4,633
Other current liabilities................................. 8,045 6,944
-------- --------
Total current liabilities................................... 40,333 31,993
Long-term debt.............................................. 568,323 642,155
Deferred taxes.............................................. 3,797 3,797
Other long-term liabilities................................. 1,023 1,019
Commitments and contingent liabilities...................... -- --
Stockholders' equity:
Preferred Stock, $0.01 par:
Series A, cumulative convertible: authorized 10,000,000
shares; issued and outstanding 96,000 shares.......... 1 1
Common Stock, $0.01 par:
Class A: authorized 100,000,000 shares; issued and
outstanding 21,824,566 and 21,987,766 shares.......... 218 220
Class B: authorized 50,000,000 shares; issued and
outstanding 13,134,275 and 12,971,075 shares.......... 131 129
Additional paid-in capital................................ 180,704 180,704
Accumulated deficit....................................... (46,874) (53,160)
-------- --------
Total stockholders' equity.................................. 134,180 127,894
-------- --------
Total liabilities and stockholders' equity.................. $747,656 $806,858
======== ========
</TABLE>
See notes to consolidated financial statements.
F-88
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- SIX MONTHS ENDED
1996 1997 JUNE 30, 1998
---------- ---------- ----------------
<S> <C> <C> <C>
REVENUES
Cellular service...................................... $ 105,188 $ 168,394 $ 101,888
Equipment sales....................................... 3,430 5,364 2,868
Other................................................. 3,998 7,242 3,914
---------- ---------- ----------
112,616 181,000 108,670
COSTS AND EXPENSES
Cost of cellular service.............................. 29,571 48,691 20,911
Cost of equipment sold................................ 10,073 12,841 5,365
Selling, general and administrative................... 34,502 53,485 30,230
Depreciation and amortization......................... 19,537 28,759 17,553
Nonrecurring charges.................................. -- -- 4,889
---------- ---------- ----------
93,683 143,776 78,948
---------- ---------- ----------
Operating income...................................... 18,933 37,224 29,722
OTHER INCOME (EXPENSE)
Gain (loss) on sale of investments in cellular
operations.......................................... (1,401) 8,423 (133)
Interest expense...................................... (47,076) (67,392) (38,955)
Interest income....................................... 4,875 4,864 1,570
Other income, net..................................... 1,626 3,250 1,510
---------- ---------- ----------
(41,976) (50,855) (36,008)
---------- ---------- ----------
Net loss.............................................. $ (23,043) $ (13,631) $ (6,286)
========== ========== ==========
Net loss after adjustment for accrued preferred stock
dividend............................................ $ (29,221) $ (20,171) $ (9,643)
========== ========== ==========
Basic and diluted loss per common share............... $ (0.76) $ (0.55) $ (0.28)
========== ========== ==========
Weighted-average number of common shares used in
computation of basic and diluted loss per common
share............................................... 38,493,000 36,751,000 34,959,000
</TABLE>
See notes to consolidated financial statements.
F-89
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
-------- -------- -------- -------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1995... 96 $ 1 10,858 $ 109 13,816 $ 138 $215,680 $(10,200)
Purchase and retirement of
common stock............... -- -- (150) (1) -- -- (1,449) --
Conversion of Class B common
stock to Class A common
stock...................... -- -- 1,688 17 (1,688) (17) -- --
Shares issued as a result of
common stock splits........ -- -- 6,498 64 7,383 74 (138) --
Costs incurred in connection
with common and preferred
stock offerings............ -- -- -- -- -- -- (1,364) --
Exercise of employee stock
options.................... -- -- 8 -- -- -- 48 --
Net loss for the year ended
December 31, 1996.......... -- -- -- -- -- -- -- (23,043)
------ -------- ------- ------ -------- -------- -------- --------
BALANCE--DECEMBER 31, 1996... 96 1 18,902 189 19,511 195 212,777 (33,243)
Purchase and retirement of
common stock............... -- -- (2,157) (21) (3,995) (40) (53,800) --
Conversion of Class B common
stock to Class A common
stock...................... -- -- 2,382 24 (2,382) (24) -- --
Costs incurred in connection
with common and preferred
stock offerings............ -- -- -- -- -- -- (206) --
Shares issued in connection
with the Kentucky Cluster
acquisition................ -- -- 1,948 19 -- -- 19,106 --
Exercise of employee stock
options.................... -- 750 7 -- -- 2,827 --
Net loss for the year ended
December 31, 1997.......... -- -- -- -- -- -- -- (13,631)
------ -------- ------- ------ -------- -------- -------- --------
BALANCE--DECEMBER 31, 1997... 96 1 21,825 218 13,134 131 180,704 (46,874)
Conversion of Class B common
stock to Class A common
stock...................... -- -- 163 2 (163) (2) -- --
Net loss for the six months
ended June 30, 1998........ -- -- -- -- -- -- -- (6,286)
------ -------- ------- ------ -------- -------- -------- --------
BALANCE--JUNE 30, 1998....... 96 $ 1 21,988 $ 220 12,971 $ 129 $180,704 $(53,160)
====== ======== ======= ====== ======== ======== ======== ========
<CAPTION>
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE--DECEMBER 31, 1995... $205,728
Purchase and retirement of
common stock............... (1,450)
Conversion of Class B common
stock to Class A common
stock...................... --
Shares issued as a result of
common stock splits........ --
Costs incurred in connection
with common and preferred
stock offerings............ (1,364)
Exercise of employee stock
options.................... 48
Net loss for the year ended
December 31, 1996.......... (23,043)
--------
BALANCE--DECEMBER 31, 1996... 179,919
Purchase and retirement of
common stock............... (53,861)
Conversion of Class B common
stock to Class A common
stock...................... --
Costs incurred in connection
with common and preferred
stock offerings............ (206)
Shares issued in connection
with the Kentucky Cluster
acquisition................ 19,125
Exercise of employee stock
options.................... 2,834
Net loss for the year ended
December 31, 1997.......... (13,631)
--------
BALANCE--DECEMBER 31, 1997... 134,180
Conversion of Class B common
stock to Class A common
stock...................... --
Net loss for the six months
ended June 30, 1998........ (6,286)
--------
BALANCE--JUNE 30, 1998....... $127,894
========
</TABLE>
See notes to consolidated financial statements.
F-90
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- JUNE 30,
1996 1997 1998
--------- -------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (23,043) $(13,631) $ (6,286)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 19,537 28,759 17,553
Interest on Senior Subordinated and Convertible Discount
Notes and amortization of deferred financing costs...... 43,174 46,236 16,137
(Gain) loss on sale of investments in cellular
operations.............................................. 1,401 (8,423) 133
Amortization of covenant not to compete................... (1,625) (3,250) (1,625)
Provision for losses on accounts receivable............... (309) (81) 456
Proceeds from covenant not to compete..................... 2,500 2,000 --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable..................................... (6,710) (5,131) (9,577)
Inventory............................................... (369) 103 1,526
Other current assets.................................... (347) (737) (457)
Accounts payable and accrued expenses................... 4,009 2,804 (8,653)
Deferred revenue........................................ 1,151 600 (37)
Other current liabilities............................... (250) -- 1,547
Other, net.............................................. 252 (223) 948
--------- -------- --------
Net cash provided by operating activities................... 39,371 49,026 11,665
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (29,470) (25,717) (20,517)
Amounts refunded from (deposited in) escrow to acquire
cellular properties (net)................................. (5,000) 7,337 --
Deposit for Personal Communications Service auction (net)... 1,640 -- --
Proceeds from sale of investments in cellular operations.... 34,313 23,651 1,352
Acquisition of cellular operations, net of cash acquired.... (110,977) (26,032) (60,185)
Investment in cellular operations........................... (75) (2,523) (977)
Cash committed for the acquisition of cellular operations... (91,400) (13,000) --
--------- -------- --------
Net cash used in investing activities....................... (200,969) (36,284) (80,327)
</TABLE>
See notes to consolidated financial statements.
F-91
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ JUNE 30,
1996 1997 1998
--------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Purchase and retirement of common stock..................... $ (1,450) $(53,861) $ --
Proceeds from exercise of stock options..................... 48 2,834 --
Repayments of notes payable and due to stockholders......... (23,104) -- --
Payments for deferred financing costs....................... (5,612) (516) (1,235)
Proceeds from issuance of long-term debt.................... 170,000 -- 60,000
Costs incurred in connection with common and preferred stock
offerings................................................. (1,364) (206) --
-------- -------- --------
Net cash provided by (used in) financing activities......... 138,518 (51,749) 58,765
-------- -------- --------
Decrease in cash and cash equivalents....................... (23,080) (39,007) (9,897)
Cash and cash equivalents at beginning of period............ 123,444 100,364 61,357
-------- -------- --------
Cash and cash equivalents at end of period.................. $100,364 $ 61,357 $ 51,460
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 1,110 $ 18,275 $ 22,819
Income taxes.............................................. 448 424 479
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Common stock (1997) and debt (1996) issued in connection
with the acquisition of cellular systems.................. $ 19,429 $ 19,125 $ --
</TABLE>
See notes to consolidated financial statements.
F-92
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
PriCellular Corporation and subsidiaries, including its wholly owned
subsidiary, PriCellular Wireless Corporation (Wireless) (collectively, the
Company), is principally engaged in the ownership and operation of cellular
telephone systems primarily in rural areas of the Midwestern and Eastern
portions of the United States. The Company operates in one business segment
pursuant to SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information."
The consolidated financial statements include the accounts of the Company
and its wholly owned and majority owned subsidiaries. The assets, liabilities,
and results of operations of entities in which the Company has a controlling
interest have been consolidated. All significant intercompany balances and
transactions have been eliminated.
On June 25, 1998, American Cellular Corporation acquired all of the
operations of the Company pursuant to an agreement and plan of merger. For
further discussion of the merger see Note 8. The accompanying consolidated
financial statements include results of operations of the Company through June
30, 1998, the Company's normal month-end. The results of operations of the
Company do not differ materially from if the actual closing date of the merger
had been used.
USE OF ESTIMATES
The preparation of the 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
investment in cellular operations and accounts payable in the consolidated
balance sheet approximate fair value. The fair value of long-term debt in the
consolidated balance sheet approximated $733.5 million at June 30, 1998.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost (first in, first out method) or
market. Inventory consists primarily of cellular telephones and accessories.
FIXED ASSETS
Cellular facilities, equipment, and other fixed assets are recorded at cost,
including labor associated with construction. Depreciation is computed using the
straight-line method over the estimated useful lives, typically three to seven
years. Depreciation expense for the years ended December 31, 1996 and
F-93
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1997 and for the six months ended June 30, 1998, was $10.0 million, $16.1
million, and $10.2 million, respectively.
INVESTMENTS IN CELLULAR OPERATIONS
The Company has a 44.5% interest in a joint venture with SBC Communications,
Inc. (SBC). Under the terms of the joint venture agreement, the Company receives
preferential distributions in the first four years of the joint venture
increasing from $3.3 million in 1996 to $5.8 million in 1999. Such preferential
distributions are guaranteed by SBC. The Company also has an option to put its
joint venture interest to SBC at prices escalating to $39.0 million in 1999. SBC
has operating control of the properties and has certain rights to purchase the
Company's interests on November 30, 1999. The Company's guaranteed preferential
distributions from the joint venture for the years ended December 31, 1996 and
1997 and for the six months ended June 30, 1998, amounted to $3.4 million,
$4.3 million, and $2.6 million, respectively, which are included in other
revenues.
CELLULAR LICENSES
Cellular licenses represent the excess of purchase price over the underlying
fair value of assets acquired, and are being amortized on a straight-line basis
over 40 years. Amortization expense for the years ended December 31, 1996 and
1997 and for the six months ended June 30, 1998, was $9.5 million, $12.7
million, and $7.3 million, respectively.
The Company periodically reviews the carrying value of cellular licenses to
determine whether such amounts are recoverable based on undiscounted future cash
flows of the market to which the license relates and by comparing the cellular
license to the estimated market value of the cellular system in order to
determine whether a reduction to fair value is necessary. The Company has
determined that no such reductions were necessary through June 30, 1998.
DEFERRED FINANCING COSTS
Deferred financing costs primarily represent underwriting and related fees
incurred in connection with the issuance of the Company's long-term debt. These
costs are being amortized over the terms of the related debt and the
amortization expense is included in interest expense.
REVENUE RECOGNITION
The Company earns revenue by providing access to its cellular system, for
usage of its cellular system for long-distance calls placed by the Company's
customers and those of other carriers within the Company's service area, and for
providing service to customers from other cellular systems who roam through the
service area. Access revenue is billed one month in advance and is recognized
when earned. Airtime, long-distance, and roaming revenues are recognized when
the service is rendered. Equipment sales are recognized on delivery of the
equipment to the customer.
F-94
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Marketing costs relating to new subscribers are expensed in the period in
which they are incurred. Advertising expense amounted to $2.3 million, $3.7
million, and $2.5 million for the years ended December 31, 1996 and 1997 and for
the six months ended June 30, 1998, respectively.
COMMON STOCK SPLITS
On February 29, 1996 and October 1, 1996, the Company authorized 5- for 4-
stock splits in the form of 25% stock dividends of Class A and Class B common
stock payable March 11, 1996 and October 21, 1996, respectively. All footnote
disclosures and applicable per share data have been restated to reflect these
splits.
NET LOSS PER SHARE
In computing dilutive loss per share for the years ended December 31, 1996
and 1997 and for the six months ended June 30, 1998, no effect has been given to
options outstanding under the Company's 1994 Stock Option Plan, outstanding
warrants to purchase Class B common stock, the 10.75% Senior Subordinated
Convertible Discount Notes, or the Cumulative Convertible Preferred Stock, since
the exercise of any of these items would have an antidilutive effect on net loss
per share.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Net loss for the years ended December 31, 1996 and 1997 and for the six months
ended June 30, 1998, is the same as comprehensive loss defined pursuant to SFAS
No. 130.
CONCENTRATIONS OF CREDIT RISK
No single customer is large enough to pose a significant financial risk to
the Company. The Company maintains an allowance for losses based on the expected
collectibility of accounts receivable. Credit losses have been within
management's expectations.
RECLASSIFICATIONS
Certain items have been reclassified in the 1996 and 1997 consolidated
financial statements to conform to the current presentation.
2. ACQUISITIONS AND DIVESTITURES
The following acquisitions were completed in 1996, 1997, and 1998. All
acquisitions were accounted for utilizing the purchase method of accounting. The
results of operations of the acquired
F-95
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
entities are included in the Company's consolidated results of operations from
their respective dates of acquisition.
<TABLE>
<CAPTION>
ACQUISITION PURCHASE NET POPS
MARKET DATE PRICE ACQUIRED
- ------ -------------------------------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1998
TN-4 RSA January 15, 1998...................... $ 73,000 264,000
---------
264,000
=========
1997
KY-4, KY-5, KY-6, and January 7, 1997....................... $115,500(a) 785,000
KY-8 RSAs
WI-4 RSA January 7, 1997....................... 6,300 119,000
WI-5 RSA May 29, 1997.......................... 10,600 81,000
---------
985,000
=========
1996
WI-2 RSA November 18, 1996..................... 4,300 85,645
---------
85,645
=========
PA-9 RSA February 2, 1996...................... 26,100 188,096
WV-3 RSA July 23, 1996......................... 35,000 269,709
---------
457,805
=========
NY-6 RSA April 23, 1996........................ 19,800(b) 111,373
Poughkeepsie, NY MSA April 23, 1996........................ 38,900(b)(c) 218,890
Orange County, NY MSA October 17, 1996...................... (c) 327,053
---------
657,316
=========
Various October 17, 1996...................... (c) 70,740
---------
1,271,506
=========
</TABLE>
- ------------------------
(a) The Company acquired from a subsidiary of Horizon Cellular Telephone
Company, L. P. (Horizon) the system serving four RSAs in Kentucky for
approximately $96.4 million in cash and 1,948,052 shares of the Company's
Class A common stock valued at approximately $19.1 million. On February 4,
1997, the Company repurchased and retired the 1,948,052 shares from Horizon
for $15.3 million.
F-96
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
(b) The Company acquired from a subsidiary of United States Cellular Corporation
the system serving the NY-6 RSA for approximately $19.8 million and 83% of
the stock of the system serving the Poughkeepsie, NY MSA for approximately
$38.9 million, with one-half paid in cash and the balance in a three-year
note (subsequently repaid in November 1996.
(c) The Company exchanged with Vanguard Cellular Systems, Inc. its OH-9 RSA, the
majority of its OH-10 RSA and its Parkersburg, WV/Marietta, OH MSA for the
Orange County, NY MSA, an additional 11.1% of the Poughkeepsie, NY MSA,
12.2% of the Janesville, WI MSA and 28,509 additional Pops, including small
interests in the Eau Claire, WI and Wausau, WI MSAs (in each of which the
Company currently has a majority interest).
The pro forma unaudited condensed consolidated results of operations
assuming the TN-4 RSA acquisition was consummated as of January 1, 1997, are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
1997 1998
----------- ----------
<S> <C> <C>
Revenues.................................................... $196,264 $108,670
======== ========
Net loss after adjustment for accrued preferred stock
dividend.................................................. $(20,497) $ (9,643)
======== ========
Basic and diluted loss per common share..................... $ (0.56) $ (0.28)
======== ========
</TABLE>
The Company made the following dispositions of cellular properties and interests
(in thousands):
<TABLE>
<CAPTION>
SALES GAIN
DATE DESCRIPTION PRICE (LOSS)
- ---- ----------- -------- --------
<S> <C> <C> <C>
1998
June Sale of Minority Pops............................... $ 1,352 $ (133)
=======
1997
January Florence, AL MSA and AL-1B RSA, sale of license..... $22,396 $ 8,451
April Sale of Minority Pops............................... 1,255 (28)
-------
$ 8,423
=======
1996
July AL-4 RSA, sale of license........................... $25,000 $(1,640)
September Sale of Minority Pops............................... 2,813 1,817
November MI-2 RSA, sale of license........................... 6,500 (1,578)
-------
$(1,401)
=======
</TABLE>
F-97
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
14% Senior Subordinated Discount Notes due 2001........... $165,000 $165,000
10.75% Senior Subordinated Convertible Discount Notes due 45,623 48,054
2004....................................................
12.25% Senior Subordinated Discount Notes due 2003........ 187,700 199,101
10.75% Senior Notes due 2004.............................. 170,000 170,000
Senior Secured Reducing Revolver.......................... -- 60,000
-------- --------
$568,323 $642,155
======== ========
</TABLE>
On November 23, 1994, Wireless issued $165.0 million aggregate principal
amount of 14% Senior Subordinated Discount Notes due 2001 (the 14% Notes)
primarily to finance the acquisition of Cellular Information Systems, Inc.
(CIS). The 14% Notes were issued at a price of 66.834% or $110.3 million. The
original issue discount on the 14% Notes accreted at a rate of 14% through
November 1997, compounded semiannually, to an aggregate principal amount of
$165.0 million. Interest is currently accruing at the rate of 14% per annum,
payable semiannually in cash.
On August 21, 1995, the Company issued $60.0 million aggregate principal
amount of 10.75% Senior Subordinated Convertible Discount Notes due 2004 (the
10.75% Notes). The 10.75% Notes were issued at a price of 59.345% or $35.6
million. The original issue discount on the 10.75% Notes accretes at a rate of
10.75%, compounded semiannually, to an aggregate principal amount of
approximately $60.0 million by August 15, 2000. Interest will thereafter accrue
at 10.75% per annum, payable semiannually, in cash beginning February 15, 2001.
The 10.75% Notes are convertible into the Company's Class A common stock at a
conversion price of $9.94 per share.
On September 27, 1995, Wireless issued $205.0 million aggregate principal
amount of 12.25% Senior Subordinated Discount Notes due 2003 (12.25% Notes) to
finance the acquisition of the OH-7 RSA; OH-9 RSA; OH-10 RSA; Parkersburg,
WV/Marietta; OH MSA; WV-2 RSA; AL-4 RSA; PA-9 RSA; and NY-5 RSA cellular
systems. The 12.25% Notes were issued at a price of 69.906% or $143.3 million.
The original issue discount on the 12.25% Notes accretes at a rate of 12.25%
compounded semiannually, to an aggregate principal amount of approximately
$205.0 million by October 1, 1998. Interest will thereafter accrue at 12.25% per
annum payable semiannually in cash beginning April 1, 1999.
On November 6, 1996, Wireless issued $170.0 million principal amount of
10.75% Senior Notes due 2004, primarily to finance the acquisition in January
1997 of the Kentucky cluster for $115.5 million consisting of approximately
$96.4 million in cash and $19.1 million in the Company's Class A common stock.
Approximately $19.0 million of the proceeds was used to repay the note issued in
connection with the purchase on April 23, 1996, of the Poughkeepsie, NY MSA.
Interest is payable semiannually on each May 1 and November 1.
On January 15, 1998, the Company borrowed $60.0 million under a Senior
Secured Reducing Revolver (the Borrowing). The Borrowing matures eight years
from the closing date with repayment
F-98
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
commencing in the year 2001 with final payment in the year 2005 in amounts
ranging from 10.0% to 25.0%. Interest will be charged at the LIBOR rate plus a
premium ranging from 1.500% to 2.250% depending on the ratio of debt to cash
flow as defined. The Borrowing requires the attainment by the Company of certain
financial ratios in order to maintain the permitted indebtedness. The Borrowing
is secured by the assets of Kyle Cellular, a wholly owned subsidiary of the
Company.
The Company's long-term debt includes restrictions on Wireless' incurrence
of additional debt, the payment of dividends, the incurrence of liens, and on
payments and transfer of net assets from Wireless to the Company. Restricted net
assets of the Company as of June 30, 1998, approximated $175.6 million.
The maturities of the Company's long-term debt for each of the periods
subsequent to June 30, 1998, are as follows (in thousands):
<TABLE>
<S> <C> <C>
Six months ending December 31, 1998......................... $ --
Years ending December 31:
1999...................................................... --
2000...................................................... --
2001...................................................... 169,500
2002...................................................... 10,500
2003...................................................... 211,101
Thereafter................................................ 251,054
--------
Total................................................... $642,155
========
</TABLE>
4. INCOME TAXES
The significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $ (9,652) $(11,638)
Amortization.............................................. (11,407) (14,799)
License basis difference.................................. (3,797) (3,797)
Other..................................................... (4,385) (4,356)
Deferred tax assets:
Net operating loss carryforwards.......................... 6,915 15,630
Amortization of original issue discount................... 33,726 37,373
State and local deferred taxes............................ 2,280 1,058
Accruals.................................................. 2,049 2,020
Other..................................................... 2,504 1,462
-------- --------
Net deferred tax assets..................................... 18,233 22,953
Valuation allowance......................................... (22,030) (26,750)
-------- --------
Net deferred tax liability.................................. $ (3,797) $ (3,797)
======== ========
</TABLE>
F-99
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
At June 30, 1998, the Company had tax net operating loss carryforwards
(NOLs) of approximately $43.3 million, which are available to offset future
taxable income. NOLs begin expiring in the year 2007 through 2018 as follows:
2007--$1.3 million, 2009--$2.7 million, 2010--$1.7 million, 2011--$5.6 million,
2012--$20.8 million and 2018--$11.2 million.
The Company established a valuation allowance in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation allowance and recognizes the
benefits of deferred tax assets only as assessment indicates that it is more
likely than not that the deferred tax assets will be realized.
5. STOCKHOLDERS' EQUITY
COMMON STOCK
In January 1996, Price Communications, an affiliate of the Company, acquired
warrants which are convertible directly into 1,820,000 shares of Class B common
stock from former executives of an acquired company. The effective exercise
price is $5.42 per share of Class B common stock at June 30, 1998.
On February 4, 1997, the Company purchased and retired, under separate
authorization of its Board of Directors, 1,948,052 shares of its Class A common
stock from Horizon, which Horizon received in connection with the Kentucky
Cluster acquisition.
In July 1997, the Company repurchased and retired 3,994,945 shares of its
Class B common stock from Aeneas Venture Corp., an affiliate of Harvard Private
Capital Group, Inc. (Harvard) at $9.00 per share, which was the current market
price at the date of the transaction. In addition, 56,275 warrants to purchase
Class B common stock, also owned by Harvard, were redeemed at a net cash
expenditure of $3.83 per warrant ($9.00 current market price less the exercise
price of $5.17).
In November 1997, Robert Price, Chairman of the Board of the Company,
exercised options for 742,188 shares of the Company's Class A common stock.
Subsequently, the Company purchased from Robert Price 200,000 of the 742,188
shares issued at market ($11.25 per share), and simultaneously retired the same
shares.
Shares of Class A common stock reserved for issuance at June 30, 1998 and
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Options issued to employees................................. 1,477
Options reserved for issuance............................... 401
Warrants.................................................... 1,820
Shares reserved for convertible securities.................. 32,856
------
36,554
======
</TABLE>
PREFERRED STOCK
The Company issued Series A Cumulative Convertible Preferred Stock, par
value $.01 per share (the Series A Preferred Stock) for gross proceeds of $80.0
million. The preferred stock accrues dividends at the rate of 6.25% per annum
compounded quarterly. Such dividends will not be paid in cash but will accrue
and be calculated on the face value of $1,000 per share. The cumulative accrued
F-100
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
5. STOCKHOLDERS' EQUITY (CONTINUED)
dividends are $16.1 million at June 30, 1998. The number of shares of Class A
common stock into which the Series A Preferred Stock is convertible is equal to
the quotient obtained by dividing the conversion value (initially $83.2 million
and increasing to $96.0 million by the third anniversary of the original date of
issuance or earlier upon the occurrence of certain contingencies, plus, in each
case, accrued dividends through the date of conversion or, upon the occurrence
of certain contingencies, through the fifth anniversary of the date of issuance)
by the conversion price ($8.83 per share subject to adjustment). The holder of
each share of Series A Preferred Stock is entitled to the number of votes equal
to the number of shares of Class A common stock the holder would receive upon
conversion.
STOCK OPTION PLAN
Under the Company's 1994 Stock Option Plan (the Plan), the Board of
Directors can grant options to purchase up to 2,636,000 shares of Class A common
stock to certain eligible employees and directors (Class A shares are entitled
to one vote per share). During 1996, the Company registered approximately
2,636,000 shares of Class A common stock reserved for issuance under the Plan.
The Plan provides that the option price cannot be less than the fair market
value of the stock on the date of grant. All options granted subsequent to
January 1, 1995 have a 10 year term and vest and become fully exercisable at the
end of three years of continued employment.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." However, as permitted under SFAS No. 123, the Company continues
to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its stock option plan. Under APB No. 25,
because the number of options is fixed and the option price is market price at
the date of grant, no compensation expense is required. Pro forma information
regarding net loss and basic and diluted loss per common share is required by
SFAS No. 123, and has been determined as if the Company has accounted for its
employee stock options under the fair value method using the Black-Scholes
valuation method.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The fair value for the Company's options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1997: risk free interest rate of 6.25%; dividend yield
of 0%; a volatility factor of .480 for 1996 and .323 for 1997 and a
weighted-average expected life of the options of four years. There were no
option grants in 1998.
F-101
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
5. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net loss after adjustment for accrued preferred stock
dividend:
As reported.......................................... $(29,221) $(20,171) $ (9,643)
Pro forma............................................ (29,996) (21,318) (10,276)
Basic and diluted loss per common share:
As reported.......................................... (0.76) (0.55) (0.28)
Pro forma............................................ (0.78) (0.58) (0.29)
</TABLE>
Because compensation expense associated with option grants is recognized
over the vesting period, the initial impact of applying FAS 123 on pro forma net
loss is not representative of the potential impact on pro forma net loss in
future years when the effect of recognition of a portion of compensation expense
from multiple awards would be reflected.
A summary of the Company's stock option activity, and related information is
as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDER
OPTIONS PRICE PER SHARE
------------ ----------------
<S> <C> <C>
Balance at December 31, 1995........................... 1,769,140 $ 3.71 to $8.72
Options granted........................................ 343,125 $10.80 to $10.90
Options exercised...................................... (8,329) $ 4.54 to $4.67
Options returned for future issuance................... (55,704) $ 4.54 to $10.90
--------- ----------------
Balance at December 31, 1996........................... 2,048,232 $ 3.71 to $10.90
Options granted........................................ 217,500 $ 8.88
Options exercised...................................... (750,649) $ 3.71 to $8.72
Options returned for future issuance................... (38,102) $ 4.55 to $10.90
--------- ----------------
Balance at December 31, 1997 and June 30, 1998......... 1,476,981 $ 3.71 to $10.90
========= ================
</TABLE>
The weighted-average grant date fair value of options granted in 1997 and
1996 were $3.38 and $4.84, respectively.
F-102
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
The following table summarizes information about stock options outstanding
at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.71 to $ 4.67............... 848,957 6.6 years $ 4.29 848,957 $ 4.29
$8.72 to $ 8.88............... 314,899 8.3 years $ 8.83 153,232 $ 8.78
$10.80 to $11.40.............. 313,125 8.1 years $10.88 160,833 $10.89
</TABLE>
At December 31, 1997, 846,057 options were exercisable.
6. LEASE COMMITMENTS
Minimum rental commitments as of June 30, 1998, for all noncancelable
operating leases, consisting principally of leases for office space, real estate
and tower space, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Six months ending December 31, 1998......................... $ 2,193
Years ending December 31:
1999...................................................... 4,386
2000...................................................... 3,989
2001...................................................... 3,495
2002...................................................... 3,129
2003...................................................... 2,184
Thereafter.................................................. 2,708
-------
$22,084
=======
</TABLE>
Total rent expense amounted to approximately $2.4 million, $3.4 million, and
$2.0 million for the years ended December 31, 1996 and 1997, and the six months
ended June 30, 1998, respectively, of which $137,000 and $47,000 were paid to an
affiliate during 1996 and 1997, respectively.
7. ACCOUNTS PAYABLE, ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
Accounts payable........................................... $ 5,259 $ 3,948
Accrued operating expenses................................. 16,612 8,917
Income and other taxes payable............................. 1,847 2,951
Other...................................................... 4,328 4,600
------- -------
$28,046 $20,416
======= =======
</TABLE>
F-103
<PAGE>
PRICELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
7. ACCOUNTS PAYABLE, ACCRUED EXPENSES, AND OTHER CURRENT LIABILITIES (CONTINUED)
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
Unearned covenant not to compete........................... $ 2,125 $ 500
Interest payable........................................... 5,920 6,444
------- -------
$ 8,045 $ 6,944
======= =======
</TABLE>
8. MERGER WITH AMERICAN CELLULAR CORPORATION
On June 25, 1998, American Cellular Corporation acquired all of the
operations of the Company pursuant to an Agreement and Plan of Merger (the
Merger Agreement). At the effective time, as defined in the Merger Agreement,
the holders of each issued and outstanding share of Class A common stock and
Class B common stock received $14 in cash, without interest, and each issued and
outstanding share of Series A Preferred Stock received the product of $14 and
the number of Class A Shares into which each such share of Series A Preferred
Stock is convertible at such time in connection with a change of control.
F-104
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
25,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2000
LEHMAN BROTHERS BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
---------------------
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 27, 2000.
PROSPECTUS
1,470,000 SHARES
[LOGO]
CLASS A COMMON STOCK
------------------
We are offering to sell 1,470,000 shares of our Class A common stock to AT&T
Wireless Services, Inc. The sale of these shares would be made concurrently with
our initial public offering made by a separate prospectus in which we are
offering to sell up to 25,000,000 shares of our Class A common stock through the
underwriters named therein. The underwriters of our initial public offering may
also purchase up to 3,750,000 additional shares of our Class A common stock from
us and the shareholders listed on page 90 therein to cover over-allotments on
the same terms and conditions set forth therein. Consummation of the offering to
AT&T Wireless is conditional upon expiration of any applicable regulatory
waiting periods.
Following these offerings, we will have Class A common stock and Class B
common stock outstanding and our Class B common stock will represent
approximately 96.1% of the total combined voting power of our outstanding common
stock.
We have applied for quotation of our Class A common stock on the Nasdaq
National Market under the symbol "DCEL". We currently expect to offer the shares
offered by this prospectus to AT&T Wireless at a price per share equal to the
initial public offering price less an amount equal to the underwriting discount
per share we will pay to the underwriters in the initial public offering.
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
, 2000
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions to be stated in a mutually agreeable
stock purchase agreement between us and AT&T Wireless, AT&T Wireless Services,
Inc. will agree to purchase and we will agree to sell to AT&T Wireless Services,
Inc., up to 1,470,000 shares of our Class A common stock in this offering.
AT&T Wireless has agreed not to offer to sell, sell or otherwise dispose of
directly or indirectly any shares of common stock during the 180-day period
following the date of the prospectus without the prior written consent of Lehman
Brothers Inc. and Banc of America Securities LLC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an itemization of the costs that we expect to incur in
connection with the offer and sale of the securities that we are registering.
With the exception of the Securities Act and NASD fees, all amounts are
estimates.
<TABLE>
<CAPTION>
<S> <C>
Securities Act Registration Fee............................. $ 175,518
NASD Filing Fee............................................. 30,500
Printing and Engraving Expenses............................. 1,000,000
Legal Fees and Expenses..................................... 1,500,000
Accounting Fees and Expenses................................ 1,500,000
Miscellaneous............................................... 793,982
----------
Total..................................................... $5,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Oklahoma General Corporation Act under which the Company
is incorporated, 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.
We have entered into indemnity agreements with each of our directors and
executive officers. Under each indemnity agreement, we will pay on behalf of the
directors and executive officers and their executors, administrators and heirs,
any amount which they are or become legally obligated to pay because of:
- any claim threatened or made against them by any person because of any
act, omission, neglect or breach of duty, including any actual or alleged
error, misstatement or misleading statement, which they commit or suffer
while acting in their capacity as our director or officer, or the director
or officer of our affiliates; or
II-1
<PAGE>
- being a party, or being threatened to be made a party, to any threatened,
pending or contemplated action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that they
are or were our, or are or were our affiliate's, director, officer,
employee or agent, or are or were serving at our request as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Our indemnity obligations may include payments for damages, charges,
judgments, fines, penalties, settlements and court costs, costs of investigation
and costs of defense of legal, equitable or criminal actions, claims or
proceedings and appeals therefrom, and costs of attachment, supersedeas, bail,
surety or other bonds.
The Company's directors and officers are also insured against claims arising
out of the performance of their duties in such capacities.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
In March 1996, the Registrant closed a private sale for cash of 100,000
shares of its Class B Convertible Preferred Stock. The aggregate consideration
received by the Registrant was $10 million. All of such shares were sold to
Fleet Venture Resources, Inc., Fleet Equity Partners VI, L.P. and Kennedy Plaza
Partners, or the Fleet Investors, each of whom was an accredited investor. Each
purchaser represented that the shares of the Registrant's Class B Convertible
Preferred Stock were being acquired for such purchaser's own account for
investment and not with a view to the distribution of such shares. The shares of
Class B Convertible Preferred Stock were not registered under the Securities Act
in reliance upon the exemption provided by Section 4(2) of the Securities Act.
On February 28, 1997, the Registrant closed a private sale for cash of its
11 3/4% Senior Notes due 2007. The gross proceeds received by the Registrant
were $160 million. All of such securities were sold to Morgan Stanley & Co.
Incorporated, Alex. Brown & Sons Incorporated, First Union Capital Markets Corp.
and Nationsbanc Capital Markets, Inc. as the Placement Agents, who offered the
securities only to Qualified Institutional Buyers (as defined in Rule 144A of
the Securities Act), institutional accredited investors (as defined in Rule
501(a)(1), (2), (3) or (7) of the Securities Act) and outside the United States
in compliance with Regulation S under the Securities Act. The securities were
not registered under the Securities Act in reliance upon the exemptions from
registration provided by Section 4(2) of, and Rule 144A promulgated under, the
Securities Act.
On January 22, 1998, the Registrant closed a private sale for cash of
175,000 shares of its 12 1/4% Senior Exchangeable Preferred Stock due 2008. The
gross proceeds received by the Registrant were $175 million. All of such
securities were sold to Morgan Stanley & Co. Incorporated, Merrill Lynch,
Pierce, Fenner and Smith Incorporated and NationsBanc Montgomery Securities LLC
as the Placement Agents, who offered the securities only to Qualified
Institutional Buyers (as defined in Rule 144A of the Securities Act),
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) of the Securities Act) and outside the United States in compliance with
Regulation S under the Securities Act. The securities were not registered under
the Securities Act in reliance upon exemptions from registration provided by
Section 4(2) of, and Rule 144A promulgated under, the Securities Act.
On June 12, 1998, the Registrant's subsidiary, Logix Communications
Enterprises, Inc. (formerly, Dobson Wireless Company) closed a private sale for
cash of its 12 1/4% Senior Notes due 2008. The gross proceeds received by the
Registrant were $350 million. All of such securities were sold to Morgan Stanley
& Co. Incorporated and NationsBanc Montgomery Securities LLC, as the Placement
Agents, who offered the securities only to Qualified Institutional Buyers (as
defined in Rule 144A of the Securities Act), institutional accredited investors
(as defined in Rule 501(a)(1), (2), (3) or (7) of the Securities Act) and
outside the United States in compliance with Regulation S under the Securities
Act. The securities were not registered under the Securities Act in reliance
upon the exemption provided by Section 4(2) of, and Rule 144A promulgated under,
the Securities Act.
II-2
<PAGE>
On December 23, 1998, the Registrant's subsidiary, Dobson/Sygnet
Communications Company, closed a private sale for cash of its 12 1/4% Senior
Notes due 2008. The gross proceeds received by the Registrant were
$200 million. All of such securities were sold to NationsBanc Montgomery
Securities, LLC, Lehman Brothers Inc., First Union Capital Markets and TD
Securities (USA) Inc. as the Initial Purchasers, who offered the securities only
to Qualified Institutional Buyers (as defined in Rule 144A of the Securities
Act) and outside the United States in compliance with Regulation S under the
Securities Act. The securities were not registered under the Securities Act in
reliance upon the exemptions provided by Section 4(2) of, and Rule 144A
promulgated under, the Securities Act.
On December 23, 1998, the Registrant closed a private sale for cash of
65,646 shares of its 12 1/4% Senior Exchangeable Preferred Stock. The gross
proceeds received by the Registrant were $50 million. All of such securities
were sold to NationsBanc Montgomery Securities LLC as the Initial Purchaser, who
offered a portion of the securities only to Qualified Institutional Buyers (as
defined in Rule 144A of the Securities Act). The securities were not registered
under the Securities Act in reliance upon the exemptions provided by
Section 4(2) of, and Rule 144A promulgated under, the Securities Act.
On December 23, 1998, the Registrant issued an aggregate of 30,000 shares of
its Class F Preferred Stock and warrants to purchase shares of its Class A
Common Stock for an aggregate cash consideration of $30 million. No underwriters
were involved in the transaction. The shares of Class F Preferred Stock and
Warrants were sold to seven purchasers, each of whom was an accredited investor
(as defined in Rule 501(a) promulgated under the Securities Act), and each of
who represented that the Registrant's securities were being acquired for the
purchaser's own account for investment, and not with a view to a distribution
thereof. The securities were not registered under the Securities Act in reliance
upon exemptions from registration provided by Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On December 23, 1998, the Registrant issued an aggregate of 75,093.7 shares
of its Class D Preferred Stock for an aggregate cash consideration of
$85 million. No underwriters were involved in the transaction. The shares of
Class D Preferred Stock were sold to thirty-three purchasers, each of whom was
an accredited investor (as defined in Rule 501(a) promulgated under the
Securities Act), and each of who represented that the Registrant's securities
were being acquired for the purchaser's own account for investment, and not with
a view to a distribution thereof. The securities were not registered under the
Securities Act in reliance upon exemptions from registration provided by Section
4(2) of the Securities Act and Regulation D promulgated thereunder.
On December 23, 1998, the Registrant issued an aggregate of 100,000 shares
of its Class A Common Stock upon conversion of the Registrant's outstanding
shares of Class B Convertible Preferred Stock. No cash or other consideration
was received by the Registrant in connection with such conversion. No
underwriters were involved in the transaction. The securities were not
registered under the Securities Act in reliance upon exemptions from
registration provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.
On December 23, 1998, the Registrant issued an aggregate of 37,853 shares of
its Class G Preferred Stock for an aggregate purchase price of $25 million in
exchange for 37,853 shares of the Registrant's Class A Common Stock which had
been valued at $25 million by the Registrant's Board of Directors. No
underwriters were involved in the transaction. The shares of Class G Preferred
Stock were sold to the Registrant's principal shareholder who is also an
accredited investor (as defined in Rule 501(a) promulgated under the Securities
Act). The purchaser represented that the shares of the Registrant's Class G
Preferred Stock were being acquired for the purchaser's own account for
investment, and not with a view to a distribution thereof. The securities were
not registered under the Securities Act in reliance upon exemptions from
registration provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.
II-3
<PAGE>
On May 5, 1999, the Registrant closed a private sale for cash of 170,000
shares of its 13% Senior Exchangeable Preferred Stock due 2009. The gross
proceeds received by the Registrant were $170 million. All of such securities
were sold to Lehman Brothers Inc., as the Initial Purchaser, who offered the
securities only to Qualified Institutional Buyers (as defined in Rule 144A of
the Securities Act). The securities were not registered under the Securities Act
in reliance upon the exemptions from registration provided by Section 4(2) and
Rule 144A of the Securities Act.
From time to time during 1997, 1998 and 1999, the Registrant has granted
options to purchase shares of its Class B Common Stock and Class C Common Stock
pursuant to its existing Stock Option Plan. As of January 26, 2000, options to
purchase an aggregate of 32,904.88 shares of its Class B Common Stock and
4,226 shares of its Class C Common Stock were outstanding. No options which have
been granted have been exercised. The per share exercise price of each option is
the fair market value of the underlying share of common on the date the option
was granted as determined by the Registrant's Board of Directors. No
underwriters were involved in the grant of options. Each option agreement
requires, as a condition to exercise of the option, that the purchaser agree
that shares acquired upon exercise of the option will be acquired for the
purchaser's own account for investment, and not with a view to the distribution
of such shares. The securities were not registered under the Securities Act in
reliance upon exemptions from registration provided by Section 4(2) of the
Securities Act.
Beginning in September 1998, the Registrant's former subsidiary, Logix
Communications Enterprises, Inc., has granted options to purchase shares of
Logix's common stock pursuant to its existing stock option plan. At
December 31, 1999, options to purchase an aggregate of 5,344,021 shares of Logix
common stock were outstanding. No options which have been granted have been
exercised. The per share exercise price of each option is the fair market value
of the underlying common stock on the date of grant as determined by Logix's
Board of Directors. No underwriters have been involved in the grant of options.
Each option agreement requires, as a condition to exercise of the option that
the purchaser agree that the shares acquired upon exercise of the option will be
acquired for the purchaser's own account for investment, and not with a view to
the distribution of such shares.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement. (5)
2.1 Asset Purchase Agreement dated October 9, 1997 between
Texas 16 Cellular Telephone Company and Dobson Cellular
of Texas, Inc. (1) [2.1]
2.2.1 Stock Purchase Agreement dated November 17, 1997 as amended
by Amendment No. 1 thereto effective as of March 18, 1998
between the shareholders of Cellular 2000 Telephone Co.
listed therein and Dobson Cellular of California, Inc. (2) [2.6.1]
2.2.2 Stock Purchase Agreement dated March 19, 1998 between RSA
339, Inc. and AT&T Wireless Services, Inc. and Dobson
Cellular of California, Inc. (2) [2.6.2]
2.3 Securities Purchase Agreement dated March 25, 1998 between
Santa Cruz Cellular Telephone, Inc. and its shareholders
and optionholders listed therein and Dobson Cellular of
California, Inc. (2) [2.7]
2.4 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). (3) [2.0]
2.5 Asset Purchase Agreement dated August 20, 1998, between Ohio
Wireless Communications, L.L.C. and Dobson Cellular of
Sandusky. (4) [2.9]
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
2.6 Asset Purchase Agreement dated as of September 2, 1998
between A-1 Cellular of Texas, L.P. and Dobson Cellular of
Navarro, Inc. (4) [2.10]
2.7 Asset Purchase Agreement dated November 24, 1998 between
First Cellular of Maryland, Inc. and Dobson Cellular of
Maryland, Inc. (4) [2.11]
2.8 Agreement to furnish unfiled schedules. (4) [2.12]
2.9 Asset Purchase Agreement dated September 8, 1999 by and
between ACC Arizona Cellular Communications, Inc. and
Dobson Cellular of Imperial, Inc. (13)
2.10 Asset Purchase Agreement dated September 30, 1999 between
Alaska 3 Cellular, LLC and Dobson Cellular Systems, Inc. (13)
2.11 Agreement and Plan of Merger dated October 5, 1999 among ACC
Acquisition LLC, ACC Acquisition Co. and American Cellular
Corporation. (13)
2.12 Asset Purchase Agreement dated October 6, 1999 between
Pacific Telecom Cellular of Alaska RSA 1, Inc. and Dobson
Cellular Systems, Inc. (13)
2.13 Asset Purchase Agreement dated October 25, 1999 between
Trillium Cellular Corp., Interstate Cellular Holdings
Corp., Universal Telecell, Inc. (d/b/a Unitel Wireless
Communications Systems, Inc.) and Dobson Cellular Systems,
Inc. (13)
2.14 License Acquisition Agreement dated November 9, 1999 among
DCC PCS, Inc., Royal Wireless, L.L.C., Arnage Wireless,
L.L.C. and (with respect to Section 10.12 only) AT&T
Wireless Services, Inc. (13)
2.15 Form of Agreement and Plan of Recapitalization among Dobson
Communications Corporation, Dobson Operating Company,
Dobson CC Limited Partnership, Russell L. Dobson, J.W.
Childs Equity Partners II, L.P., AT&T Wireless, Inc. and
the other stockholders of Dobson Communications
Corporation's Class A Common Stock and Class D Preferred
Stock. (5)
2.16 Asset Purchase Agreement dated as of December 14, 1999
between Lake Huron Cellular Corp. and Dobson Cellular
Systems, Inc. (5)
2.17 Asset Purchase Agreement dated January 5, 2000 for Texas 9
by and between Lone Star Cellular, Inc., PCM, Inc. and
Dobson Cellular Systems, Inc. (13)
2.18 AT&T Stock Purchase Agreement **
3.1 Form of Registrant's Amended and Restated Certificate of
Incorporation. (5)
3.2 Form of Registrant's Amended and Restated Bylaws. (13)
4.1 Third Amended and Restated Credit Agreement among the Agents
and Lenders named therein and Dobson Operating Company (6) [4.1]
dated March 25, 1998, as amended. (7) [10.1]
4.2 $120 million Revolving Credit Agreement among Dobson
Cellular Operations Company and the Agents and Lenders (6) [4.2]
named therein dated as of March 25, 1998, as amended. (7) [10.1]
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, as (6) [4.3]
amended. (7) [10.1]
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
4.4 Credit Agreement among the Agents and Lenders named therein
and Dobson/Sygnet Operating Company, dated as of
December 23, 1998. (4) [4.4]
4.5 $17.5 million Term Loan Agreement between Dobson Tower
Company and NationsBank, N.A. dated as of December 23,
1998. (4) [4.5]
4.6 Amended, Restated, and Consolidated Revolving Credit and
Term Loan Agreement dated as of January 18, 2000 among
Dobson Operating Company, L.L.C., Banc of America
Securities, LLC, Bank of America, N.A., Lehman Commercial
Paper Inc. and Toronto Dominion (Texas) Inc., and First
Union National Bank and PNC Bank, National Association,
and the Lenders. (5)
4.7 Telephone Loan Contract dated as of November 7, 1958 between
Dobson Telephone Company, Inc. and United States of
America. (8) [4.2]
4.8 Telephone Loan Contract dated as of March 19, 1956 between
McLoud Telephone Company and United States of America. (8) [4.3]
4.9 Telephone Loan Contract dated as of January 15, 1993 between
Dobson Telephone Company, Inc., Rural Telephone Bank and
United States of America. (8) [4.4]
4.10 Restated Mortgage, Security Agreement and Financing
Statement dated as of May 15, 1993 between Dobson
Telephone Company, Rural Telephone Bank and United States
of America. (8) [4.5]
4.11 Indenture dated as of February 28, 1997 between the
Registrant, as Issuer, and United States Trust Company of
New York, as Trustee. (8) [4.6]
4.12 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. (8) [4.9]
4.13 Agreement to furnish unfiled debt instruments. (2) [4.12]
4.14 Indenture dated December 23, 1998 between Dobson/Sygnet
Communications Company, as Issuer, and United States Trust
Company of New York, as Trustee. (3) [4.1]
4.15 Collateral Pledge and Security 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. (4) [4.18]
4.16 Form of Certificate representing Common Stock. (5)
5 Opinion of McAfee & Taft A Professional Corporation. (13)
10.1.1* Registrant's 1996 Stock Option Plan, as amended. (4) [10.1.1]
10.1.2* 1998 Stock Option Plan of Logix Communications Enterprises,
Inc. (f/k/a Dobson Wireline Company). (4) [10.1.2]
10.1.3* Form of 2000-1 Amendment to the DCC 1996 Stock Option Plan (13)
10.1.4* Form of Dobson Communications Corporation 2000 Stock
Incentive Plan (13)
10.2.2 Promissory Note dated February 10, 1997 of G. Edward Evans
in the amount of $300,000 in favor of Western Financial
Services Corp. (8) [10.2.1]
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
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). (9) [2.1]
10.2.3.1 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). (9) [2.2]
10.2.4 Stock Purchase Agreement, dated December 23, 1998 among the
Registrant, the Fleet Investors and the other entities
listed therein. (4) [10.2.5]
10.2.5 Asset Purchase Agreement dated December 23, 1998 by and
between Sygnet Communications, Inc. and Dobson Tower
Company. (4) [10.2.6]
10.2.6.1 Asset Purchase Agreement dated July 6, 1999 by and among
American Tower Corporation, American Tower, LP, Dobson
Tower Company and the Registrant as Sole Shareholder of
Dobson Tower, as amended. (13)
10.2.7 Master Site License Agreement dated December 23, 1998 by and
between Sygnet Communications, Inc. and Dobson Tower
Company. (4) [10.2.7]
10.3.1* Letter dated June 3, 1996 from Registrant to Bruce R.
Knooihuizen describing employment arrangement. (8) [10.3.2]
10.3.2* Letter dated October 15, 1996 from Fleet Equity Partners to
Justin L. Jaschke regarding director compensation. (8) [10.3.3]
10.3.3* Letter dated December 26, 1996 from Registrant to G. Edward
Evans describing employment arrangement. (8) [10.3.1]
10.3.4* Letter dated September 16, 1997 from Registrant to William
J. Hoffman, Jr. describing employment arrangement. (2) [10.3.4]
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas
Morgan describing employment arrangement. (2) [10.3.5]
10.3.6* Letter dated August 25, 1998 from Registrant to Richard D.
Sewell, Jr. describing employment arrangement. (4) [10.3.6]
10.3.7* Consulting Agreement dated December 21, 1998 between
Registrant and Albert H. Pharis, Jr. (4) [10.3.7]
10.3.8* Consulting Agreement dated August 15, 1998 between the
Registrant and Russell L. Dobson and Addendum thereto
dated October 1, 1998 (13)
10.3.9* Letter dated September 24, 1998 from Registrant to Craig T.
Sheetz describing employment arrangement. (13)
10.4.1 North American Cellular Network Services Agreement dated
August 26, 1992 between North American Cellular Network,
Inc. and Dobson Cellular Systems, Inc. (8) [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. (8) [10.4.1]
10.4.3 General Purchase Agreement dated January 13, 1998 between
Lucent Technologies, Inc. and Dobson Cellular Systems,
Inc. (2) [10.4.7]
10.4.4 Operating Agreement dated January 16, 1998 between AT&T
Wireless Services, Inc. and Dobson Cellular Systems, Inc. (13)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
10.4.5 Fourth Amended General Purchase Agreement dated January 5,
1999 between Northern Telecom Inc. and Registrant. (2) [10.4.8]
10.6 Second Amended and Restated Partnership Agreement of Gila
River Cellular General Partnership dated September 30,
1997. (11) [10.8]
10.7.1 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). (4) [10.8.1]
10.7.2 Stockholder and Investor Rights Agreement, dated
December 23, 1998 among the Registrant and the
shareholders listed therein, (without exhibits). (4) [10.8.2]
10.7.2.1 Amendment to Stockholder and Investors Rights Agreement,
dated April 13, 1999 among the Registrant and the
Shareholders listed therein (without exhibits). (4) [10.8.2.1]
10.7.2.2 Amended and Restated Stockholders and Investor Rights
Agreement dated September 17, 1999 by and among the
Registrant and the Cash Equity Investors, as listed and
defined therein (without exhibits). (13)
10.7.3 Investors Agreement, dated December 23, 1998, among the
Registrant, and certain shareholders of Sygnet Wireless,
Inc. and their affiliates listed therein. (4) [10.8.3]
10.8 License Agreement dated February 15, 1999 between Registrant
and H.O. Systems, Inc. (10) [10.9]
10.9* Form of Dobson Communications Corporation Director
Indemnification Agreement. (13)
10.10 Form of Agreement and Plan of Reorganization and Corporation
Separation. (13)
10.11 Form of Agreement by and among Dobson Communications
Corporation and Dobson CC Limited Partnership regarding
the distribution of Logix Communications Enterprises, Inc.
stock. (5)
21 List of Subsidiaries. (5)
23.1 Consent of McAfee & Taft A Professional Corporation will be
contained in Exhibit 5 hereto. (13)
23.2 Consent of Arthur Andersen LLP (Oklahoma City--DCC). (5)
23.3 Consent of Ernst & Young LLP (Cleveland--Sygnet). (5)
23.4 Consent of Ernst & Young LLP (Chicago--American Cellular). (5)
23.5 Consent of Paul Kagan Associates, Inc. (Carmel, CA). (13)
24 Power of Attorney. (13)
27 Financial Data Schedule. (12)[27]
99.1* Form of Dobson Communications Corporation 2000 Stock
Incentive Plan Incentive Stock Option Agreement. (13)
99.2* Form of Dobson Communications Corporation 2000 Stock
Incentive Plan Nonqualified Stock Option Agreement. (13)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
** To be filed by amendment.
II-8
<PAGE>
(1) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on
April 10, 1998, as the exhibit number indicated in brackets and incorporated
by reference herein.
(2) Filed as an exhibit to the Registrant'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.
(3) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on
January 7, 1999, as the exhibit number indicated in brackets and
incorporated by reference herein.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-4
(Registration No. 333-71633), as the exhibit number indicated in brackets
and incorporated by reference herein.
(5) Filed herewith.
(6) Filed as an exhibit to the Registrant's Registration Statement on Form S-4
(Registration No. 333-50107), as the exhibit number indicated in brackets
and incorporated by reference herein.
(7) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on
May 27, 1999, as the exhibit number indicated in brackets and incorporated
by reference herein.
(8) Filed as an exhibit to the Registrant's Registration Statement of Form S-4
(Registration No. 333-23769), as the exhibit number indicated in brackets
and incorporated by reference herein.
(9) Filed as an exhibit to the Registrant's Current Report on Form 8-K on
June 30, 1998, as the exhibit number indicated in brackets and incorporated
by reference herein.
(10) Filed as an exhibit to the Registrant'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.
(11) Filed as an exhibit to the Registrant'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.
(12) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1999 as the exhibit number indicated in brackets
and incorporated by reference herein.
(13) Previously filed as an exhibit to this Registration Statement.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unforceable. 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 to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(2) The undersigned registrant hereby undertakes that:
II-9
<PAGE>
(a) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 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 26th day of January, 2000.
<TABLE>
<S> <C> <C>
DOBSON COMMUNICATIONS CORPORATION
By: /s/ RONALD L. RIPLEY
-----------------------------------------
Ronald L. Ripley
VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 26th day of January, 2000.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ EVERETT R. DOBSON*
------------------------------------------- Chairman of the Board, Chief Executive Officer
Everett R. Dobson and Director (Principal Executive Officer)
/s/ STEPHEN T. DOBSON*
------------------------------------------- Secretary and Director
Stephen T. Dobson
/s/ BRUCE R. KNOOIHUIZEN*
------------------------------------------- Executive Vice President and Chief Financial
Bruce R. Knooihuizen Officer (Principal Financial Officer)
/s/ TRENT LEFORCE*
------------------------------------------- Corporate Controller (Principal Accounting
Trent LeForce Officer)
/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>
- ------------------------
*Signed by power of attorney.
II-11
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement. (5)
2.1 Asset Purchase Agreement dated October 9, 1997 between
Texas 16 Cellular Telephone Company and Dobson Cellular
of Texas, Inc. (1) [2.1]
2.2.1 Stock Purchase Agreement dated November 17, 1997 as amended
by Amendment No. 1 thereto effective as of March 18, 1998
between the shareholders of Cellular 2000 Telephone Co.
listed therein and Dobson Cellular of California, Inc. (2) [2.6.1]
2.2.2 Stock Purchase Agreement dated March 19, 1998 between RSA
339, Inc. and AT&T Wireless Services, Inc. and Dobson
Cellular of California, Inc. (2) [2.6.2]
2.3 Securities Purchase Agreement dated March 25, 1998 between
Santa Cruz Cellular Telephone, Inc. and its shareholders
and optionholders listed therein and Dobson Cellular of
California, Inc. (2) [2.7]
2.4 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). (3) [2.0]
2.5 Asset Purchase Agreement dated August 20, 1998, between Ohio
Wireless Communications, L.L.C. and Dobson Cellular of
Sandusky. (4) [2.9]
2.6 Asset Purchase Agreement dated as of September 2, 1998
between A-1 Cellular of Texas, L.P. and Dobson Cellular of
Navarro, Inc. (4) [2.10]
2.7 Asset Purchase Agreement dated November 24, 1998 between
First Cellular of Maryland, Inc. and Dobson Cellular of
Maryland, Inc. (4) [2.11]
2.8 Agreement to furnish unfiled schedules. (4) [2.12]
2.9 Asset Purchase Agreement dated September 8, 1999 by and
between ACC Arizona Cellular Communications, Inc. and
Dobson Cellular of Imperial, Inc. (13)
2.10 Asset Purchase Agreement dated September 30, 1999 between
Alaska 3 Cellular, LLC and Dobson Cellular Systems, Inc. (13)
2.11 Agreement and Plan of Merger dated October 5, 1999 among ACC
Acquisition LLC, ACC Acquisition Co. and American Cellular
Corporation. (13)
2.12 Asset Purchase Agreement dated October 6, 1999 between
Pacific Telecom Cellular of Alaska RSA 1, Inc. and Dobson
Cellular Systems, Inc. (13)
2.13 Asset Purchase Agreement dated October 25, 1999 between
Trillium Cellular Corp., Interstate Cellular Holdings
Corp., Universal Telecell, Inc. (d/b/a Unitel Wireless
Communications Systems, Inc.) and Dobson Cellular Systems,
Inc. (13)
2.14 License Acquisition Agreement dated November 9, 1999 among
DCC PCS, Inc., Royal Wireless, L.L.C., Arnage Wireless,
L.L.C. and (with respect to Section 10.12 only) AT&T
Wireless Services, Inc. (13)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
2.15 Form of Agreement and Plan of Recapitalization among Dobson
Communications Corporation, Dobson Operating Company,
Dobson CC Limited Partnership, Russell L. Dobson, J.W.
Childs Equity Partners II, L.P., AT&T Wireless, Inc. and
the other stockholders of Dobson Communications
Corporation's Class A Common Stock and Class D Preferred
Stock. (5)
2.16 Asset Purchase Agreement dated as of December 14, 1999
between Lake Huron Cellular Corp. and Dobson Cellular
Systems, Inc. (5)
2.17 Asset Purchase Agreement dated January 5, 2000 for Texas 9
by and between Lone Star Cellular, Inc., PCM, Inc. and
Dobson Cellular Systems, Inc. (13)
2.18 AT&T Stock Purchase Agreement **
3.1 Form of Registrant's Amended and Restated Certificate of
Incorporation. (5)
3.2 Form of Registrant's Amended and Restated Bylaws. (13)
4.1 Third Amended and Restated Credit Agreement among the Agents
and Lenders named therein and Dobson Operating Company (6) [4.1]
dated March 25, 1998, as amended. (7) [10.1]
4.2 $120 million Revolving Credit Agreement among Dobson
Cellular Operations Company and the Agents and Lenders (6) [4.2]
named therein dated as of March 25, 1998, as amended. (7) [10.1]
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, as (6) [4.3]
amended. (7) [10.1]
4.4 Credit Agreement among the Agents and Lenders named therein
and Dobson/Sygnet Operating Company, dated as of
December 23, 1998. (4) [4.4]
4.5 $17.5 million Term Loan Agreement between Dobson Tower
Company and NationsBank, N.A. dated as of December 23,
1998. (4) [4.5]
4.6 Amended, Restated, and Consolidated Revolving Credit and
Term Loan Agreement dated as of January 18, 2000 among
Dobson Operating Company, L.L.C., Banc of America
Securities, LLC, Bank of America, N.A., Lehman Commercial
Paper Inc. and Toronto Dominion (Texas) Inc., and First
Union National Bank and PNC Bank, National Association,
and the Lenders. (5)
4.7 Telephone Loan Contract dated as of November 7, 1958 between
Dobson Telephone Company, Inc. and United States of
America. (8) [4.2]
4.8 Telephone Loan Contract dated as of March 19, 1956 between
McLoud Telephone Company and United States of America. (8) [4.3]
4.9 Telephone Loan Contract dated as of January 15, 1993 between
Dobson Telephone Company, Inc., Rural Telephone Bank and
United States of America. (8) [4.4]
4.10 Restated Mortgage, Security Agreement and Financing
Statement dated as of May 15, 1993 between Dobson
Telephone Company, Rural Telephone Bank and United States
of America. (8) [4.5]
4.11 Indenture dated as of February 28, 1997 between the
Registrant, as Issuer, and United States Trust Company of
New York, as Trustee. (8) [4.6]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
4.12 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. (8) [4.9]
4.13 Agreement to furnish unfiled debt instruments. (2) [4.12]
4.14 Indenture dated December 23, 1998 between Dobson/Sygnet
Communications Company, as Issuer, and United States Trust
Company of New York, as Trustee. (3) [4.1]
4.15 Collateral Pledge and Security 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. (4) [4.18]
4.16 Form of Certificate representing Common Stock. (5)
5 Opinion of McAfee & Taft A Professional Corporation. (13)
10.1.1* Registrant's 1996 Stock Option Plan, as amended. (4) [10.1.1]
10.1.2* 1998 Stock Option Plan of Logix Communications Enterprises,
Inc. (f/k/a Dobson Wireline Company). (4) [10.1.2]
10.1.3* Form of 2000-1 Amendment to the DCC 1996 Stock Option Plan (13)
10.1.4* Form of Dobson Communications Corporation 2000 Stock
Incentive Plan (13)
10.2.2 Promissory Note dated February 10, 1997 of G. Edward Evans
in the amount of $300,000 in favor of Western Financial
Services Corp. (8) [10.2.1]
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). (9) [2.1]
10.2.3.1 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). (9) [2.2]
10.2.4 Stock Purchase Agreement, dated December 23, 1998 among the
Registrant, the Fleet Investors and the other entities
listed therein. (4) [10.2.5]
10.2.5 Asset Purchase Agreement dated December 23, 1998 by and
between Sygnet Communications, Inc. and Dobson Tower
Company. (4) [10.2.6]
10.2.6.1 Asset Purchase Agreement dated July 6, 1999 by and among
American Tower Corporation, American Tower, LP, Dobson
Tower Company and the Registrant as Sole Shareholder of
Dobson Tower, as amended. (13)
10.2.7 Master Site License Agreement dated December 23, 1998 by and
between Sygnet Communications, Inc. and Dobson Tower
Company. (4) [10.2.7]
10.3.1* Letter dated June 3, 1996 from Registrant to Bruce R.
Knooihuizen describing employment arrangement. (8) [10.3.2]
10.3.2* Letter dated October 15, 1996 from Fleet Equity Partners to
Justin L. Jaschke regarding director compensation. (8) [10.3.3]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
10.3.3* Letter dated December 26, 1996 from Registrant to G. Edward
Evans describing employment arrangement. (8) [10.3.1]
10.3.4* Letter dated September 16, 1997 from Registrant to William
J. Hoffman, Jr. describing employment arrangement. (2) [10.3.4]
10.3.5* Letter dated October 28, 1997 from Registrant to R. Thomas
Morgan describing employment arrangement. (2) [10.3.5]
10.3.6* Letter dated August 25, 1998 from Registrant to Richard D.
Sewell, Jr. describing employment arrangement. (4) [10.3.6]
10.3.7* Consulting Agreement dated December 21, 1998 between
Registrant and Albert H. Pharis, Jr. (4) [10.3.7]
10.3.8* Consulting Agreement dated August 15, 1998 between the
Registrant and Russell L. Dobson and Addendum thereto
dated October 1, 1998 (13)
10.3.9* Letter dated September 24, 1998 from Registrant to Craig T.
Sheetz describing employment arrangement. (13)
10.4.1 North American Cellular Network Services Agreement dated
August 26, 1992 between North American Cellular Network,
Inc. and Dobson Cellular Systems, Inc. (8) [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. (8) [10.4.1]
10.4.3 General Purchase Agreement dated January 13, 1998 between
Lucent Technologies, Inc. and Dobson Cellular Systems,
Inc. (2) [10.4.7]
10.4.4 Operating Agreement dated January 16, 1998 between AT&T
Wireless Services, Inc. and Dobson Cellular Systems, Inc. (13)
10.4.5 Fourth Amended General Purchase Agreement dated January 5,
1999 between Northern Telecom Inc. and Registrant. (2) [10.4.8]
10.6 Second Amended and Restated Partnership Agreement of Gila
River Cellular General Partnership dated September 30,
1997. (11) [10.8]
10.7.1 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). (4) [10.8.1]
10.7.2 Stockholder and Investor Rights Agreement, dated
December 23, 1998 among the Registrant and the
shareholders listed therein, (without exhibits). (4) [10.8.2]
10.7.2.1 Amendment to Stockholder and Investors Rights Agreement,
dated April 13, 1999 among the Registrant and the
Shareholders listed therein (without exhibits). (4) [10.8.2.1]
10.7.2.2 Amended and Restated Stockholders and Investor Rights
Agreement dated September 17, 1999 by and among the
Registrant and the Cash Equity Investors, as listed and
defined therein (without exhibits). (13)
10.7.3 Investors Agreement, dated December 23, 1998, among the
Registrant, and certain shareholders of Sygnet Wireless,
Inc. and their affiliates listed therein. (4) [10.8.3]
10.8 License Agreement dated February 15, 1999 between Registrant
and H.O. Systems, Inc. (10) [10.9]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
10.9* Form of Dobson Communications Corporation Director
Indemnification Agreement. (13)
10.10 Form of Agreement and Plan of Reorganization and Corporation
Separation. (13)
10.11 Form of Agreement by and among Dobson Communications
Corporation and Dobson CC Limited Partnership regarding
the distribution of Logix Communications Enterprises, Inc.
stock. (5)
21 List of Subsidiaries. (5)
23.1 Consent of McAfee & Taft A Professional Corporation will be
contained in Exhibit 5 hereto. (13)
23.2 Consent of Arthur Andersen LLP (Oklahoma City--DCC). (5)
23.3 Consent of Ernst & Young LLP (Cleveland--Sygnet). (5)
23.4 Consent of Ernst & Young LLP (Chicago--American Cellular). (5)
23.5 Consent of Paul Kagan Associates, Inc. (Carmel, CA). (13)
24 Power of Attorney. (13)
27 Financial Data Schedule. (12)[27]
99.1* Form of Dobson Communications Corporation 2000 Stock
Incentive Plan Incentive Stock Option Agreement. (13)
99.2* Form of Dobson Communications Corporation 2000 Stock
Incentive Plan Nonqualified Stock Option Agreement. (13)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
** To be filed by amendment.
(1) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on
April 10, 1998, as the exhibit number indicated in brackets and incorporated
by reference herein.
(2) Filed as an exhibit to the Registrant'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.
(3) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on
January 7, 1999, as the exhibit number indicated in brackets and
incorporated by reference herein.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-4
(Registration No. 333-71633), as the exhibit number indicated in brackets
and incorporated by reference herein.
(5) Filed herewith.
(6) Filed as an exhibit to the Registrant's Registration Statement on Form S-4
(Registration No. 333-50107), as the exhibit number indicated in brackets
and incorporated by reference herein.
(7) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on
May 27, 1999, as the exhibit number indicated in brackets and incorporated
by reference herein.
(8) Filed as an exhibit to the Registrant's Registration Statement of Form S-4
(Registration No. 333-23769), as the exhibit number indicated in brackets
and incorporated by reference herein.
(9) Filed as an exhibit to the Registrant's Current Report on Form 8-K on
June 30, 1998, as the exhibit number indicated in brackets and incorporated
by reference herein.
(10) Filed as an exhibit to the Registrant'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>
(11) Filed as an exhibit to the Registrant'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.
(12) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1999 as the exhibit number indicated in brackets
and incorporated by reference herein.
(13) Previously filed as an exhibit to this Registration Statement.
<PAGE>
25,000,000 SHARES
DOBSON COMMUNICATIONS CORPORATION
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
______________, 2000
LEHMAN BROTHERS INC.
BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY INC.
DEUTSCHE BANK SECURITIES INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
and
Banc of America Securities LLC
9 West 57th Street, 48th Floor
New York, NY 10019
Dear Sirs:
Dobson Communications Corporation, an Oklahoma corporation (the
"Company"), proposes to sell 25,000,000 shares (the "Firm Stock") of the
Company's Class A Common Stock, par value $0.001 per share (the "Class A Common
Stock"). In addition, the Company and the stockholders of the Company named in
Schedule 2 hereto (the "Selling Stockholders") propose to grant to the
Underwriters named in Schedule 1 hereto (the "Underwriters") an option to
purchase up to an aggregate additional 3,750,000 shares of the Class A Common
Stock on the terms and for the purposes set forth in Section 3 (the "Option
Stock"). Lehman Brothers Inc. and Banc of America Securities LLC are acting as
joint book running managers for the offering of the Stock and Salomon Smith
Barney Inc. is acting as joint lead manager for the offering of the Stock.
Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as co-managers for the offering of the
Stock. The Firm Stock and the Option Stock, if purchased, are hereinafter
collectively called the "Stock." This is to confirm the agreement concerning
the purchase of the Stock from the Company and, in
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the case of the Option Stock, from the Company and the Selling Stockholders,
by the Underwriters.
It is understood that ________ shares of the Firm Stock initially
will be reserved by Salomon Smith Barney Inc. out of the Stock set forth
opposite its name on Schedule I of this Agreement, for offer and sale upon
the terms and conditions set forth in the Prospectus (as defined below) and
in accordance with the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD") to officers, directors, employees and
persons having business relationships with the Company and its subsidiaries
(collectively, "Participants") as set forth in the Prospectus under the
caption "Underwriting--Directed Share Program" who have heretofore delivered
to Salomon Smith Barney Inc. offers or indications of interest to purchase
shares of Firm Stock in form satisfactory to Salomon Smith Barney Inc. The
Firm Stock to be sold by Salomon Smith Barney Inc. pursuant to the Directed
Share Program (the "Directed Shares") will be sold by Salomon Smith Barney
Inc. pursuant to this Agreement at the public offering price. Any Directed
Shares not orally confirmed for purchase by any Participants by the end of
the business day on which this Agreement is executed will be offered to the
public by Salomon Smith Barney Inc. as set forth in the Prospectus.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1, and amendments
thereto, with respect to the Stock has (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations (the "Rules and Regulations") of the United
States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities
Act and (iii) become effective under the Securities Act. Copies of
such registration statement and the amendments thereto have been
delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Preliminary Prospectus"
means each prospectus included in such registration statement, or
amendments thereof, before it became effective under the Securities
Act and any prospectus filed with the Commission by the Company
pursuant to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at the
Effective Time, including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 6(a) hereof and
deemed to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b)
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of Rule 430A of the Rules and Regulations and, in the event any
post-effective amendment thereto or any registration statement
filed with the Commission pursuant to Rule 462(b) of the Rules and
Regulations becomes effective prior to either Delivery Date, shall
also mean such registration statement as so amended or such
registration statement filed with the Commission pursuant to Rule
462(b) of the Rules and Regulations, as the case may be; and
"Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date, the date hereof and each Delivery Date (as to
the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading; PROVIDED that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement, the Prospectus or any further
amendments or supplements to the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf
of any Underwriter specifically for inclusion therein, it being
understood that the only information so furnished is specified in
Section 10(g).
(c) The Company and each of its subsidiaries (as defined in
Section 17) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the conduct
of their respective businesses requires such qualification, except
where the failure to be so qualified would not reasonably be expected
to have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect"), and each have all power and authority
necessary to own or hold their respective properties and to conduct
the businesses in which they are engaged, except where the failure
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to have such power and authority would not reasonably be expected to
have a Material Adverse Effect; and none of the subsidiaries of the
Company (other than [Dobson Operating Company LLC, Dobson Cellular
Systems, Inc. and Dobson/Sygnet Communications, Inc.] (collectively,
the "Significant Subsidiaries")) is a "significant subsidiary," as
such term is defined in Rule 405 of the Rules and Regulations.
(d) At the First Delivery Date (as defined in Section 5), the
Company will have an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company will have been duly authorized and validly issued, will be
fully paid and non-assessable and will conform, in all material
respects, to the description thereof contained in the Prospectus. All
of the issued shares of capital stock of each subsidiary of the
Company have been duly authorized and validly issued and are fully
paid and non-assessable and (except as set forth in the Prospectus)
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(e) The shares of the Stock to be issued and sold by the Company
to the Underwriters hereunder have been duly authorized and, when
issued and delivered against payment therefor as provided herein, will
be validly issued, fully paid and non-assessable and the Stock will
conform, in all material respects, to the description thereof
contained in the Prospectus. The certificates for the Class A Common
Stock (including the shares of Stock being delivered on the date
hereof) are in valid and sufficient form.
(f) This Agreement has been duly authorized, executed and
delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the other parties thereto)
constitutes the legal, valid and binding agreement of the Company
enforceable against it in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) or an implied
covenant of good faith and fair dealing.
(g) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby, by the Company's amended and restated certificate of
incorporation and by the Agreement and Plan of Recapitalization, dated
as of January [__], 2000, among the Company, Dobson Operating Company,
Dobson CC Limited Partnership, Russell L. Dobson, J.W. Childs Equity
Partners II, L.P., AT&T Wireless Services, Inc. and the holders of
issued and outstanding shares of the Company's pre-recapitalization
Class A Common Stock, par value $.001 per share, and Class D Preferred
Stock, par value $1.00 per share, listed on the signature pages
therein (the
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"Recapitalization Agreement"), providing for the recapitalization
described in the Prospectus under the captions "Capitalization" and
"Description of Capital Stock" (such actions are herein
collectively called the "Recapitalization"), (i) will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of
its subsidiaries is subject, except for such conflicts, breaches or
violations that, individually or in the aggregate, would not have a
Material Adverse Effect; (ii) nor will such actions result in any
violation of the provisions of the charter or by-laws of the
Company or any of its subsidiaries; (iii) nor will such actions
result in any violation of any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets, except for such violations that,
individually or in the aggregate, would not have a Material Adverse
Effect; and (iv) except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required (a) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(b) by applicable state or foreign securities laws in connection
with the purchase and distribution of the Stock by the Underwriters
and (c) by the NASD, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby and by the Recapitalization.
(h) Except as described in the Registration Statement, there are
no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include any securities owned or to be owned by
such person in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
The holders of outstanding shares of the Company's capital stock are
not entitled to preemptive or other rights to subscribe for the Stock
other than preemptive or other rights set forth in the Registration
Statement which have been waived by the holders thereof. Except as
set forth in the Registration Statement, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or
rights to convert any
5
<PAGE>
obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding.
(i) Except as described or contemplated in the Registration
Statement, the Company has not sold or issued any shares of Class A
Common Stock (or any securities of the same class as the Class A
Common Stock) during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act.
(j) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and, since such date, there has
not been any change in the capital stock of the Company or long-term
debt of the Company or any of its subsidiaries (other than as
described or contemplated in the Prospectus or pursuant to the
Recapitalization Agreement as described in the Prospectus under the
captions "Capitalization" and "Description of Capital Stock") or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries.
(k) The historical and PRO FORMA financial statements, together
with the related notes, filed as part of the Registration Statement or
included in the Prospectus comply as to form in all material respects
with the requirements of Regulation S-X under the Securities Act
applicable to registration statements on Form S-1 under the Securities
Act. The historical financial statements (including the related notes
and supporting schedules) filed as part of the Registration Statement
or included in the Prospectus present fairly in all material respects
the financial condition and results of operations of the entities
purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved except as may be stated in the related
notes thereto. The unaudited PRO FORMA consolidated financial
statements have been prepared on a basis consistent with such
historical statements of the Company, except for the PRO FORMA
adjustments specified therein, and give effect to assumptions
described in the Prospectus which have been made on a reasonable basis
and in good faith. The unaudited proportionate adjusted statements of
operations, together with the related notes, included in the
Prospectus have been derived from the financial records of the Company
and American Cellular
6
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Corporation and, in all material respects, have been prepared on a
basis consistent with such books and records of the Company and
American Cellular Corporation, except for the PRO FORMA adjustments
specified therein, and give effect to assumptions described in the
Prospectus which have been made on a reasonable basis and in good
faith. The other financial and statistical information and data
included in the Prospectus, historical and PRO FORMA, have been
derived from the financial records of the Company and, in all
material respects, have been prepared on a basis consistent with
such books and records of the Company and present fairly the
historical and proposed transactions contemplated by the Prospectus
and this Agreement. The industry, customer and statistical data
and estimates, and the information relating to American Cellular
Corporation included in the Prospectus are based on or derived from
sources that the Company believes are accurate and reliable in all
material respects.
(l) Arthur Andersen LLP, independent public accountants, who
have audited certain financial statements of the Company, whose report
appears in the Prospectus and who have delivered the initial letter
referred to in Section 9(h) hereof, are independent public accountants
with respect to the Company as required by the Securities Act and the
Rules and Regulations; based on the initial letter referred to in
Section 9(i) hereof, Ernst & Young LLP, independent auditors, whose
reports appear in the Prospectus and who have delivered the initial
letter referred to in Section 9(i) hereof with respect to Sygnet
Wireless, Inc., were independent accountants with respect to Sygnet
Wireless, Inc. for the periods covered by their report as required by
the Securities Act and the Rules and Regulations; and based on the
initial letter referred to in Section 9(j) hereof, Ernst & Young LLP,
independent auditors, whose reports appear in the Prospectus and who
have delivered the initial letter referred to in Section 9(j) hereof
with respect to American Cellular Corporation and its predecessor,
PriCellular Corporation, were independent accountants with respect to
American Cellular Corporation for the periods covered by their report
as required by the Securities Act and the Rules and Regulations.
(m) The Company and each of its subsidiaries have good and
marketable title to all real property and good title to all personal
property reflected as owned by them in the financial statements
referred to in Section 1(k) of this Agreement (or elsewhere in the
Prospectus), in each case free and clear of all liens, encumbrances
and defects except as are described in the Prospectus or such as would
not reasonably be expected to have a Material Adverse Effect; and all
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases, with such exceptions as would not reasonably be expected to
have a Material Adverse Effect.
7
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(n) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and, to the Company's best knowledge,
as is customary for companies engaged in similar businesses in similar
industries and all such insurance is outstanding and in force.
(o) The Company and each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the
conduct of their respective businesses and have no reason to believe
that the conduct of their respective businesses will conflict with,
and have not received any notice of any claim of conflict with, any
such rights of others.
(p) There are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which
any property or assets of the Company or any of its subsidiaries is
the subject (i) which is required to be disclosed in the Registration
Statement which is not disclosed in the Prospectus or (ii) which, if
determined adversely to the Company or any of its subsidiaries, might
reasonably be expected to (A) have a material adverse effect on the
power or ability of the Company to perform its obligations under this
Agreement or the consummation of any of the transactions contemplated
hereby or in the Prospectus; or (B) have a Material Adverse Effect;
and to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others.
(q) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
or incorporated by reference as exhibits to the Registration Statement
as permitted by the Rules and Regulations.
(r) There are no relationships or related-party transactions
involving the Company or any other person required to be described in
the Prospectus pursuant to the Securities Act and the Rules and
Regulations which have not been so described in the Prospectus under
the caption "Certain Transactions."
(s) No labor disturbance by the employees of the Company or any
of its subsidiaries exists or, to the best knowledge of the Company,
is threatened or imminent which would have a Material Adverse Effect
and the Company is not aware of any such labor disturbances by the
8
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employees of the principal suppliers, contractors or customers of the
Company or its subsidiaries.
(t) Neither the Company nor any of its subsidiaries has violated
any safety or similar law applicable to its business, nor any federal
or state law relating to discrimination in the hiring, promotion or
pay of employees nor any applicable federal or state wages and hours
laws, except for violations that, individually or in the aggregate,
would not have a Material Adverse Effect. The Company is in
compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA)
except for such events that, individually or in the aggregate, would
not have a Material Adverse Effect; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company
would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects
and to the best of the Company's knowledge nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(u) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date hereof
and has paid all taxes reflected as due thereon, and no tax deficiency
has been determined adversely to the Company or any of its
subsidiaries which has had (nor does the Company have any knowledge of
any tax deficiency which, if determined adversely to the Company or
any of its subsidiaries, might have) a Material Adverse Effect.
(v) Since the date as of which information is given in the
Registration Statement through the date hereof, and except as may
otherwise be disclosed in the Prospectus, the Company has not (i)
issued or granted any securities (other than issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon
the exercise of outstanding options described in the Prospectus), (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course
of business, (iii) entered into any transaction not in the ordinary
course of business except as disclosed in the Prospectus or (iv)
declared or paid any dividend on its capital stock.
(w) The Company and each of its subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting
controls
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which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets,
(C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for
its assets is compared with existing assets at reasonable
intervals.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any
material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained
in any material indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which it is a party or by
which it is bound or to which any of its properties or assets is
subject, including, without limitation, operating agreements or (iii)
is in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or
to the conduct of its business.
(y) Neither the Company nor any of its subsidiaries, nor to the
Company's best knowledge any director, officer, agent, employee or
other person associated with or acting on behalf of the Company or any
of its subsidiaries, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating
to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(z) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company or any of its subsidiaries (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or from any
of the property now or previously owned or leased by the Company or
its subsidiaries in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or
remedial action which would not have, or would not be reasonably
likely to have, singularly or in the aggregate with all such
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violations and remedial actions, a Material Adverse Effect; there has
been no material spill, discharge, leak, emission, injection, escape,
dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due to
or caused by the Company or any of its subsidiaries or with respect to
which the Company or any of its subsidiaries have knowledge, except
for any such spill, discharge, leak, emission, injection, escape,
dumping or release which would not have or would not be reasonably
likely to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings and
releases, a Material Adverse Effect; and the terms "hazardous wastes,"
"toxic wastes," "hazardous substances" and "medical wastes" shall have
the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(ab) Neither the Company nor any subsidiary is, or will be after
the offering of the Stock and the use of proceeds therefrom, an
"investment company" within the meaning of such term under the
Investment Company Act and the rules and regulations of the Commission
thereunder.
(ac) Except as would not have a Material Adverse Effect, (i) the
Company and its subsidiaries, have (A) such permits, licenses,
franchises and authorizations of governmental or regulatory
authorities (federal, foreign, state or local) ("Permits"), including,
without limitation, under any applicable environmental laws, as are
necessary to own, lease and operate their respective properties and to
conduct their businesses as presently conducted and as proposed to be
conducted as described in the Prospectus, and (B) fulfilled and
performed all of their respective material obligations with respect to
the Permits, and (ii) to the Company's best knowledge no event has
occurred that would allow, or after notice or lapse of time would
allow, revocation or termination of any Permit or that would result in
any other material impairment of the rights granted to the Company or
any of its subsidiaries under any Permit, and the Company has no
reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any Permit.
(ad) Neither the Company nor any of its subsidiaries is a party
in interest or disqualified person (as those terms are defined in
Section 3(14) of ERISA and Section 4975 of the Code respectively) with
respect to any employee benefit plans other than employee benefit
plans sponsored by the Company or any of its subsidiaries and covering
employees of the Company or any of its subsidiaries.
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(ae) All licenses and authorizations issued by the Federal
Communications Commission ("FCC") and state authorities governing
telecommunications matters (the "Licenses") required for the operation
of the business of the Company and its subsidiaries are in full force
and effect and there are no pending modifications, amendments or
revocation proceedings which would adversely affect the operation of
any of the telecommunications business currently owned by the Company
and its subsidiaries (the "Businesses"). All fees due and payable to
governmental authorities pursuant to the rules governing Licenses have
been paid. No event has occurred with respect to the Licenses held by
the Company, or its respective subsidiaries, which, with the giving of
notice or the lapse of time or both, would constitute grounds for
revocation of any Licenses. Each of the Company and its subsidiaries
is in compliance in all material respects with the terms of the
Licenses, as applicable, and there is no condition, event or
occurrence existing, nor is there any proceeding being conducted of
which the Company has received notice, nor, to the Company's best
knowledge, is there any proceeding threatened, by any governmental
authority, which would cause the termination, suspension, cancellation
or nonrenewal of any of the Licenses, or the imposition of any penalty
or fine (that is material to the Company and its subsidiaries, taken
as a whole) by any regulatory authority. No registrations, filings,
applications, notices, transfers, consents, approvals, audits,
qualifications, waivers or other action of any kind is required by
virtue of the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and the
Recapitalization, and the issuance and delivery of the Stock, to avoid
the loss of any such License, permit, consent, concession or other
authorization or any asset, property or right pursuant to the terms
thereof, or the violation or breach of any applicable law thereto.
(af) Except as disclosed in the Prospectus, since January 1,
2000, all of the Company's computer applications and, to the best
knowledge of the Company, those of the Company's suppliers, vendors
and customers, that are material to its or any of its subsidiaries'
business and operations have operated in the ordinary course of
business and are Year 2000 Compliant, except for such non-compliance
that would not have a Material Adverse Effect, and the occurrence of
calendar year 2000 has not had a Material Adverse Effect. For
purposes of this subsection (af), "Year 2000 Compliant" means (i) with
respect to Date Data, that such data is in proper format and (ii) with
respect to Date-Sensitive Systems, that each such system accurately
processes all Date Data, including for the twentieth and twenty-first
centuries, without loss of any functionality or performance,
including, without limitation, calculating, comparing, sequencing,
storing and displaying such Date Data (including all leap year
considerations), when used as a stand-alone system or in combination
with
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other software or hardware; "Date Data" means any data of any kind
that consists of date information or which is otherwise derived
from, dependent on or related to date information; and "Date-Sensitive
System" means any software, microcode or hardware system or component,
including any electronic or electronically controlled system or
component that processes any Date Data and that is installed, in
development or on order, for internal or external use, or the
provision or operation of which provides a benefit to customers,
vendors, suppliers or any other party.
(ag) There are no contracts, agreements or understandings
between the Company and its subsidiaries and any other person that
would give rise to a valid claim against the Company or any of its
subsidiaries or the Underwriters for a brokerage commission, finder's
fee or like payment in connection with the issuance, purchase and sale
of the Stock, except (A) pursuant to or contemplated by this Agreement
and (B) contracts, agreements or understandings for the payment of a
brokerage commission, finder's fee or like payment to the
Underwriters.
(ah) There are no transfer taxes or other similar fees or
charges under federal law or the laws of any state or foreign
jurisdiction, or any political subdivision thereof, required to be
paid in connection with the execution and delivery of this Agreement
or the issuance by the Company or sale by the Company of the Stock
(including Directed Shares).
(ai) The Company has not taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise,
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Stock.
(aj) At the First Delivery Date the Company's amended and
restated certificate of incorporation providing for the
Recapitalization as described in the Prospectus will have been duly
filed with the Secretary of State of the State of Oklahoma and the
Recapitalization will have become effective.
(ak) (i) The Recapitalization Agreement, the Agreement and Plan
of Merger, dated October 5, 1999, among ACC Acquisition LLC, ACC
Acquisition Co. and American Cellular Corporation (the "Merger
Agreement"), the Amended and Restated Limited Liability Company
Agreement of ACC Acquisition LLC, dated as of January [__], 2000,
between AT&T Wireless Services JV Co., Dobson JV Company [and ACC
Acquisition LLC] (the "LLC Agreement"), the Operating Agreement, dated
as of January [__], 2000, among AT&T Wireless Services, Inc. and its
affiliates, and ACC Acquisition LLC, on behalf of American Cellular
Corporation and its affiliates (the "Operating
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Agreement"), and the Management Agreement, dated as of January [__],
2000, between Dobson Cellular Systems, Inc. and ACC Acquisition
LLC, (the "Management Agreement" and, together with the Merger
Agreement, the Operating Agreement, the Management Agreement and
the LLC Agreement, the "American Cellular Agreements") are in full
force and effect and no party to the Recapitalization Agreement or
any of the American Cellular Agreements has sought to modify, amend
or waive any of the provisions thereof; (ii) the representations
and warranties of the Company, and to the knowledge of the Company
the representations and warranties of the other parties to the
Recapitalization Agreement and the American Cellular Agreements,
contained in the Recapitalization Agreement and the American
Cellular Agreements, respectively, were true and correct in all
respects as of the dates of the Recapitalization Agreement and the
American Cellular Agreements, respectively, and as of the date
hereof; the Company is not, and to the knowledge of the Company, no
other party to the Recapitalization Agreement or any of the
American Cellular Agreements is in breach of any of the terms
thereof; (iii) except as disclosed in or contemplated by the
Recapitalization Agreement or any of the American Cellular
Agreements, no consent, approval, authorization or order of, or
filing or registration with, any court or governmental agency or
body was required for the execution and delivery of, or is required
for the performance of, the Recapitalization Agreement or any of
the American Cellular Agreements by any of the parties thereto and
the consummation of the transactions contemplated thereby; and (iv)
other than the American Cellular Agreements, there are no other
material agreements relating to the Company's proposed joint
venture with AT&T Wireless Services, Inc. or to acquire American
Cellular Corporation.
(al) The Company has not distributed or forwarded any written or
electronic communications relating to the offering of the Stock or the
Directed Share Program to Participants or prospective Participants in
the Directed Share Program and has not authorized any other person to
distribute or forward such communications other than Salomon Smith
Barney Inc.
(am) None of the Directed Shares has been or will be offered or
sold outside of the United States pursuant to the Directed Share
Program.
(an) The Nasdaq Stock Market has approved the Stock for
inclusion in the National Market System, subject only to official
notice of issuance.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLING
STOCKHOLDERS. Each Selling Stockholder severally, and not jointly, represents,
warrants and agrees that:
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(a) The Selling Stockholder has, and immediately prior to the
Second Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have good and valid title to the shares of Option
Stock to be sold by the Selling Stockholder hereunder on such date,
free and clear of all liens, encumbrances, equities or claims; and
upon delivery of such shares and payment therefor pursuant hereto, and
assuming each Underwriter has no notice of any adverse claim (as used
in Section 8-105 of the Uniform Commercial Code) good and valid title
to such shares, free and clear of all liens, encumbrances, equities or
claims, will pass to the several Underwriters.
(b) The Selling Stockholder has placed in custody under an
Irrevocable Power of Attorney and Custody Agreement (the "Irrevocable
Power of Attorney and Custody Agreement" and, together with all other
similar agreements executed by the other Selling Stockholders, the
"Irrevocable Power of Attorney and Custody Agreements") with UMB Bank,
n.a., as custodian (the "Custodian"), for delivery under this
Agreement, certificates in negotiable form (with signature guaranteed
by a commercial bank or trust company having an office or
correspondent in the United States or a member firm of the New York or
American Stock Exchanges) representing shares of the Company's common
stock that will be converted into shares of Class B Common Stock, par
value $0.001 per share, of the Company pursuant to the
Recapitalization Agreement (the "Class B Common Stock") and upon
transfer and delivery to the Underwriters hereunder will automatically
convert to shares of Class A Common Stock to be sold by the Selling
Stockholder hereunder as Option Stock.
(c) The Selling Stockholder has duly and irrevocably executed
and delivered a power of attorney contained in the Irrevocable Power
of Attorney and Custody Agreement appointing the Custodian and one or
more other persons, as attorneys-in-fact, with full power of
substitution, and with full authority (exercisable by any one or more
of them) to execute and deliver this Agreement and to take such other
action as may be necessary or desirable to carry out the provisions
hereof on behalf of the Selling Stockholder.
(d) This Agreement and the Irrevocable Power of Attorney and
Custody Agreement have been duly authorized by the Selling Stockholder
if the Selling Stockholder is a corporation, partnership, trust or
other business entity, and have each been duly executed and delivered
by or on behalf of such Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder, enforceable against
such Selling Stockholder in accordance with their respective terms.
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<PAGE>
(e) The Selling Stockholder has full right, power and authority
to enter into this Agreement and the Irrevocable Power of Attorney
and Custody Agreement; the execution, delivery and performance of
this Agreement and the Irrevocable Power of Attorney and Custody
Agreement by the Selling Stockholder and the consummation by the
Selling Stockholder of the transactions contemplated hereby and
thereby (i) will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder is bound
or to which any of the property or assets of the Selling
Stockholder is subject, except for such conflicts, breaches or
violations that, individually or in the aggregate, would not have a
material adverse effect on the power or ability of the Selling
Stockholder to perform its obligations under this Agreement or the
consummation of any of the transactions contemplated hereby or in
the Prospectus; (ii) nor will such actions result in any violation
of the provisions of (x) the charter or by-laws of the Selling
Stockholder if the Selling Stockholder is a corporation, (y) the
partnership agreement and articles of partnership of the Selling
Stockholder if the Selling Stockholder is a partnership or (z) the
deed of trust of the Selling Stockholder if the Selling Stockholder
is a trust; (iii) nor will such actions result in any violation of
any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling Stockholder,
except for such violations as will not have a material adverse
effect on the power or ability of the Selling Stockholder to
perform its obligations under this Agreement or the consummation of
any of the transactions contemplated hereby or in the Prospectus;
and (iv) except for the registration of the Option Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required (a) under the
Exchange Act, (b) by applicable state or foreign securities laws in
connection with the purchase and distribution of the Option Stock
by the Underwriters and (b) by the NASD, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement or the Irrevocable Power
of Attorney and Custody Agreement by the Selling Stockholder and
the consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby.
(f) The information furnished in writing by or on behalf of such
Selling Stockholder expressly for use in the Registration Statement
and the Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus (it being understood that
the only information so furnished is specified in the Prospectus
under the captions "Principal
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<PAGE>
and Selling Shareholders" and "Certain Transactions") do not and
will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date, the date hereof and the Second Delivery
Date (as to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact with respect to such
Selling Stockholder or omit to state a material fact with respect
to such Selling Stockholder required to be stated therein or
necessary to make the statements therein regarding the Selling
Stockholder (in the case of the Prospectus, in light of the
circumstances under with they were made) not misleading.
(g) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the shares of the
Stock.
(h) Other than as disclosed in the Prospectus, within the past
five years the Selling Stockholder has held no position or office or
had any other relationship with the Company required to be disclosed
pursuant to the Securities Act and the Rules and Regulations. The
Selling Stockholder acknowledges and consents to the inclusion of its
name and address and the information under the heading "Principal and
Selling Shareholders--Selling Shareholders" in the Prospectus.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 25,000,000 shares
of the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the
Firm Stock set opposite that Underwriter's name in Schedule 1 hereto. The
respective purchase obligations of the Underwriters with respect to the Firm
Stock shall be rounded among the Underwriters to avoid fractional shares, as
the Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to _________________ shares of Option Stock and the Selling
Stockholders severally, and not jointly, grant to the Underwriters an option
to purchase up to ________________ shares of Option Stock. The Option Stock
to be sold by each such Selling Stockholder hereunder shall be equal to the
number of shares of Option Stock set forth opposite each such Selling
Stockholder's name in Schedule 2 hereto. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter
with respect to the Option Stock shall be adjusted by the Representatives so
that no Underwriter shall be obligated to purchase Option Stock in
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<PAGE>
less than 100 share amounts. The price of both the Firm Stock and any Option
Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock to
be delivered on any Delivery Date (as hereinafter defined), as the case may
be, except upon payment for all the Stock to be purchased from the Company on
such Delivery Date as provided herein and no Selling Stockholders shall be
obligated to deliver any of the Option Stock to be delivered on the Second
Delivery Date (as hereinafter defined), except upon payment for all the
Option Stock to be purchased by the Underwriters from such Selling
Stockholder on such Second Delivery Date.
4. OFFERING OF STOCK BY THE UNDERWRITERS.
Upon authorization by the Representatives of the release of the
Firm Stock, the several Underwriters propose to offer the Firm Stock for sale
upon the terms and conditions set forth in the Prospectus.
It is understood that the Directed Shares initially reserved by the
several Underwriters for offer and sale in connection with the Directed Share
Program shall be allocated among such persons in accordance with timely
directions received by Salomon Smith Barney Inc. from the Company; PROVIDED,
that under no circumstances will the Representatives or any Underwriter be
liable to the Company or to any such person for any action taken or omitted
in good faith in connection with such offering to Participants in the
Directed Share Program. It is further understood that any shares of such
Firm Stock which are not purchased by such persons will be offered by the
Underwriters to the public upon the terms and conditions set forth in the
Prospectus.
5. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and payment
for the Firm Stock shall be made at the office of Weil, Gotshal & Manges LLP,
767 Fifth Avenue, New York, New York 10153 at 10:00 a.m., New York City time,
on the third full business day following the date of this Agreement (or the
fourth business day if this Agreement is executed after 4:30 p.m. New York
City time) or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery
Date, the Company shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the
purchase price by wire transfer in immediately available funds. Time shall
be of the essence, and delivery at the time and place specified pursuant to
this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names
and in such denominations as the Representatives shall request in writing not
less than two full business days prior to the First Delivery Date. For the
purpose of expediting the checking and packaging of the certificates for the
Stock, the Company shall make the certificates representing the Firm Stock
available for inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business day prior to the
First Delivery Date.
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<PAGE>
The option granted in Section 3 will expire 30 days after the date
of this Agreement and may be exercised in whole or in part from time to time
by written notice being given to the Company and the Selling Stockholders by
the Representatives. If the option is exercised in part, the Underwriters
shall purchase on a pro rata basis from the Company and each Selling
Stockholder that number of shares of Option Stock offered by the Company and
each Selling Stockholder, as the case may be, pursuant to Section 3 hereof.
Such notice shall set forth the aggregate number of shares of Option Stock as
to which the option is being exercised, the names in which the shares of
Option Stock are to be registered, the denominations in which the shares of
Option Stock are to be issued and the date and time, as determined by the
Representatives, when the shares of Option Stock are to be delivered;
PROVIDED, HOWEVER, that this date and time shall not be earlier than the
First Delivery Date nor earlier than the second business day after the date
on which the option shall have been exercised nor later than the fifth
business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as a "Second Delivery Date" and the First Delivery Date and any
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section
5 (or at such other place as shall be determined by agreement between the
Representatives, the Company and the Selling Stockholders) at 10:00 A.M., New
York City time, on such Second Delivery Date. On such Second Delivery Date,
the Company and each Selling Stockholder shall deliver or cause to be
delivered the certificates representing the Option Stock to be sold by them
to the Representatives for the account of each Underwriter against payment of
the purchase price by wire transfer in immediately available funds to or upon
the order of the Company, and in the case of the Selling Stockholders, to a
bank account designated by the Custodian pursuant to the Irrevocable Power of
Attorney and Custody Agreement. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery,
the Option Stock shall be registered in such names and in such denominations
as the Representatives shall request in the aforesaid written notice. For
the purpose of expediting the checking and packaging of the certificates for
the Option Stock, the Company and each Selling Stockholder shall make the
certificates representing the Option Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to such Second Delivery Date.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as
may be required by Rule
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430A(a)(3) under the Securities Act; to make no further amendment
or any supplement to the Registration Statement or to the
Prospectus unless the Representatives have previously been
furnished with a copy of such amendment or supplement and have
consented to such amendment or supplement (which consent shall not
be unreasonably withheld); to advise the Representatives, promptly
after it receives notice thereof, of the time when any amendment to
the Registration Statement has been filed or becomes effective or
any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish the Representatives with copies thereof; to
advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the qualification
of the Stock for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose,
or of any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop order or
of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending any such qualification,
to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and
exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement and the
computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any
time after the Effective Time in connection with the offering or
sale of the Stock or any other securities relating thereto and if
at such time any events shall have occurred as a result of which
the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary to amend or supplement the Prospectus
in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to prepare and furnish
without charge to each Underwriter and to any dealer in securities
as many copies as the Representatives may from time to time
reasonably request of an amended
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or supplemented Prospectus which will correct such statement or
omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by
the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing (which consent shall not be unreasonably withheld);
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver
to the Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at
the option of the Company, Rule 158);
(g) For a period of three years following the Effective Date,
to furnish to the Representatives copies of all materials furnished
generally by the Company to its shareholders and all public reports
and all reports and financial statements furnished by the Company to
the principal national securities exchange upon which the Class A
Common Stock may be listed pursuant to requirements of or agreements
with such exchange or to the Commission pursuant to the Exchange Act
or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request (including such jurisdictions as may
be require for the offering and sale of the Directed Shares) and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock;
(i) (A) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction or
device, or file any registration statement, other than a registration
statement on Form S-8, which is designed to, or could be expected to,
result in the disposition by any
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person at any time in the future of) any shares of Class A Common
Stock, Class B Common Stock, Class C Common Stock, par value $.001
per share, of the Company, or Class D Common Stock, par value $.001
per share, of the Company, or any shares of the Company's
securities to be converted into the foregoing pursuant to the
Recapitalization Agreement (collectively, the "Capital Stock") or
securities convertible into or exchangeable for Capital Stock
(other than the Stock and shares issued pursuant to employee
benefit plans, stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant options,
rights or warrants with respect to any shares of Capital Stock or
securities convertible into or exchangeable for Capital Stock
(other than the grant of options pursuant to employee benefit
plans, stock option plans or other employee compensation plans
existing on the date hereof), or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such
shares of Capital Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Capital
Stock or other securities, in cash or otherwise or (3) publicly
disclose an intention to make any such offer, sale, pledge, hedge,
swap or other transaction, or file any registration statement, in
each case, without the prior written consent of Lehman Brothers
Inc. and Banc of America Securities LLC; and (B) to cause each of
the Company's executive officers listed in the Prospectus under the
caption "Management," directors and stockholders and optionholders
to furnish to the Representatives, prior to the First Delivery
Date, a letter or letters, in form and substance satisfactory to
counsel for the Underwriters, pursuant to which each such person
shall agree not to, directly or indirectly, (1) offer for sale,
sell, pledge or otherwise dispose of (or enter into any transaction
or device, including by way of delivery of any demand for
registration under the Securities Act, that is designed to, or
could be expected to, result in the disposition by any person at
any time in the future of) any shares of Capital Stock (including,
without limitation, shares of Capital Stock that the undersigned
acquires or has the right or power to dispose of and shares of
Capital Stock that may be issued upon exercise of any option or
warrant) or securities convertible into or exchangeable for Capital
Stock; PROVIDED, HOWEVER, that this clause (1) shall not prohibit
(a) the exercise of any options outstanding on the date of this
Agreement pursuant to the Company's 1996 Stock Option Plan or 2000
Stock Incentive Plan, but will apply to the securities issued upon
the exercise of such options, (b) Capital Stock sold pursuant to
the option of the Dobson CC Limited Partnership, Russell Dobson and
certain of the Company's existing optionholders described under the
heading "Capitalization--The Recapitalization" in the Preliminary
Prospectus and (c)(i) the pledge of securities issued upon the
exercise of options outstanding on the date of this Agreement
pursuant to the Company's
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1996 Stock Option Plan or 2000 Stock Incentive Plan or (ii)
pledges, existing on the date of this Agreement, of securities held
by the Dobson CC Limited Partnership, provided, further that in the
case of this clause (c) the foregoing shall apply to the securities
so pledged and the pledgee of those securities shall agree to be
bound by the terms of the lock-up agreement, or (2) enter into any
swap or other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of
ownership of such shares of Capital Stock, whether any such
transaction described in clause (1) or (2) above is to be settled
by delivery of Capital Stock or other securities, in cash or
otherwise, in each case for a period of 180 days from the date of
the Prospectus, without the prior written consent of Lehman
Brothers Inc. and Banc of America Securities LLC;
(j) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus under the caption
"Use of Proceeds" and to file a Certificate of Elimination with the
Secretary of State of the State of Oklahoma within two business days
from the First Delivery Date to eliminate all of the Class D
Preferred Stock and Class E Preferred Stock, which is being
redeemed with the net proceeds from the sale of the Stock being
sold by the Company.
(k) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company
Act and the rules and regulations of the Commission thereunder;
(l) To comply with the Securities Act and the Rules and
Regulations and the Exchange Act (including the rules and regulations
thereunder) so as to permit the completion of the distribution of the
Stock as contemplated in this Agreement and the Prospectus; and
(m) Not to take, directly or indirectly, any action designed to
cause or result in, or that constitutes or might reasonably be
expected to constitute, the stabilization or manipulation of the
price of the Class A Common Stock.
(n) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extend
required by the NASD or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months
following the date of the effectiveness of the Registration
Statement. Salomon Smith Barney Inc. will notify the Company as to
which Participants will need to be so restricted. The Company will
direct the removal of such transfer restrictions upon the
expiration of such period of time.
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7. FURTHER AGREEMENTS OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder agrees:
(a) That the power of attorney and the custody arrangement for
the Option Stock to be sold by the Selling Stockholder hereunder,
which is represented by the certificates held in custody for the
Selling Stockholder, each pursuant to the Irrevocable Power of
Attorney and Custody Agreement is coupled with an interest and is
irrevocable and to the fullest extent not prohibited by law shall not
be terminated by any act of the Selling Stockholder or by operation
of law or by the occurrence of any event whatsoever, including
without limitation, the death, incapacity, dissolution, liquidation,
termination, bankruptcy or insolvency of the undersigned or any
similar event; and if, after the execution of this Agreement, any
such event shall occur before the completion of the transactions
contemplated by this Agreement, the attorneys-in-fact and the
Custodian named in the Irrevocable Power of Attorney and Custody
Agreement are nevertheless authorized and directed to complete all of
such transactions, as if such had not occurred and regardless of
notice thereof.
(b) To deliver to the Representatives prior to the Second
Delivery Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a
non-United States person or Form W-9 (if the Selling Stockholder is
a United States person.)
8. EXPENSES. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement
and any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement and any other related documents in connection
with the offering, purchase, sale and delivery of the Stock; (e) the costs of
delivering and distributing the Irrevocable Power of Attorney and Custody
Agreements; (f) the filing fees incident to securing any required review by
the NASD of the terms of sale of the Stock (including the reasonable fees and
expenses of counsel for the Underwriters in connection therewith); (g) any
applicable listing or other fees; (h) all costs and expenses incident to the
offer and sale of the Directed Shares (including the reasonable fees and
expenses of counsel for the Underwriters in connection therewith); (i) the
fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 6(h) (including filing fees and
the reasonable fees and expenses of counsel for the Underwriters relating to
such registration and qualification) and of preparing, printing and
distributing any materials in connection therewith; (j) all expenses
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incident to the performance of the Selling Stockholders' obligations under,
and the consummation of the transactions contemplated by, this Agreement
(other than any underwriting discount), including (1) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of the
Option Stock by the Selling Stockholders to the Underwriters, and their
transfer between the Underwriters pursuant to an agreement between such
Underwriters, (2) the fees and disbursements of the Selling Stockholders'
counsel and (3) the fees and expenses of the Custodian thereunder; and (k)
all other costs and expenses incident to the performance of the obligations
of the Company under this Agreement; PROVIDED that, except as provided in
this Section 8 and in Section 11 and Section 13 the Underwriters shall pay
their own costs and expenses, including the costs and expenses of their
counsel.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when
made and on each Delivery Date, of the representations and warranties of the
Company contained herein, to the accuracy, when made and on the Second
Delivery Date, of the representations and warranties of the Selling
Stockholders contained herein, to the performance by the Company and the
Selling Stockholders of their respective obligations hereunder, and to each
of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of
the Commission for inclusion of additional information in the
Registration Statement or the Prospectus or otherwise shall have
been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of Weil,
Gotshal & Manges LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the
Irrevocable Power of Attorney and Custody Agreements, the Stock, the
Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the Underwriters, and the Company
and the Selling Stockholders shall have furnished to such counsel
all documents and information that they may reasonably request to
enable them to pass upon such matters.
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(d) McAfee & Taft A Professional Corporation shall have
furnished to the Representatives their written opinion, as counsel to
the Company, addressed to the Underwriters and dated such Delivery
Date, in form and substance reasonably satisfactory to the
Representatives, to the effect set forth in Exhibit 9(d) to this
Agreement.
(e) Sullivan & Worcester LLP shall have furnished to the
Representatives their written opinion, as counsel to each of the
Selling Stockholders, addressed to the Underwriters and dated the
Second Delivery Date, in form and substance reasonably satisfactory
to the Representatives, to the effect set forth in Exhibit 9(e) to
this Agreement.
(f) Wilkinson Barker Knauer, LLP shall have furnished to the
Representatives their written opinion, as regulatory counsel to the
Company, addressed to the Underwriters and dated such Delivery Date,
in form and substance reasonably satisfactory to the Representatives,
to the effect set forth in Exhibit 9(f) to this Agreement.
(g) The Representatives shall have received from Weil,
Gotshal & Manges LLP, counsel for the Underwriters, such opinion or
opinions, dated such Delivery Date, with respect to the issuance
and sale of the Stock, the Registration Statement, the Prospectus
and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling
them to pass upon such matters.
(h) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP,
independent public accountants, a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters
and dated the date hereof (i) confirming that they are independent
public accountants within the meaning of the Securities Act with
respect to the Company and are in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission and (ii) stating, as
of the date hereof (or, with respect to matters involving changes
or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and
other matters ordinarily covered by accountants' "comfort letters"
to underwriters in connection with registered public offerings.
(i) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP,
independent auditors, a letter, in form and substance satisfactory to
the Representatives, addressed to the Underwriters and dated the date
hereof (i) confirming that, the
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periods covered by their report, they were independent public
accountants within the meaning of the Securities Act with respect
to Sygnet Wireless, Inc. and were in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission throughout such
periods and (ii) stating, as of the date hereof (or, with respect
to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to
the financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(j) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP,
independent auditors, a letter, in form and substance satisfactory to
the Representatives, addressed to the Underwriters and dated the date
hereof (i) confirming that, for the periods covered by their report,
they were independent public accountants within the meaning of the
Securities Act with respect to American Cellular Corporation and its
predecessor, PriCellular Corporation, and were in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission throughout such
periods and (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates
as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to
the financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(k) With respect to the letters of Arthur Andersen LLP and
Ernst & Young LLP referred to in the preceding three paragraphs and
delivered to the Representatives concurrently with the execution of
this Agreement (the "initial letters"), the Company shall have
furnished to the Representatives letters (the "bring-down letters")
of such accountants, addressed to the Underwriters and dated such
Delivery Date (i) confirming that, for the periods covered by their
reports, they were independent public accountants within the meaning
of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission throughout such periods,
(ii) stating, as of the dates of their respective bring-down letters
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior
to the date of the respective bring-down letters), the conclusions
and findings of such firms with respect to the financial information
and other
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matters covered by their respective initial letters and (iii)
confirming in all material respects the conclusions and findings
set forth in their respective initial letters.
(l) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its Chief Financial Officer
stating that:
(i) the representations, warranties and agreements of
the Company in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its agreements
contained herein; and the conditions set forth in Sections 9(a)
and 9(n) have been fulfilled;
(ii) they have carefully examined the Registration
Statement and any amendment thereto and the Prospectus and any
amendment or supplement thereto and, in their opinion (A) as of
the Effective Date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date, the
date hereof and each Delivery Date (as to the Prospectus and any
amendment or supplement thereto) did not include any untrue
statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light
of the circumstances under which they were made) not misleading,
and (B) since the Effective Date no event has occurred which
should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus;
(iii) to the Company's best knowledge, based on due
inquiry, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or threatened; and
(iv) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no Material Adverse Effect,
whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
(m) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on the Second Delivery Date a
certificate, dated the Second Delivery Date, signed by, or on behalf
of, the Selling Stockholder (or the Custodian or one or more
attorneys-in-fact) stating
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that the representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of the Second
Delivery Date and that the Selling Stockholder has complied with
all agreements contained herein to be performed by the Selling
Stockholder at or prior to the Second Delivery Date.
(n) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there
shall not have been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in
clause (i) or (ii), is, in the judgment of the Representatives, so
material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(o) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission,
by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United
States shall have become engaged in hostilities, there shall have
been an escalation in hostilities involving the United States or
there shall have been a declaration of a national emergency or war
by the United States or (iv) there shall have occurred such a
material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the
financial markets in the United States shall be such) as to make
it, in the judgment of a majority in interest of the several
Underwriters, impracticable or inadvisable to proceed with the
public offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
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(p) The Nasdaq Stock Market shall have approved the Stock for
inclusion in the National Market System, subject only to official
notice of issuance.
(q) The Company shall have furnished to the Representatives a
letter addressed to the Representatives substantially in the form set
forth in Section 6(i) from each of the Company's officers, directors,
stockholders and option holders.
(r) The Company's amended and restated certificate of
incorporation creating the Class A Common Stock and redesignating the
12 1/4% Senior Exchangeable Preferred Stock due 2008 issued in
December 1998, the 12 1/4% Senior Exchangeable Preferred Stock due
2008 issued in December 1998 and the 13% Senior Exchangeable
Preferred Stock due 2008 issued in May 1999 shall have been filed
with the Secretary of State of the Sate of Oklahoma and shall have
become effective, the Company's Certificate of Elimination
eliminating the Class D Preferred Stock shall have been filed with
the Secretary of State of Oklahoma and shall have become effective,
the Recapitalization Agreement shall have been executed by the
parties thereto and the Recapitalization shall have become
effective.
(s) The distribution of the stock of the Company's wireline
telephone subsidiary, Logix Communications Enterprises Inc., to the
holders of the Company's Class A Common Stock and Class D Preferred
Stock existing prior to the Recapitalization shall have occurred;
Arthur Andersen LLP shall have delivered to the Company their written
opinion, as tax counsel to the Company, addressed to the Company,
that the distribution of the stock of Logix Communications
Enterprises will not cause the Company to realize taxable income in
form and substance reasonably satisfactory to the Representatives;
and the Representatives shall have received all certificates
referred to in the opinion of Arthur Andersen LLP addressed to the
Underwriters and dated such Delivery Date in form and substance
reasonably satisfactory to the Representatives.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not
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limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter, officer, employee
or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, (B) any materials or information provided to investors by, or with
the approval of, the Company in connection with the marketing of the offering
of the Stock, including any roadshow or investor presentations made to
investors by the Company (whether in person or electronically) ("Roadshow
Materials") or (C) any application, filing or other material filed,
registered, distributed or otherwise furnished by the Company or with the
consent of the Company in connection with the securities laws of any state or
political subdivision thereof, including any Blue Sky Application, or any
material prepared by or with the consent of the Company for distribution in
connection with the Directed Share Program (collectively, the "Other Offering
Materials"), (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky Application, Roadshow
Materials or Other Offering Materials, any material fact required to be
stated therein or necessary to make the statements therein (in the case of
the Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Blue Sky Application or Other Offering Materials, in light of
the circumstances under which they were made) not misleading, (iii) any act
or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above, (iv) the failure of any Participant to
pay for and accept delivery of the Stock which immediately following the
Effective Time was subject to a properly confirmed agreement to purchase or
(v) the Directed Share Program (provided that the Company shall not be liable
under clause (iii) above to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such covered loss, claim,
damage, liability or action resulted directly from any such acts or failures
to act undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct), and shall reimburse each Underwriter
and each such officer, employee or controlling person promptly upon demand
for any legal or other expenses reasonably incurred by that Underwriter,
officer, employee or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, in reliance upon and in
conformity with written information concerning such Underwriter furnished to
the Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein which information consists solely of the
information specified in Section 10(g); PROVIDED, FURTHER, that this
indemnity shall not
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<PAGE>
apply to any Preliminary Prospectus to the extent that any such loss, claim,
damage, liability or expense of such Underwriter results from the fact that
such Underwriter sold Stock to a person as to whom it shall be established
that there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus in any case where such delivery is
required by the Securities Act if the Company shall have previously furnished
copies thereof in sufficient quantity to such Underwriter and the loss,
claim, damage, liability or expense of such Underwriter results from an
untrue statement or omission of a material fact contained in the Preliminary
Prospectus which was corrected in the Prospectus or in the Prospectus as then
amended or supplemented and such correction would have cured the defect
giving rise to such loss, claim, damage, liability or expense and the Company
shall have previously notified the Underwriter in writing of such untrue
statement or omission prior to the delivery of the Prospectus to the
Underwriter. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
(b) The Selling Stockholders, severally and not jointly, shall
indemnify and hold harmless each Underwriter, its officers and employees and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof (including, but not limited to,
any loss, claim, damage, liability or action relating to purchases and sales
of Option Stock), to which that Underwriter, officer, employee or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, Registration
Statement or the Prospectus, or in any amendment or supplement thereto, any
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, in light of the circumstances under
which they were made) not misleading, and shall reimburse each Underwriter,
its officers and employees and each such controlling person for any legal or
other expenses reasonably incurred by that Underwriter, its officers and
employees or controlling person in connection with investigating or defending
or preparing to defend against any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Selling
Stockholders shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any suh amendment or supplement in reliance upon and in
conformity with written information concerning such Underwriter furnished to
the Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein which information consists solely of the
information specified in Section 10(g); PROVIDED, FURTHER, that this
indemnity shall not apply to any Preliminary Prospectus to the extent that
any such loss,
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claim, damage, liability or expense of such Underwriter results from the fact
that such Underwriter sold Stock to a person as to whom it shall be
established that there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus in any case where such
delivery is required by the Securities Act if the Company shall have
previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage, liability or expense of such
Underwriter results from an untrue statement or omission of a material fact
contained in the Preliminary Prospectus which was corrected in the Prospectus
or in the Prospectus as then amended or supplemented and such correction
would have cured the defect giving rise to such loss, claim, damage,
liability or expense and the Selling Stockholders shall have previously
notified the Underwriter in writing of such untrue statement or omission
prior to the delivery of the Prospectus to the Underwriter; PROVIDED,
FURTHER, that with respect to each Selling Stockholder, (i) the
indemnification provision in this paragraph (b) shall only apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission, or alleged untrue statement or omission relating to
the information furnished in writing by or on behalf of such Selling
Stockholder pursuant to Section 2(f) of this Agreement and (ii) each Selling
Stockholder's aggregate liability under this Section 10(b) shall be limited
to an amount equal to the net proceeds (after deducting the underwriting
discount but before deducting expenses) received by such Selling Stockholder
from the sale of Option Stock pursuant to this Agreement. The foregoing
indemnity agreement is in addition to any liability which the Selling
Stockholders may otherwise have to any Underwriter or any officer, employee
or controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, each Selling Stockholder, the officers,
employees and directors of the Company and each Selling Stockholder, and each
person, if any, who controls the Company or each Selling Stockholder,
respectively, within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company, any Selling Stockholder, or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or Other Offering Materials or
(ii) the omission or alleged omission to state in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application or Other Offering
Materials, any material fact required to be stated therein or necessary to
make the statements therein (in the case of the Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Blue Sky Application
or Other Offering Materials, in light of the circumstances under which they
were made) not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
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Representatives by or on behalf of that Underwriter specifically for
inclusion therein, which information consists solely of the information
specified in Section 10(g), and shall reimburse the Company, such Selling
Stockholder, and any such director, officer or controlling person fr any
legal or other expenses reasonably incurred by the Company, such Selling
Stockholder, or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred.
The foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company, such Selling Stockholders, or
any such director, officer, employee or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Section 10, notify the indemnifying party
in writing of the claim or the commencement of that action; PROVIDED,
HOWEVER, that the failure to notify the indemnifying party shall not relieve
it from any liability which it may have under this Section 10 except to the
extent it has been materially prejudiced by such failure and, PROVIDED
FURTHER, that the failure to notify the indemnifying party shall not relieve
it from any liability which it may have to an indemnified party otherwise
than under this Section 10. If any such claim or action shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and,
to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
(i) the Representatives shall have the right to employ counsel to represent
jointly the Representatives and those other Underwriters and their respective
officers, employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriters against the Company or Selling Stockholders under this Section
10 if, in the reasonable judgment of the Representatives, it is advisable for
the Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and in
that event the Company or the Selling Stockholders shall not have the right
to direct the defense of such action on behalf of those persons and the fees
and expenses of such separate counsel shall be paid by the Company or the
Selling Stockholders and (ii) the Representatives shall have the right to
employ one separate counsel (in addition to any local counsel) to represent
the Representatives and those other Underwriters and their respective
officers, employees and controlling persons for the defense of any losses,
claims, damages and liabilities arising out of the Directed Share Program.
No indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect to
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any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the plaintiff in
any such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of
such settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall
for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b) or 10(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other, from the
offering of the Stock or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders, on the
one hand, and the Underwriters, on the other, with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Stockholders, on the one hand, and the Underwriters, on the other,
with respect to the offering of the Stock shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Stock purchased
under this Agreement (before deducting expenses) received by the Company and
the Selling Stockholders, on the one hand, and the total underwriting
discounts and commissions received by the Underwriters with respect to the
shares of the Stock purchased under this Agreement, on the other hand, bear
to the total gross proceeds from the offering of the shares of the Stock
under this Agreement, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determned by reference
to whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholders or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 10(e) were to be
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above
in this
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Section 10(e) shall be deemed to include, for purposes of this Section 10(e),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10(e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 10(e) are
several in proportion to their respective underwriting obligations and not
joint.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 10 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred,
but in all cases no later than thirty (30) days of invoice to the
indemnifying party. If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel for which the indemnifying party is responsible pursuant
to the terms hereof, such indemnifying party agrees that it shall be liable
for any settlement effected without its written consent if (i) such
settlement is entered into more than sixty (60) days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least sixty
(60) days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(g) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth in the last paragraph on the cover page
of, the names of the Underwriters in the table under "Underwriting--General,"
the first paragraph under "Underwriting--Commissions and Expenses," the first
five paragraphs under "Underwriting--Stabilization, Short Positions and
Penalty Bids" and the second paragraph under "Underwriting--Offers and Sales
Outside the United States" in the Prospectus are correct and constitute the
only information concerning such Underwriters furnished in writing to the
Company by or on behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
11. DEFAULTING UNDERWRITERS.
If, on any Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which
the defaulting Underwriter agreed but failed to purchase on such Delivery
Date in the respective proportions which the number of shares
36
<PAGE>
of the Firm Stock set forth opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set forth opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; PROVIDED, HOWEVER, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any
of the Stock on such Delivery Date if the total number of shares of the Stock
which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such date exceeds 9.09% of the total number of shares of the
Stock to be purchased on such Delivery Date, and any remaining non-defaulting
Underwriter shall not be obligated to purchase more than 110% of the number
of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to Section 3. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among them,
all the Stock to be purchased on such Delivery Date. If the remaining
Underwriters or other underwriters satisfactory to the Representatives do not
elect to purchase the shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the Underwriters to
purchase, and of the Company and the Selling Stockholders to sell, the Option
Stock) shall terminate without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except that the
Company and the Selling Stockholders will continue to be liable for the
payment of expenses to the extent set forth in Sections 8 and 13. As used in
this Agreement, the term "Underwriter" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Stock which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of
any liability it may have to the Company and the Selling Stockholders for
damages caused by its default. If other underwriters are obligated or agree
to purchase the Stock of a defaulting or withdrawing Underwriter, either the
Representatives or the Company may postpone the Delivery Date for up to seven
full business days in order to effect any changes that in the opinion of
counsel for the Company or counsel for the Underwriters may be necessary in
the Registration Statement, the Prospectus or in any other document or
arrangement.
12. TERMINATION. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by
the Company prior to delivery of and payment for the Firm Stock if, prior to
that time, any of the events described in Sections 9(n) or 9(o), shall have
occurred.
13. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Company or
any Selling Stockholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of
the Company or the Selling Stockholders to perform any agreement on its part
to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the
37
<PAGE>
Company or the Selling Stockholders is not fulfilled, the Company and the
Selling Stockholders will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred
by the Underwriters in connection with this Agreement and the proposed
purchase of the Stock, and upon demand the Company and the Selling
Stockholders shall pay the full amount thereof to the Representatives. If
this Agreement is terminated pursuant to Section 11 by reason of the default
of one or more Underwriters, neither the Company nor any Selling Stockholder
shall be obligated to reimburse any defaulting Underwriter on account of
those expenses.
14. NOTICES, ETC. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to:
(i) Lehman Brothers Inc., Three World Financial Center, New
York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 10(d), to the Director of Litigation, Office
of the General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285; and
(ii) Banc of America Securities LLC, 9 West 57th Street,
48th Floor, New York, NY 10019, Attention: [ ]
(Fax: 212-[ ]), with a copy, in the case of any
notice pursuant to Section 10(d), to Victor A. Warnement,
Managing Director, Bank of America, N.A., Legal Department,
NC1-007-20-01, 100 North Tryon Street, Charlotte, NC 28255-0001.
with a copy to Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York,
New York 10153, Attention: Jeremy W. Dickens, Esq.
(Fax: 212-310-8007); and
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Bruce R. Knooihuizen, Vice
President - Chief Financial Officer / Ronald L. Ripley, Vice President
Senior Corporate Counsel (Fax: 405-529-8515),
with a copy to McAfee & Taft, A Professional Corporation, 211 North
Robinson, Suite 1000, Oklahoma City, Oklahoma 73102, Attention:
Theodore M. Elam, Esq. (Fax: 405-235-0439);
(c) if to the Selling Stockholders, shall be delivered or sent by
mail, telex or facsimile transmission to [J. W. Childs Equity Partners
II,
38
<PAGE>
L.P., One Federal St., 21st Floor, Boston, MA 02110, Attention:
Dana L. Schmaltz, Vice President (Fax: 617-753-1101)],
with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, One Beacon
Street, Boston, MA 02108-3194, Attention: [ ], Esq.
(Fax: 617-573-4822);
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section
10(d) shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and
the Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. and Banc of America Securities LLC on behalf of the
Representatives and the Company and the Underwriters shall be entitled to act
and rely upon any request, consent, notice or agreement given or made on
behalf of the Selling Stockholders by the Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the
Company, the Selling Stockholders and their respective personal
representatives and successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company and
the Selling Stockholders contained in this Agreement shall also be deemed to
be for the benefit of the person or persons, if any, who control any
Underwriter within the meaning of Section 15 of the Securities Act and (B)
the indemnity agreement of the Underwriters contained in Section 10(c) of
this Agreement shall be deemed to be for the benefit of (i) directors of the
Company, officers of the Company who have signed the Registration Statement
and any person controlling the Company within the meaning of Section 15 of
the Securities Act and (ii) any person controlling a Selling Stockholder
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than
the persons referred to in this Section 15, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision
contained herein.
16. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless
of any investigation made by or on behalf of any of them or any person
controlling any of them.
17. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For
purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking
institutions in New
39
<PAGE>
York are generally authorized or obligated by law or executive order to close
and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of New York.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
40
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, the Selling Stockholders and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
DOBSON COMMUNICATIONS CORPORATION
By:
---------------------------------------
Name:
Title:
The Selling Stockholders named in Schedule 2 to
this Agreement
By:
---------------------------------------
ATTORNEY-IN-FACT
41
<PAGE>
Accepted:
LEHMAN BROTHERS INC.
BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY INC.
DEUTSCHE BANK SECURITIES INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By:
------------------------------
Name:
AUTHORIZED REPRESENTATIVE
By BANC OF AMERICA SECURITIES LLC
By:
------------------------------
Name:
AUTHORIZED REPRESENTATIVE
By SALOMON SMITH BARNEY INC.
By:
------------------------------
Name:
AUTHORIZED REPRESENTATIVE
42
<PAGE>
By DEUTSCHE Bank SECURITIES INC.
By:
------------------------------
Name:
AUTHORIZED REPRESENTATIVE
By GOLDMAN, SACHS & CO.
By:
------------------------------
Name:
AUTHORIZED REPRESENTATIVE
By MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
------------------------------
Name:
AUTHORIZED REPRESENTATIVE
43
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ------
<S> <C>
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . .
Banc of America Securities LLC . . . . . . . . . . . . . . .
Salomon Smith Barney Inc . . . . . . . . . . . . . . . . . .
Deutsche Bank Securities Inc . . . . . . . . . . . . . . . .
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . .
</TABLE>
-----------
Total ===========
44
<PAGE>
SCHEDULE 2
Number of Shares
Name and address of Selling Stockholders of Option Stock
- ---------------------------------------- ----------------
[To be supplied by Skadden, Arps, Slate, Meagher & Flom LLP]
-----------
Total ===========
45
<PAGE>
AGREEMENT AND PLAN
OF
RECAPITALIZATION
This AGREEMENT AND PLAN OF RECAPITALIZATION (the "Agreement") is made and
entered into among DOBSON COMMUNICATIONS CORPORATION, an Oklahoma corporation
("DCC"), DOBSON OPERATING CO., L.L.C., an Oklahoma limited liability company and
a wholly-owned subsidiary of DCC ("DOCLLC"), DOBSON CC LIMITED PARTNERSHIP, an
Oklahoma limited partnership ("DCCLP"), RUSSELL L. DOBSON, an individual
("Dobson"), J.W. CHILDS EQUITY PARTNERS II, L.P., a Delaware limited partnership
("Childs"), AT&T WIRELESS SERVICES, INC., a Delaware corporation ("AT&T") and
the holders of issued and outstanding shares of DCC's Class A Common Stock, par
value $.001 per share ("Old Class A Common Stock") and Class D Preferred Stock,
par value $1.00 per share ("Class D Preferred Stock") listed on Schedule A
annexed hereto (the "JWC Group Stockholders" and, together with DOCLLC, DCCLP,
Dobson, Childs, and AT&T, the "Stockholders").
RECITALS
1. DCC has an authorized capital consisting of 3,000,000 shares of
preferred stock, par value $1.00 per share ("Preferred Stock"), and 1,500,000
shares of common stock, par value $.001 per share ("Old Common Stock"). The
following reflects the classes of DCC's Preferred Stock and Old Common Stock,
including the number of shares designated for each class and the number of
shares of each class outstanding at January 3, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------
CLASS OF STOCK AUTHORIZED OUTSTANDING
-------------- ---------- -----------
<S> <C> <C>
Class A 5% Non-Cumulative, Non-Voting, Non- 450,000 314,286
Convertible Preferred Stock ("Class A
Preferred Stock")...............................
Class D Preferred Stock........................... 90,000 75,093.7
Class E Preferred Stock ("Class E Preferred
Stock")......................................... 517,000 0
12 1/4% Senior Exchangeable Preferred Stock
(12 1/4% Senior Preferred Stock)................ 734,000 287,602
13% Senior Exchangeable Preferred Stock due
2009 ("13% Senior Preferred Stock")............. 500,000 181,229
Other Preferred Stock............................. 709,000 0
Class A Common Stock, par value $.001 per
share ("Old Class A Common Stock").............. 1,438,000 491,954
Class B Common Stock, par value $.001 per
share ("Old Class B Common Stock").............. 31,000 0
<PAGE>
Class C Common Stock, par value $.001 per
share ("Class C Common Stock").................. 31,000 0
</TABLE>
2. DCC intends to effect an initial public offering ("IPO") of its
New Class A Common Stock (defined below). In order to effect its IPO, DCC must
complete a recapitalization to simplify its corporate structure to position
itself for its IPO.
3. DCC has filed a registration statement on Form S-1 with the
Securities and Exchange Commission (Registration File No. 333-90759) with
respect to its IPO, which HAS BEEN AMENDED BUT WHICH HAS not yet become
effective (the "Registration Statement").
4. DCC and the Stockholders have agreed to the plan of
recapitalization for DCC as set forth herein to facilitate the IPO and have
agreed to effect the transactions provided for herein.
AGREEMENTS
In consideration of the mutual covenants, promises, benefits and burdens
herein set forth, and in order to effect the recapitalization of DCC, the
parties agree as follows:
1. CLASS A PREFERRED STOCK. DOCLLC is the beneficial owner of all of
the outstanding shares of Class A Preferred Stock. DOCLLC agrees that
immediately prior to the Effective Time (defined below) it will distribute all
of the Class A Preferred Stock which it beneficially owns to DCC. Upon receipt
of the Class A Preferred Stock, DCC shall cancel and retire all outstanding
shares of its Class A Preferred Stock.
2. CLASS D PREFERRED STOCK. Each holder of outstanding shares of
Class D Preferred Stock represents that it is the beneficial owner of shares of
Class D Preferred Stock. Each such holder acknowledges that pursuant to the
Certificate of Designation, Preferences and Relative and Other Special Rights,
and Qualifications, Limitations and Restrictions of Class D Preferred Stock,
each share of Class D Preferred Stock is convertible into one share of Old Class
A Common Stock and one share of DCC's Class E Preferred Stock, subject to
appropriate anti-dilution adjustment as provided in the Certificate of
Designation. Each such holder agrees that immediately prior to the Effective
Time (defined below) it will convert each such share of Class D Preferred Stock
into shares of Old Class A Common Stock and Class E Preferred Stock, as provided
in the Certificate of Designation. Each such holder's execution of this
Agreement constitutes the irrevocable election by the holder to convert each
share of Class D Preferred Stock beneficially owned by such holder into one
share of Class E Preferred Stock and one share of Old Class A Common Stock,
subject to appropriate anti-dilution adjustment as provided in the Certificate
of Designation to be effective and operative immediately prior to the Effective
Time.
3. AMENDMENT TO CERTIFICATE OF INCORPORATION. DCC agrees to amend
and restate its Certificate of Incorporation (the "New Certificate of
Incorporation") so that DCC will be authorized to issue an aggregate of
251,037,226 shares of capital stock, which shall consist of:
A. 175 million shares of Class A Common Stock, par value $.001
per share ("New Class A Common Stock");
<PAGE>
B. 70 million shares of Class B Common Stock, par value $.001
per share ("New Class B Common Stock");
C. 6 million shares of Preferred Stock, par value $1.00 per
share, of which 734,000 shares shall be designated as 12
1/4% Senior Exchangeable Preferred Stock 500,000 shares
shall be designated as 13% Senior Exchangeable Preferred
Stock , and 40,000 shares shall be designated as Class E
Preferred Stock;
D. 4,226 shares of Class C Common Stock, par value $.001 per
share ("Class C Common Stock"); and
E. 33,000 shares of Class D Common Stock, par value $.001 per
share ("New Class D Common Stock").
The form of DCC's proposed New Certificate of Incorporation, including the
terms, rights, powers and preferences of DCC's authorized capital stock, is
attached as Schedule B and incorporated herein by this reference.
DCC shall file the New Certificate of Incorporation with the Secretary of
State of Oklahoma so that the New Certificate of Incorporation will become
effective immediately prior to the consummation of the IPO. The time that the
New Certificate of Incorporation becomes effective is herein referred to as the
"Effective Time."
4. REDESIGNATION OF OLD CLASS B COMMON STOCK. The authorized shares
of Old Class B Common Stock will be redesignated as New Class D Common Stock.
5. RECLASSIFICATION OF OLD CLASS A COMMON STOCK, OLD CLASS B COMMON
STOCK AND CLASS C COMMON STOCK; STOCK SPLIT. At the Effective Time, (a) each
share of Old Class A Common Stock, par value $.001 per share, outstanding
immediately prior to the Effective Time shall be, without further action by the
Corporation or any holder thereof, changed, converted and reclassified into a
number of shares of New Class B Common Stock equal to the number of shares
representing a 111.44 to 1 stock split for each share (the "Class A Conversion
Factor"), and each certificate then outstanding stating on its face that it
represents shares of Old Class A Common Stock existing prior to the Effective
Time, shall automatically represent, from and after the Effective Time, a number
of shares of New Class B Common Stock
<PAGE>
equal to the number of shares on the face of the certificate of Old Class A
Common Stock existing prior to the Effective Time multiplied by the Class A
Conversion Factor; (b) each share of Old Class B Common Stock, par value
$.001 per share, outstanding immediately prior to the Effective Time shall
be, without further action by the Corporation or any holder thereof, changed,
converted and reclassified into a number of shares of newly authorized New
Class A Common Stock equal to the number of shares representing a 111.44 to 1
stock split for each share (the "Class B Conversion Factor"), and each
certificate then outstanding stating on its face that it represents shares of
Old Class B Common Stock existing prior to the Effective Time, shall
automatically represent, from and after the Effective Time, a number of
shares of New Class A Common Stock equal to the number of shares on the face
of the certificate of Class A Common Stock existing prior to the Effective
Time multiplied by the Class B Conversion Factor, and (c) each share of Class
C Common Stock, par value $.001 per share, outstanding immediately prior to
the Effective Time shall be, without further action by the Corporation or any
holder thereof, changed, converted and reclassified into a number of shares
of New Class A Common Stock equal to the number of shares representing a
11.44 to 1 stock split for each share (the "Class C Conversion Factor"), and
each certificate then outstanding stating on its face that it represents
shares of Class C Common Stock existing prior to the Effective Time, shall
automatically represent, from and after the Effective Time, a number of
shares of New Class A Common Stock equal to the number of shares on the face
of the certificate of Class C Common Stock existing prior to the Effective
Time multiplied by the Conversion Factor.
6. FRACTIONAL SHARES. In connection with the stock split described
in Section 5 above, no fractional shares of Class A Common Stock or Class B
Common Stock shall be issued. Instead, any fractional shares of New Class A
Common Stock or New Class B Common Stock which would otherwise be issued shall
be rounded to the nearest whole share.
7. OUTSTANDING OPTIONS. DCC has heretofore reserved an aggregate of
31,000 shares of its Old Class B Common Stock and 31,000 shares of its Class C
Common Stock for issuance upon the exercise of options granted and to be granted
under its 1996 Stock Option Plan, as amended (the "Plan"). At the Effective
Time, Old Class B Common Stock shall be redesignated as New Class D Common
Stock. The aggregate number of shares of New Class D Common Stock (formerly Old
Class B Common Stock) reserved for issuance under the Plan shall be 33,000
shares. The number of shares of Class C Common Stock reserved for issuance under
the Plan shall be 4,226 shares.
8. RETIREMENT OF TREASURY STOCK. Immediately prior to the Effective
Time, DCC shall retire 81,198 shares of its Old Class A Common Stock currently
issued but not outstanding and held as treasury stock.
9. STOCKHOLDER ACTION. The execution and delivery of this Agreement
by a Stockholder shall be deemed a waiver of a notice of a meeting of
stockholders of DCC for the purpose of considering and voting on the
transactions provided for herein or contemplated hereby, and shall constitute
the consent of each such Stockholder to all such transactions.
10. MISCELLANEOUS.
10.1 SURVIVAL. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party.
10.2. CUMULATIVE REMEDIES. No failure on the part of any party to
exercise and no delay in exercising any right hereunder will operate as a waiver
thereof, nor shall any single or partial exercise by any party of any right
hereunder preclude any other or further right of exercise
<PAGE>
thereof or the exercise of any other right.
10.3. EXPENSES. Each party agrees to pay all his, her or its
expenses incurred in connection with the transaction herein contemplated,
including, without limitation, all filing fees, recording costs, safekeeping
fees, charges and disbursements of legal counsel.
10.4. NOTICES. All notices, requests and demands hereunder will
be served by registered or certified mail, postage prepaid, as follows:
Russell L. Dobson: 13439 N. Broadway Extension, Suite 200
Oklahoma City, Oklahoma 73114
DCC, DOCLLC, and DCCLP: c/o Mr. Everett R. Dobson
Dobson Communications Corporation
13439 N. Broadway Extension, Suite 200
Oklahoma City, Oklahoma 73114
With a copy to: McAfee & Taft A Professional Corporation
10th Fl., Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: Theodore M. Elam, Esq.
Childs: c/o Mr. Dana L. Schmaltz
J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, Massachusetts 02110
AT&T: AT&T Wireless Services, Inc.
7277 164th Avenue, N.E.
Redmond, Washington 98052
JWC Group Stockholders: c/o Dana L. Schmaltz, as agent and
attorney-in-fact
J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, Massachusetts 02110
or at such other address as any party hereto shall designate for such purpose in
a written notice to the other parties hereto.
10.5. CONSTRUCTION. This Agreement and the documents issued
hereunder are executed and delivered as an incident to a transaction negotiated
and to be performed in Oklahoma City, Oklahoma County, Oklahoma. The
descriptive headings of the paragraphs of this Agreement are for convenience
only and are not to be used in the construction of the content of this
Agreement. This Agreement may be executed in multiple counterparts, each of
which
<PAGE>
will be an original instrument, but all of which will constitute one
agreement.
10.6. SUBMISSION TO JURISDICTION; VENUE. Each of the parties
hereto hereby irrevocably: (a) submits and consents, and waives any objection
to personal jurisdiction in the State of Oklahoma for the enforcement of this
Agreement; and (b) waives any and all personal rights under the law of any state
to object to jurisdiction in the State of Oklahoma for the purpose of litigation
to enforce this Agreement.
10.7. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
10.8. BINDING EFFECT. This Agreement will be binding on each of
the parties hereto, and his/her or its heirs, representatives, successors and
assigns, and will inure to the benefit of each of the parties hereto, his, her
or its heirs, representatives, successors and assigns.
10.9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and may be amended only by written instrument
executed by the parties hereto.
10.10. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one agreement.
IN WITNESS WHEREOF, this instrument is executed as of January ___, 2000.
DCC: DOBSON COMMUNICATIONS CORPORATION
By
Ronald L. Ripley, Vice President
DOCLLC: DOBSON OPERATING CO., L.L.C.
By
Ronald L. Ripley, Assistant General Manager
DCCLP: DOBSON CC LIMITED PARTNERSHIP
By: RLD, INC., General Partner
By
<PAGE>
Name:
Title:
DOBSON:
Russell L Dobson
CHILDS: J.W. CHILDS EQUITY PARTNERS II, L.P.
JWC Associates, Inc., General Partner
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
--------------------------------
DANA L. SCHMALTZ, VICE PRESIDENT
<PAGE>
AT&T: AT&T WIRELESS SERVICES, INC.
By
William W. Hague
Title:
---------------------------
<PAGE>
JWC GROUP STOCKHOLDERS: BOCK FAMILY TRUST
By
John V. Bock, Jr., Trustee
------------------------------
John W. Childs
------------------------------
Richard S. Childs
------------------------------
James E. Childs
------------------------------
Timothy J. Healy
------------------------------
Samuel A. Anderson
------------------------------
Glenn A. Hopkins
------------------------------
Jerry D. Horn
------------------------------
B. Lane MacDonald
------------------------------
<PAGE>
Raymond B. Rudy
------------------------------------
Dana L. Schmaltz
CHECHESSE CREEK TRUST
By
------------------------------------
Dana L. Schmaltz, Trustee
------------------------------------
Steven G. Segal
SGS 1995 FAMILY LIMITED
PARTNERSHIP
By
------------------------------------
Steven G. Segal, General Partner
STEVEN G. SEGAL 1995
IRREVOCABLE TRUST
By
------------------------------------
Steven G. Segal, Donor
SGS III 1995 FAMILY LIMITED
PARTNERSHIP
By
------------------------------------
Steven G. Segal, General Partner
------------------------------------
Adam L. Suttin
ADAM L. SUTTIN IRREVOCABLE
<PAGE>
FAMILY TRUST
By
------------------------------------
Hope Suttin, Trustee
SUTTIN FAMILY TRUST II
By
------------------------------------
Adam L. Suttin, Trustee
EUGENE SUTTIN SELF DIRECTED
CUSTODIAL IRA
By
------------------------------------
Samuel A. Katz, Vice President,
Trust Bank of _______________
------------------------------------
Edward D. Yun
YUN FAMILY TRUST
By
------------------------------------
Edward D. Yun, Trustee
------------------------------------
Bob Elman
------------------------------------
Edwin J. Kozlowski
------------------------------------
James D. Murphy
<PAGE>
REBACLIFF, BAKER & DOBBS, LLC
By
------------------------------------
Michael A. Smart, Member
------------------------------------
Benno C. Schmidt, Jr.
------------------------------------
Mario Soussou
------------------------------------
William E. Watts
OFS INVESTMENT PARTNERS II
By
------------------------------------
Allen A. Dowds, Administrative
Managing Partner
*
------------------------------------
Dana L. Schmaltz, as agent and
attorney-in-fact for the JWC Group
Stockholders under the Stockholder
Appointment of Agent and Power of
Attorney, and not in his individual
capacity
<PAGE>
SCHEDULE A
SHAREHOLDER
J.W. Childs Equity Partners II, L.P.
Bock Family Trust
John W. Childs
Richard S. Childs
James E. Childs
Samuel A. Anderson
Timothy J. Healy
Glenn A. Hopkins
Jerry D. Horn
B. Lane MacDonald
Raymond B. Rudy
Dana L. Schmaltz
Chechesse Creek Trust
Steven G. Segal
SGS 1995 Family Limited Partnership
Steven G. Segal 1995 Irrevocable Trust
SGS III 1995 Family Limited Partnership
Adam L. Suttin
Adam L. Suttin Irrevocable Family Trust
Suttin Family Trust II
Eugene Suttin Self Directed Custodial IRA
Edward D. Yun
Yun Family Trust
Bob Elman
Edward J. Kozlowski
James D. Murphy
Rebacliff, Baker & Dobbs, L.L.C.
Benno C. Schmidt, Jr.
Mario Soussou
William E. Watts
OFS Investment Partners II
<PAGE>
ASSET PURCHASE AGREEMENT
between
LAKE HURON CELLULAR CORP.
and
DOBSON CELLULAR SYSTEMS, INC.
DATED AS OF December 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I PURCHASE AND SALE 1
ARTICLE II DESCRIPTION OF ASSETS; EXCLUDED ASSETS 2
SECTION 2.01. ASSETS 2
SECTION 2.02. EXCLUDED ASSETS 3
ARTICLE III ASSUMPTION OF LIABILITIES 4
ARTICLE IV INSTRUMENTS OF TRANSFER AND ASSUMPTION 4
SECTION 4.01. TRANSFER DOCUMENTS 4
SECTION 4.02. ASSUMPTION DOCUMENTS 4
ARTICLE V PURCHASE PRICE; ALLOCATION 5
SECTION 5.01. PURCHASE PRICE 5
SECTION 5.02. DEPOSIT 5
SECTION 5.03. PAYMENT OF PURCHASE PRICE 5
SECTION 5.04. ALLOCATION OF PURCHASE PRICE 5
SECTION 5.05. PURCHASE PRICE ADJUSTMENTS 6
ARTICLE VI CLOSING 8
ARTICLE VII SELLER'S REPRESENTATIONS 9
SECTION 7.01. ORGANIZATION, QUALIFICATION 9
SECTION 7.02. CONSENTS, AUTHORIZATION, EXECUTION AND DELIVERY OF AGREEMENT 9
SECTION 7.03. SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES 9
SECTION 7.04. TITLE TO ASSETS; CONDITION OF ASSETS 9
SECTION 7.05. REAL PROPERTY - OWNED 10
<PAGE>
SECTION 7.06. REAL AND PERSONAL PROPERTY - LEASED 11
SECTION 7.07. EXISTING CONTRACTS 12
SECTION 7.08. GOVERNMENTAL LICENSES 12
SECTION 7.09. COMPLIANCE WITH LAWS 13
SECTION 7.10. NO VIOLATION OF EXISTING AGREEMENTS 13
SECTION 7.11. LITIGATION AND LEGAL PROCEEDINGS 13
SECTION 7.12. ENVIRONMENTAL COMPLIANCE 13
SECTION 7.13. EMPLOYEES 14
SECTION 7.14. EMPLOYEE BENEFITS 15
SECTION 7.15. TAX MATTERS 16
SECTION 7.16. FINANCIAL STATEMENTS 16
SECTION 7.17. SUBSCRIBERS/AGENTS 17
SECTION 7.18. INSURANCE 18
SECTION 7.19. BROKERS 18
SECTION 7.20. UNDISCLOSED LIABILITIES 18
SECTION 7.21. PRICING OF SERVICES 18
SECTION 7.22. PROPRIETARY RIGHTS 18
SECTION 7.23. ACCOUNTS RECEIVABLE AND BAD DEBTS 18
SECTION 7.24. PRODUCT INFORMATION 19
SECTION 7.25. CERTAIN BUSINESS RELATIONSHIPS WITH SELLER 19
SECTION 7.26. YEAR 2000 COMPLIANCE 19
ARTICLE VIII PURCHASER'S REPRESENTATIONS 19
SECTION 8.01. ORGANIZATION; QUALIFICATION 19
SECTION 8.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF AGREEMENT 19
SECTION 8.03. LITIGATION AND LEGAL PROCEEDINGS 19
SECTION 8.04. BROKERS 20
SECTION 8.05. ACCESS TO FUNDS 20
- ii -
<PAGE>
SECTION 8.06. QUALIFICATIONS TO HOLD FCC AUTHORIZATIONS 20
SECTION 8.07. BANKRUPTCY 20
ARTICLE IX SELLER'S AND PURCHASER'S COVENANTS 20
SECTION 9.01. FINANCIAL STATEMENTS AND CELLULAR SYSTEM INFORMATION 20
SECTION 9.02. GOVERNMENTAL APPROVALS 21
SECTION 9.03. THIRD PARTY CONSENTS; CLOSING CONDITIONS 21
SECTION 9.04. ACCESS 22
SECTION 9.05. CONDUCT OF BUSINESS 23
SECTION 9.06. NO SHOPPING 25
SECTION 9.07. EMPLOYEES 25
SECTION 9.08. SUPPLEMENTAL DISCLOSURE 26
SECTION 9.09. SELLER'S ACCESS TO RECORDS POST-CLOSING 26
SECTION 9.10. CONSUMMATE TRANSACTION 26
SECTION 9.11. PURCHASER NOT TO CONTROL 26
SECTION 9.12. RESCISSION 27
ARTICLE X CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE 27
SECTION 10.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF THIS AGREEMENT 27
SECTION 10.02. RESOLUTIONS 28
SECTION 10.03. INCUMBENCY CERTIFICATE 28
SECTION 10.04. THIRD PARTY CONSENTS; FCC; HART-SCOTT ACT 28
SECTION 10.05. NO MATERIAL ADVERSE CHANGE 28
SECTION 10.06. OPINION OF COUNSEL TO SELLER 29
SECTION 10.07. INTENTIONALLY OMITTED 29
SECTION 10.08. CLOSING ESCROW AGREEMENT 29
SECTION 10.09. TITLE INSURANCE; ESTOPPEL 29
SECTION 10.10. OPERATION OF CELLULAR SYSTEM 29
- iii -
<PAGE>
ARTICLE XI CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE 29
SECTION 11.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF THIS AGREEMENT 29
SECTION 11.02. DIRECTORS' RESOLUTIONS 29
SECTION 11.03. INCUMBENCY CERTIFICATE 30
SECTION 11.04. FCC; HART-SCOTT ACT 30
SECTION 11.05. OPINION OF COUNSEL TO PURCHASER 30
SECTION 11.06. CLOSING ESCROW AGREEMENT 30
SECTION 11.07. NO LITIGATION 30
SECTION 11.08. PAYMENT OF PURCHASE PRICE 30
ARTICLE XII CASUALTY LOSSES 30
ARTICLE XIII INDEMNIFICATION 31
SECTION 13.01. INDEMNIFICATION BY SELLER 31
SECTION 13.02. INDEMNIFICATION BY PURCHASER 32
SECTION 13.03. NOTICE OF CLAIMS; DEFENSE OF THIRD PARTY 32
SECTION 13.04. LIMITATIONS 33
ARTICLE XIV CONFIDENTIALITY AND PRESS RELEASES 34
SECTION 14.01. CONFIDENTIALITY 34
SECTION 14.02. PRESS RELEASES 35
SECTION 14.03. DISCLOSURES REQUIRED BY LAW 35
ARTICLE XV TERMINATION 35
SECTION 15.01. BREACHES AND DEFAULTS; OPPORTUNITY TO CURE 35
SECTION 15.02. TERMINATION 36
ARTICLE XVI BROKERS' FEES 36
ARTICLE XVII MISCELLANEOUS 36
SECTION 17.01. ADDITIONAL INSTRUMENTS OF TRANSFER 37
- iv -
<PAGE>
SECTION 17.02. NOTICES 37
SECTION 17.03. EXPENSES 38
SECTION 17.04. TRANSFER TAXES 38
SECTION 17.05. COLLECTION PROCEDURES 38
SECTION 17.06. SPECIFIC PERFORMANCE 39
SECTION 17.07. GOVERNING LAW 39
SECTION 17.08. ASSIGNMENT 39
SECTION 17.09. SUCCESSORS AND ASSIGNS 39
SECTION 17.10. AMENDMENTS; WAIVERS 39
SECTION 17.11. ENTIRE AGREEMENT 39
SECTION 17.12. COUNTERPARTS 39
SECTION 17.13. SEVERABILITY 39
SECTION 17.14. SECTION HEADINGS 40
SECTION 17.15. INTERPRETATION 40
SECTION 17.16. FURTHER ASSURANCES 40
SECTION 17.17. THIRD PARTIES 40
SECTION 17.18. WAIVER OF JURY 40
</TABLE>
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<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION CITE
---- ------------
<S> <C>
Adjustments 5.05(c)
Asserting Party 13.03
Assets 2.01
Assumed Contracts Article III
Assumption Agreement 4.02
Assumed Liabilities Article III
Audited Historical Financial Statements 7.16(a)(i)
Authorizations 7.08
Balance Sheet Date 7.16(a)(ii)
Base Price 5.01
Bill of Sale 4.01
Breaching Party 15.01
Business Recitals
Capex Adjustment 5.05(c)
Cellular System Recitals
CERCLA 7.12(b)
Claims Article XII
Closing Article VI
Closing Certificate 5.05(d)
Closing Date Article VI
Closing Escrow Agreement 5.03
Code 7.14
Controlled Group Member 7.14
Current Assets 5.05(a)
Current Financial Statements 7.16(a)(ii)
Current Liabilities 5.05(a)
Deductible 13.05(a)
Defending Party 13.03
Defined Benefit Pension Plan 7.14
Deposit 5.02
Deposit Escrow Agreement 5.02
Disclosing Party 14.01
DOJ 10.04
Employee Benefit Plans 7.14
Environmental Laws 7.12(c)
ERISA 7.14
ERISA Affiliate 7.14
Escrow Agent 5.03
Escrow Payment 5.03
Excluded Assets 2.02(a)
Existing Contracts 7.07
FCC Recitals
- vi -
<PAGE>
FCC Authorizations Recitals
Final Order 10.04
Finality Waiver Notice 10.04
FTC 10.04
GAAP 5.05(a)
Hart-Scott Act 9.02(b)
Hazardous Substances 7.12(b)
Historical Financial Statements 7.16(a)(ii)
Indemnified Purchaser Parties 13.01(a)
Independent Accountants 5.05(d)
Interest 9.03
Interim Balance Sheet 7.16(a)(ii)
Interim Income Statement 7.16(a)(ii)
Interim Financial Statements 9.01
Inventory 5.05(a)
Liquidated Damages Amount 5.02
Liens Article I
Losses 13.01(a)
Material Adverse Effect 10.01
Material Loss 10.01
Multiemployer Plan 7.14
Non-Assumed Liabilities Article III
Non-Breaching Party 15.01
Nortel Agreement 5.05(a)
Operating Budget 9.01
Outside Date 15.02(e)
Permitted Liens Article I
Person 7.04
Phase I Assessment 9.05(b)
Phase II Assessment 9.05(b)
Purchase Price 5.01
Purchaser Introduction
Purchaser's Estimate 5.05(d)
RCLA 7.12(b)
RCRA 7.12(b)
Recipient Party 14.01
Response Period 5.05(d)
RSA Recitals
Seller Introduction
Seller's Estimate 5.05(d)
Special Temporary Authority 10.04
Tax 7.15
Third Party Claim 13.03
Working Capital Adjustment 5.05(b)
</TABLE>
- vii -
<PAGE>
SCHEDULES
1 Permitted Liens
2.01(a) Contracts and Licenses
2.01(c) Tangible Asset List
2.01(d) Interests in Real Property
2.01(f) Intangible Personal Property
2.02 Excluded Assets
5.05(c) Expansion Budget
7.04 Encumbrances
7.05 Real Property-Owned
7.08 Governmental Licenses
7.09 Compliance with Laws
7.10 Consents
7.11 Litigation
7.12 Environmental Compliance
7.13 Employees
7.14 Employee Benefits
7.15 Tax Matters
7.16(a)(i) Audited Historical Financial Statements
7.16(a)(ii) Current Financial Statements
7.16(c) Certain Transactions Since Balance Sheet Date
7.17 Subscribers; Agents
7.18 Insurance
- viii -
<PAGE>
7.21 Pricing of Services
7.23 Accounts Receivable Aging
7.24 Product Information
7.25 Certain Business Relationships
9.01 Operating Budget
9.03 Form of Consent Letter
EXHIBITS
A. Bill of Sale
B. Assumption Agreement
C. Deposit Escrow Agreement
D. Closing Escrow Agreement
E. Opinion of Corporate and FCC Counsel for Seller
F. Opinion of Counsel for Purchaser
- ix -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of the 14th day of
December, 1999, by and between LAKE HURON CELLULAR CORP., a Delaware
corporation ("Seller"), and DOBSON CELLULAR SYSTEMS, INC., an Oklahoma
corporation ("Purchaser").
R E C I T A L S
WHEREAS, Seller owns all right, title and interest in certain
cellular and microwave licenses (the "FCC Authorizations") granted by the
Federal Communications Commission (the "FCC") to provide non-wireless
cellular radio telephone service in the Michigan 10 - Tuscola Rural Service
Area (the "RSA") Market No. 481 (the "Cellular System");
WHEREAS, Purchaser desires to purchase from Seller, and Seller
desires to sell to Purchaser, substantially all of the assets and rights of
Seller relating to the ownership and operation of the Cellular System (the
"Business"), all subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements herein set forth and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Subject to the terms and conditions set forth in this Agreement,
Seller agrees to sell, convey, assign, transfer and deliver to Purchaser, and
Purchaser agrees to purchase from Seller at the Closing, all of Seller's
right, title and interest in and to the Assets (as defined in Section 2.01
hereof), free and clear of all debts, liabilities, obligations, taxes, other
than Assumed Liabilities, and free and clear of all security interests,
liens, pledges, charges, rights of third parties and encumbrances of every
kind (collectively, "Liens") other than Permitted Liens. As used herein, the
term "Permitted Liens" means (i) any Lien for taxes and assessments not yet
past due or otherwise being contested in good faith and for which appropriate
reserves have been established and are taken into account in the Working
Capital Adjustment, (ii) any Lien affecting real property that does not
secure a monetary obligation and which does not materially interfere with the
use by Seller of the property subject thereto or affected thereby (including
any easements, rights of way, restrictions, installations or public
utilities, title imperfections and restrictions, reservations in land
patents, zoning ordinances or other similar Liens), (iii) any Lien arising
out of deposits made to secure leases or other obligations of like nature
arising in the ordinary course of business, including materialman's and
workman's liens created by operation of law in the ordinary course of
Seller's Business (provided that the holder of such Lien has not taken any
action to perfect, record or otherwise enforce such Lien), (iv) any Lien
provided for in any contract or lease listed on the disclosure schedules
hereto and not related to any indebtedness for
<PAGE>
borrowed money and for which Seller has not granted a security interest in
any of its Assets to the other party or parties thereto, (v) as to
leaseholds, interests of the lessors thereof and Liens affecting interests of
such lessors and (vi) any Lien set forth on SCHEDULE 1 attached hereto.
ARTICLE II
DESCRIPTION OF ASSETS; EXCLUDED ASSETS
SECTION 2.01. ASSETS. The assets to be conveyed to Purchaser shall
include all real and personal tangible and intangible assets, properties and
rights owned by Seller, of whatever description, used in, held for use or
relating to the ownership or operation of the Business, including all
property and rights acquired or obtained by Seller from the date hereof
through the date of Closing, except assets excluded pursuant to Section 2.02
hereof (collectively, the "Assets"). Such Assets shall be free and clear of
all Liens other than Permitted Liens as of the Closing. Such Assets shall
include, without limitation:
(a) All licenses (including the FCC Authorizations),
leases, agreements, trademark licenses, permits, consents, revenue sharing
agreements, agreements for the reception or transmission of signals by
microwave; all easements, appurtenances, rights-of-way and construction
permits, if any, related to the Business; all right, title and interest, if
any, in and to all streets, roads and public places, open or proposed; all
agreements between Seller and any suppliers, cellular telephone service
companies and subscribers, and all other similar rights and agreements
(including roaming and interconnection agreements), including all
applications therefor, which in any way may relate to or concern the
operation by Seller of the Business, all of which items are more particularly
set forth on SCHEDULE 2.01(a) attached hereto.
(b) All of Seller's files of correspondence, lists, records
and reports concerning (i) customers and prospective customers of the
Business and (ii) all dealings with Federal, state and local regulatory
agencies with respect to the Business, including, but not limited to, all
reports filed by or on behalf of Seller with the FCC.
(c) All of Seller's right, title and interest in and to
towers, tower equipment, antennas, switching and cell site equipment and
buildings, construction in progress, microwave equipment, machinery, testing
equipment, motor vehicles, office equipment, computers and related software,
furniture and fixtures, supplies, inventory, spare parts, and other physical
assets, used in or relating to the Business, and all modifications,
additions, restorations or replacements of the whole or any part thereof.
(d) All real property, leaseholds and other interests in
real property of Seller used in or relating to the Business, as are described
on SCHEDULE 2.01(d) attached hereto.
(e) All of Seller's right, title and interest to
engineering records, files, data, drawings, blueprints, schematics, maps,
reports, lists and plans and processes used or intended for use in connection
with the Business.
- 2 -
<PAGE>
(f) All right, title and interest to intangible personal
property used in or relating to the Business, including all rights, patents
and copyrights used by Seller, and all of the rights of Seller associated
therewith (including any and all applications, registrations, extensions and
renewals thereof), and such rights, patents and copyrights as are described
on SCHEDULE 2.01(f) attached hereto.
(g) All of Seller's right, title and interest in and to
communications towers, buildings, fixtures and other improvements including,
without limitation, all electrical, mechanical, plumbing and other building
systems, security and surveillance systems and wiring and cable installations
located on the property leased by Seller for use in, held for use or relating
to the Business or Assets.
(h) All prepayments and prepaid expenses related to the
Business or Assets.
(i) All claims, causes of action, rights of recovery and
rights of set-off of any kind related to the Business or Assets.
(j) The right to receive and retain mail, accounts
receivable payments and other communications related to the Business or
Assets.
(k) The right to bill and receive payment for products
shipped or delivered and/or services performed, but unbilled or unpaid as of
the Closing, related to the Business or Assets.
(l) All advertising, marketing and promotional materials
and all other related printing or written materials related to the Business
or Assets..
(m) All notes receivable and accounts receivable (including
subscriber receivables and roaming revenue receivables) related to the
Business or Assets..
(n) All goodwill as an ongoing Business.
(o) Any assets of the type described above which are
acquired after the date hereof but prior to the Closing.
SECTION 2.02. EXCLUDED ASSETS. (a) The properties and assets
described in SCHEDULE 2.02 attached hereto and in Section 2.02(b) of this
Agreement which relate to the Business shall not be included in the Assets,
shall be retained by Seller and shall not be sold, assigned or transferred to
Purchaser (the "Excluded Assets").
(b) Anything in this Agreement to the contrary
notwithstanding, the Assets sold to the Purchaser pursuant to the terms of
this Agreement shall not include the Seller's corporate records, books of
account, cash, bank deposits and cash equivalents at the time of the Closing.
- 3 -
<PAGE>
ARTICLE III
ASSUMPTION OF LIABILITIES
At Closing, Purchaser shall assume and agree to perform and
discharge, to the extent not previously performed or discharged as of the
Closing, the following : (i) all obligations of Seller which accrue and are
to be performed from and after the Closing, under those permits,
authorizations, licenses, leases, rights of way, easements and other
agreements set forth on SCHEDULES 2.01(a) AND (d) attached hereto or those
agreements of a non-material nature which are not required by this Agreement
to be disclosed on SCHEDULES 2.01(a) AND (d); (ii) all other obligations of
Seller entered into during the period from the date hereof to the Closing by
Seller in the ordinary course of its Business in accordance with the
provisions of Section 9.05 below or that were identified to and consented by
Purchaser (all of such permits, authorizations, licenses, leases, rights of
way, easements and other agreements referred to in items (i) and (ii) being
referred to hereinafter as the "Assumed Contracts"); and (iii) all "Current
Liabilities" (as defined in Section 5.05(a) hereof), but only if and to the
extent that Purchaser receives a credit for such Current Liabilities against
the Purchase Price (in accordance with Section 5.05 hereof) at the Closing
(such items (i) through (iii) are collectively referred to herein as the
"Assumed Liabilities"). Unless otherwise expressly agreed to herein,
Purchaser shall not be liable for any liabilities, debts, contracts,
agreements, including, without limitation, any environmental liabilities
related to or arising from Seller's ownership, operation or control of the
Assets, the Cellular System or the Business (including with respect to
Seller's interests in owned or leased real property) for the period prior to
the Closing or any contracts or agreements set forth on SCHEDULE 2.02, or
other obligations of Seller of any nature whatsoever other than the Assumed
Liabilities (such other liabilities, debts, contracts, agreements or
obligations of Seller other than the Assumed Liabilities being referred to as
the "Non-Assumed Liabilities").
ARTICLE IV
INSTRUMENTS OF TRANSFER
AND ASSUMPTION
SECTION 4.01. TRANSFER DOCUMENTS. At the Closing, Seller will
deliver to Purchaser (a) one or more Bills of Sale substantially in the form
attached hereto as EXHIBIT A (a "Bill of Sale"), (b) all such other good and
sufficient instruments of sale, transfer and conveyance, including, without
limitation, warranty deeds and assignments of leases, in such form and
including such matters as Purchaser shall reasonably request and as shall be
reasonably acceptable to Seller, as shall be effective to vest in Purchaser
all of Seller's right and title to, and interest in, the Assets; and (c) all
Assumed Contracts, books and records (except as otherwise provided in Section
2.02 hereof) and other instruments or materials included in the Assets.
SECTION 4.02. ASSUMPTION DOCUMENTS. At the Closing, Purchaser and
Seller will execute and deliver an Assumption Agreement substantially in the
form attached hereto as EXHIBIT B (the "Assumption Agreement") in order to
effect the assumption of the Assumed Liabilities by Purchaser.
ARTICLE V
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<PAGE>
PURCHASE PRICE; ALLOCATION
SECTION 5.01. PURCHASE PRICE. The total purchase price for the
Assets shall be Thirty-Four Million Dollars ($34,000,000) (the "Base Price")
in immediately-available U.S. funds, as adjusted in accordance with the
provisions of Section 5.05 hereof (as adjusted, the "Purchase Price").
SECTION 5.02. DEPOSIT. Simultaneously with the execution of this
Agreement, Purchaser is depositing a good faith deposit of Two Million Three
Hundred Fifty Thousand Dollars ($2,350,000) in immediately-available U.S.
funds (the "Deposit") with Chase Manhattan Trust Company, National
Association (the "Escrow Agent"), to be held, invested and disbursed pursuant
to the terms of the Deposit Escrow Agreement substantially in the form of
EXHIBIT C attached hereto (the "Deposit Escrow Agreement"). If the Closing
occurs, then the Deposit and all earnings on the Deposit shall be paid to
Seller pursuant to the Deposit Escrow Agreement and the full amount of the
Deposit and the earnings thereon shall be credited against and deducted from
the Purchase Price to be paid at the Closing by Purchaser for the Assets. If
Seller terminates this Agreement in accordance with the provisions of Section
15.02(d), at the time of such termination Seller is not then in breach of any
of its representations, warranties, covenants or agreements and the
conditions set forth in Sections 10.04 and 10.05 shall have been satisfied,
then Seller shall be entitled to the Deposit as liquidated damages (the
"Liquidated Damages Amount") without the necessity for proof by Seller of
actual damages. The parties agree that the Liquidated Damages Amount is a
fair and reasonable measure of the damages that Seller would sustain as a
result of such termination. Notwithstanding anything else set forth in this
Agreement, but subject to the terms and conditions set forth in this Section
5.02, Seller's sole and exclusive recourse for Purchaser's breach prior to
Closing of its representations or obligations under this Agreement shall only
be to receive an amount up to Two Million Three Hundred Fifty Thousand
Dollars ($2,350,000). In any other case if the Closing does not occur, then,
pursuant to the Deposit Escrow Agreement, the Deposit and all earnings
thereon shall be paid to Purchaser. All determinations of satisfaction of
conditions, and all payments by the Deposit Escrow Agent, shall be made in
accordance with he procedures and other provisions set forth in the Deposit
Escrow Agreement.
SECTION 5.03. PAYMENT OF PURCHASE PRICE. The Purchase Price less the
Deposit and all earnings thereon and less an amount equal to Seven Hundred
Fifty Thousand Dollars ($750,000) (the "Escrow Payment"), shall be payable by
wire transfer of immediately-available U.S. funds to Seller at Closing. The
Escrow Payment shall be paid by the Purchaser at Closing to the Escrow Agent
to be held, invested and disbursed pursuant to the terms of the Closing
Escrow Agreement substantially in the form of EXHIBIT D attached hereto (the
"Closing Escrow Agreement").
SECTION 5.04. ALLOCATION OF PURCHASE PRICE. Prior to the Closing,
Purchaser and Seller in good faith shall each use their respective
commercially reasonable efforts to agree on an allocation of the Purchase
Price and the Assumed Liabilities in accordance with the respective fair
market value of the Assets being purchased and as provided for under Section
1060 of the Code. Purchaser and Seller each further agree to file their
income tax returns and their other tax returns and IRS Form 8594 reflecting
the allocation as determined in this Section 5.03 unless
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<PAGE>
otherwise required by applicable legal requirements. If no agreement on an
allocation of the Purchase Price with respect to the Assets is reached prior
to Closing, such allocation of the Purchase Price to the Assets shall be
determined by a nationally recognized appraisal firm mutually agreeable to
Seller and Purchaser and the costs of such appraisal shall be borne equally
by Seller and Purchaser. The designated appraisal firm shall make the
required determination and notify the Seller and Purchaser within sixty (60)
days after final resolution of the Working Capital Adjustment.
SECTION 5.05. PURCHASE PRICE ADJUSTMENTS.
(a) As used in this Section 5.05, the following terms shall have the
meaning set forth below:
"CURRENT ASSETS" means the Cellular System's (i) roaming receivables
and subscriber accounts receivable that are current to less than 91 days past
due, net of a reserve for bad debts equal to the sum of the following
amounts: zero percent (0%) of such accounts receivable that are not past due
or that are thirty (30) or fewer days past due, fifteen percent (15%) of such
accounts receivable that are more than thirty (30) but less than sixty-one
(61) days past due and fifty percent (50%) of such accounts receivable that
are more than sixty (60) but less than ninety-one (91) days past due; (ii)
inventory of cellular telephone handsets and ancillary equipment held for
sale to subscribers and which are reasonably to be expected based on past
practices to be consumed in the normal course of business within six months
after the Closing, reflected at net book value (the "Inventory"); provided in
no event shall the net book value of the Inventory used to determine Current
Assets exceed $150,000; and (iii) prepaid items which Purchaser will receive
the benefit of after the Closing such as prepaid rent, property taxes,
utility charges, fees and deposits paid, all determined as of 12:01 a.m. on
the Closing Date in accordance with GAAP.
"CURRENT LIABILITIES" means the Cellular System's (i) subscriber
deposits received, (ii) deferred revenue, (iii) employee vacation and sick
pay expense (whether or not to be paid or for previously-accrued time
actually taken after Closing), (iv) to the extent not paid by Seller prior to
Closing, employee salaries, bonuses, fringe benefits and other remuneration
payable to employees to be hired by Purchaser, (v) other trade payables and
accrued expenses of the Cellular System incurred in the normal course of
business, all determined as of 12:01 a.m. on the Closing Date in accordance
with GAAP.
"GAAP" means generally accepted accounting principles consistently
applied.
"NORTEL AGREEMENT" means the Master Purchase Agreement dated August
11, 1999 between Nortel Networks, Inc. and Seller, a true, accurate and
complete copy of which, certified by the Secretary of Seller, has been
delivered to Purchaser on the date hereof.
(b) The Base Price shall be increased (or decreased) by the amount
by which Current Assets exceeds (or is less than) Current Liabilities as of
the Closing Date (the "Working Capital Adjustment").
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(c) In addition to the adjustment required by Section 5.05(b) the Base
Price shall also be increased by the amount equal to the capital expenditures
made by Seller pursuant to (i) its obligations under the Nortel Agreement, and
(ii) the cell site expansion at Peck, Deckerville and Mayville and upgrades from
cell extenders at the Lexington, Port Austin and Harbor Beach cell sites all
made in accordance with the Expansion Budget provided by Seller to Purchaser and
attached hereto as SCHEDULE 5.05(c) (collectively, the "Capex Adjustment", which
together with the Working Capital Adjustment are hereinafter collectively
referred to as the "Adjustments"). Notwithstanding the foregoing provisions in
this Section 5.05(c), the Capex Adjustment shall not exceed $3,910,000.
(d) Seller shall prepare and submit to Purchaser, not later than five
(5) business days prior to the Closing Date, a written good faith estimate of
the amount of the Adjustments and Seller's estimate of the Purchase Price
resulting from the Adjustments ("Seller's Estimate"). Seller's Estimate shall be
accompanied by supporting documents, work papers, subscriber records and other
data supporting the Adjustments and Seller's Estimate reasonably satisfactory to
Purchaser. The Seller's Estimate shall be based upon the books and records of
the Cellular System. The Seller's Estimate shall be accompanied by a certificate
signed by the President or Chief Financial Officer of Seller certifying that
Seller's Estimate was calculated in good faith and in accordance with the
provisions of this Section 5.05. After the delivery of Seller's Estimate and
prior to the Closing, Purchaser and Seller shall attempt to resolve any disputes
between Seller and Purchaser with respect to Seller's proposed Adjustments. In
connection therewith, Purchaser shall have full access to all Seller's records
related to Seller's proposed Adjustments. Prior to Closing, Purchaser shall
advise Seller in writing as to any dispute Purchaser has with Seller's Estimate
and provide Seller with Purchaser's calculation of the Adjustments and the
Purchase Price, accompanied by a certificate signed by the President or Chief
Financial Officer of Purchaser certifying that Purchaser's calculation was made
in good faith and shall be accompanied by supporting documents and information,
to the extent the same is available to Purchaser ("Purchaser's Estimate"). In
the event Purchaser's Estimate of the Purchase Price is less than $50,000 less
than Seller's Estimate, the Closing shall proceed with the Purchase Price based
upon Seller's Estimate. In the event the Purchaser's Estimate of the Purchase
Price is more than $50,000 less than Seller's Estimate, then the mid-point
between Seller's Estimate and Purchaser's Estimate shall be used as the Purchase
Price for purposes of Closing.
Within ninety (90) days after the Closing Date, Purchaser shall deliver
to Seller a certificate (the "Closing Certificate") signed by the President or
Chief Financial Officer of Purchaser providing a compilation of the Adjustments
to be made pursuant to this Section 5.05, including any changes in the
Adjustments used to determine the Purchase Price at Closing, together with a
copy of any supporting documents, work papers, subscriber records and other data
relating to such Closing Certificate and such other supporting evidence as
Seller may reasonably request either prior to or after delivery thereof, which
supporting evidence Purchaser shall provide within ten (10) days after receipt
of any such request. If Seller shall conclude that the Closing Certificate does
not accurately reflect the Adjustments to be made to the Base Price in
accordance with this Section 5.05, Seller shall, within thirty (30) days after
its receipt of the Closing Certificate (such thirty (30)-day period being
referred to as the "Response Period"),
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deliver to Purchaser a written statement of any discrepancies believed to exist.
If Seller fails to so notify Purchaser of any discrepancies, then the
calculation of the Purchase Price set forth in the Purchaser's Closing
Certificate shall be controlling for all purposes hereof and Purchaser or
Seller, as the case may be, shall on or before the fifth business day following
the expiration of the Response Period pay to the other any amount which it is
obligated to pay in accordance with the Closing Certificate. On or before the
fifth business day following the earlier to occur of the expiration of the
Response Period and the date Purchaser receives Seller's statement of
discrepancies, Purchaser or Seller, as the case may be, shall pay the other the
amount, if any, as to which there is no discrepancy. Purchaser and Seller shall
use good faith efforts to jointly resolve their discrepancies within fifteen
(15) days of Purchaser's receipt of Seller's written statement of discrepancies,
which resolution, if achieved, shall be binding upon the parties and not subject
to further dispute or review. In the event Purchaser and Seller are unable to
resolve their differences within such fifteen (15) day period, then either party
may request that the matter be resolved by a major national independent
accounting firm which does not provide services to Purchaser, Seller or any of
their subsidiaries or affiliates. (the "Independent Accountants"). In submitting
a dispute to the Independent Accountants, each of the parties shall furnish, at
its own expense, the Independent Accountants and the other party with such
documents and information as the Independent Accountants may reasonably request.
Each party may also furnish to the Independent Accountants such other
information and documents as it deems relevant with the appropriate copies and
notification being given to the other party. The Independent Accountants may
conduct a conference concerning the disagreements between Seller and Purchaser
at which conference each party shall have the right to present additional
documents, material and other evidence and to have present its advisors,
accountants and counsel. The Independent Accountants shall render a decision on
the issues presented not later than thirty (30) days after submission of the
dispute, and such decision shall be final and binding on the parties. The fees
and expenses of the Independent Accountants shall be divided equally between
Purchaser and Seller. Within five (5) days of receipt of the Independent
Accountants' decision with respect to such dispute, if Purchaser is determined
to owe an amount to Seller, Purchaser shall pay such amount thereof to Seller,
and if Seller is determined to owe an amount to Purchaser, Seller shall pay such
amount thereof to Purchaser. All amounts owed by Purchaser or Seller to the
other in accordance with this Section 5.05(d) shall be paid by wire transfer of
immediately-available U.S. funds and shall not bear any interest. Any amount due
Purchaser from Seller under this Section 5.05 and not paid when due may also be
paid from the funds held pursuant to the Closing Escrow Agreement.
ARTICLE VI
CLOSING
Subject to the terms and conditions hereof, the parties hereby covenant
and agree that the closing (the "Closing") shall take place at the offices of
Edwards & Angell, LLP, 2800 Bank Boston Plaza, Providence, Rhode Island 02903,
or at such other place as may be mutually agreed upon by the parties, on the
date (the "Closing Date") which is the latest of (a) the tenth (10th) day
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after the date that (i) the FCC order granting its consent to the assignment of
the FCC Authorizations from Seller to the Purchaser by a Final Order (as defined
in Section 10.04) or (ii) if applicable, Seller receives from Purchaser the
Finality Waiver Notice (as defined in Section 10.04); (b) the tenth (10th) day
after the expiration or early termination of the waiting period under the
Hart-Scott Act; or (c) January 31, 2000; PROVIDED, HOWEVER, that if such latest
date is not a business day, the Closing Date shall be the next following
business day. The Closing shall be effective as of 12:01 a.m. on the Closing
Date. At Closing, each party shall deliver or cause to be delivered to the other
party the instruments of transfer and assumption referenced in Article IV of
this Agreement and the other deliveries required by Article X (for Seller) and
Article XI (for Purchaser) of this Agreement, and Purchaser shall deliver by
wire transfer of immediately available U.S. funds, to one or more bank accounts
as specified by Seller in wire transfer instructions to be delivered to
Purchaser at least two (2) business days prior to the Closing Date, the Purchase
Price required pursuant to Section 5.03.
ARTICLE VII
SELLER'S REPRESENTATIONS
Seller hereby represents and warrants that:
SECTION 7.01. ORGANIZATION, QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; and has all necessary power and authority to own and operate its
properties and to carry on its Business as now being conducted or proposed to be
conducted and to carry out the transactions contemplated by this Agreement.
Seller has the full power and authority to execute and deliver and, subject to
obtaining the FCC's approval to assign the FCC Authorizations and the other
governmental and third-party consents referred to in Section 10.04, perform its
obligations under this Agreement and to undertake the transactions contemplated
hereby. Seller is duly qualified to conduct business as a foreign corporation in
all jurisdictions for which failure to so qualify would have a Material Adverse
Effect (as defined below).
SECTION 7.02. CONSENTS, AUTHORIZATION, EXECUTION AND DELIVERY OF
AGREEMENT. All necessary consents and approvals have been obtained by Seller for
the execution and delivery of this Agreement. The execution, delivery and
performance of this Agreement by Seller and the transfer of the Assets to
Purchaser have been duly and validly authorized and approved by all necessary
corporate and stockholder action of Seller. This Agreement is a valid and
binding obligation of Seller, enforceable against it in accordance with its
terms.
SECTION 7.03. SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES. Seller has
no subsidiaries, and does not own or control any shares or other securities of,
or have any other proprietary interest in, any corporation, partnership, limited
liability company, joint venture, business association or other person.
SECTION 7.04. TITLE TO ASSETS; CONDITION OF ASSETS. Seller has, and
will convey to Purchaser at Closing, good and marketable title to the Assets,
free and clear of all Liens other than Permitted Liens. All Liens in effect on
the date hereof which are to be discharged at
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Closing are listed on SCHEDULE 7.04 hereto. The tangible property included among
the Assets is in good working order and repair, reasonable wear and tear
excepted. The Assets constitute all of the assets which are reasonably
necessary, used or useful in the operation of the Business as it is currently
being conducted by Seller, other than the Excluded Assets. Except as disclosed
on SCHEDULE 7.25, no officer, director, stockholder or employee of Seller or any
other individual, partnership, corporation, limited liability company, person or
entity (a "Person") other than the Seller owns, leases or has any rights in any
property, license or other assets related to the Business, other than the
Excluded Assets. Except for factors typically affecting signal propagation and
reception in the cellular telephone industry generally, the tangible property
included in the Assets are technically sufficient and capable of providing
cellular telephone service throughout Seller's established cellular geographic
service area in accordance with applicable FCC regulations, except as set forth
on SCHEDULE 7.08. All of the buildings, towers, transmitters, antenna, fixtures
and improvements owned by Seller and, to Seller's knowledge, leased by Seller
which are part of the Assets (i) comply with applicable zoning laws and the
building, health, fire and environmental protection codes of all applicable
governmental jurisdictions, (ii) have no structural defects and (iii) do not
require any repair other than routine maintenance and the repair of ordinary
wear and tear.
SECTION 7.05. REAL PROPERTY - OWNED. SCHEDULE 7.05 sets forth (i) an
accurate legal description, (ii) the street address and (iii) a description of
the use of each parcel of real property owned by Seller which are included in
the Assets. With respect to each such parcel of owned real property:
(a) Seller has (and will deliver to Purchaser at Closing) good
and marketable title to the parcel of owned real property, free and
clear of any Liens other than Permitted Liens;
(b) there are no pending or, to Seller's knowledge, threatened
condemnation proceedings, lawsuits, or administrative actions relating
to the owned real property or other matters affecting adversely the
current use, occupancy, or value thereof;
(c) the fixtures, towers and other improvements are located
within the boundary lines of the described parcels of land, are not in
violation of applicable setback requirements, zoning laws, and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), and do not encroach on any
easement which may burden the land, the land does not serve any
adjoining property for any purpose inconsistent with the use of the
land, and the owned real property is not located within any flood plain
or subject to any similar type restriction for which any Authorizations
necessary to the use thereof have not been obtained;
(d) except as disclosed on Schedule 7.05(d) there are no
outstanding leases, subleases, licenses, concessions, or other
contracts, written or oral,
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granting to any party or parties the right of use or occupancy of any
portion of the parcel of owned real property;
(e) there are no outstanding options or rights of first
refusal to purchase the parcel of owned real property, or any portion
thereof or interest therein;
(f) there are no parties (other than Seller) in possession of
the parcel of owned real property, other than tenants under any leases
disclosed in SCHEDULE 7.05 who are in possession of space to which they
are entitled;
(g) all fixtures, towers and other improvements located on the
parcel of owned real property are supplied with utilities and other
services necessary for the operation of such facilities, including gas,
electricity, water, telephone, sanitary sewer, and storm sewer, all of
which services are adequate in accordance with all applicable laws and
are provided via public roads or via a permanent irrevocable,
appurtenant easement benefiting the parcel of owned real property; and
(h) each parcel of owned real property abuts on and has direct
vehicular access to a public road, or has access to a public road via a
permanent, irrevocable, appurtenant easement benefiting the parcel of
owned real property.
SECTION 7.06. REAL AND PERSONAL PROPERTY - LEASED. Set forth on
SCHEDULE 2.01(d) (in the case of real property) and SCHEDULE 2.01(a) (in the
case of personal property), are true and accurate listings of all real and
personal property leases to which Seller is a party (other than personal
property leases with annual payments of less than $5,000 and which leases,
together with the other contracts and agreements (other than real property
leases) not required to be disclosed on SCHEDULES 2.01(a) AND (d), in the
aggregate have annual payments of less than $50,000 or which are terminable
without penalty on one month or less notice) setting forth (i) the name of the
lessor and (ii) with respect to the real property leases, the legal description
of the property leased. Except as set forth on SCHEDULE 2.01(d) (in the case of
leased real property) and SCHEDULE 2.01(a) (in the case of leased personal
property), all of the leases set forth on such Schedules (i) are in full force
and effect and are valid, binding and enforceable in accordance with their
respective terms, (ii) Seller has paid all accrued and currently payable rents
and other payments required by such leases, (iii) Seller and, to Seller's
knowledge, each other party thereto have complied with all their respective
covenants and provisions of such leases, (iv) neither Seller nor, to Seller's
knowledge, any other party is in default in any respect under any such leases,
(v) no party has asserted any defense, set off, or counterclaim thereunder, (vi)
no waiver, indulgence or postponement of any obligations thereunder has been
granted by any party, and (vii) the validity or enforceability of any such lease
will be in no way affected by the sale of the Assets to Purchaser provided all
required consents have been obtained from the other parties to such lease.
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SECTION 7.07. EXISTING CONTRACTS. SCHEDULES 2.01(a) AND (d) hereto set
forth all contracts, commitments and agreements in effect on the date hereof
with Seller's subscribers (other than standard subscriber agreements for
cellular service), all leases (other than personal property leases with annual
payments of less than $5,000 and which leases, together with the other contracts
and agreements not required to be disclosed on SCHEDULES 2.01(a) AND (d), in the
aggregate have annual payments of less than $50,000 or which are terminable
without penalty on one month or less notice) to which Seller is a party, and all
other contracts, commitments and agreements (other than agreements with annual
payments of less than $5,000 and which agreements, together with the other
leases and contracts not required to be disclosed on SCHEDULES 2.01(a) AND (d),
in the aggregate have annual payments of less than $50,000 or which are
terminable without penalty on one month or less notice) or commitments (written
or oral) to which Seller is a party and which contracts, commitments, agreements
and leases relate to the ownership of the Assets or the operation of the
Business (the "Existing Contracts") except for the contracts, leases,
commitments and agreements included among the Non-Assumed Liabilities (the
"Excluded Contracts"). Except as disclosed on SCHEDULE 7.25, no officer,
director or employee of Seller or any Person (other than Seller) controlling,
controlled by or affiliated with a family member of any such officer, director
or employee has any contractual relationship relating to the ownership or
operation of the Business. Seller has heretofore delivered to Purchaser true and
correct copies of the Existing Contracts. Except as disclosed on SCHEDULES
2.01(a) AND (d), Seller has no knowledge of any breach or anticipated breach by
the other parties to any Existing Contracts. The Existing Contracts are in full
force and effect and Seller is in compliance with its obligations under such
Existing Contracts. Except for the Existing Contracts and the Excluded
Contracts, Seller has not entered into any other contract, commitment or
agreement (other than agreements with annual payments of less than $5,000 and
which agreements, together with the other personal property leases and contracts
not required to be disclosed on SCHEDULES 2.01(a) AND (d), in the aggregate have
annual payments of less than $50,000 or which are terminable without penalty on
one month or less notice) relating to the ownership of the Assets or the
operation of the Business, including, but not limited to, rights-of-way, rights
of entry, licenses, easements, leases, or guaranty agreements. There are no
claims by third parties that Seller is required to enter into other agreements
either to enable it to continue to own the Assets or to operate the Business as
it is presently being operated.
SECTION 7.08. GOVERNMENTAL LICENSES. Except as set forth on SCHEDULE
7.08, Seller holds all licenses, consents, permits, approvals and authorizations
of public and governmental bodies including, without limitation, those issued by
the FCC and the state, counties and municipalities served by the Business, which
are required in connection with the ownership of the Assets or the operation of
the Business (collectively referred to as the "Authorizations"). All
Authorizations are in full force and effect. Seller has complied with the terms
of the Authorizations which it holds and there are no pending modifications,
amendments or revocations of the Authorizations which would adversely affect the
ownership of the Assets or the operation of the Business. Except as set forth on
SCHEDULE 7.08, all fees due and payable from Seller to governmental authorities
pursuant to the Authorizations have been paid. Except as set forth on SCHEDULE
7.08, all reports required of Seller to be filed in connection with the
Authorizations have been timely filed and are accurate and complete. Except as
set forth on SCHEDULE 7.08, the Seller does not conduct any microwave operations
on frequencies that are subject to relocation under the FCC's
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rules. True and correct copies of the Authorizations, and all amendments thereto
to the date hereof, have been delivered by Seller to Purchaser and are
identified on SCHEDULE 2.01(a) hereto. The Seller has neither engaged in any
course of conduct that could reasonably be expected to impair the ability of
Purchaser or its subsidiaries to be the holder of the Authorizations nor is
aware of any reason why the Authorizations might not be renewed in the ordinary
course, why any of the Authorizations might be revoked, or why any pending
applications or notifications might not be approved. The ownership of the Assets
and the operation of the Business by Seller are not currently subject to
regulation or supervision by the Michigan Public Service Commission or other
similar state governmental instrumentality.
SECTION 7.09. COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE
7.09, Seller is currently complying with, and to Seller's knowledge, has
previously complied with, and is not in default under or in violation of, and
neither the Business nor any of the Assets nor the current operation or
maintenance thereof, contravenes any statute, law (including employment laws but
excluding environmental laws), ordinance, decree, order, rule, regulation of any
governmental body applicable to the Assets or the Business, including, without
limitation, the rules and regulations of the FCC.
SECTION 7.10. NO VIOLATION OF EXISTING AGREEMENTS. Subject to the
consents for the Existing Contracts identified in SCHEDULE 7.10, the execution,
delivery and performance of this Agreement by Seller and Seller's transfer of
the Assets to Purchaser (i) will not violate any provisions of any law (ii) will
not, with or without the giving of notice or the passage of time, or both,
conflict with or result in any breach of any of the terms or conditions of, or
constitute a default under any Existing Contracts, and (iii) will not result in
the creation of any Lien upon the Assets or the Business other than Permitted
Liens.
SECTION 7.11. LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
SCHEDULE 7.11, there is no outstanding judgment against Seller or any director,
officer or stockholder of Seller affecting the Business or the Assets or which
questions the validity of any action taken or to be taken by Seller pursuant to
or in connection with the provisions of this Agreement and there is no
litigation, proceeding or investigation pending, or, to Seller's knowledge,
threatened, against Seller or any director, officer or stockholder of Seller
affecting the Business or the Assets or which questions the validity of any
action taken or to be taken by Seller pursuant to or in connection with the
provisions of this Agreement. Except as set forth on SCHEDULE 7.11, there are no
proceedings pending to which Seller or any director, officer or stockholder of
Seller is a party or, to Seller's knowledge, threatened, nor has Seller received
written notice of any demands by any governmental agency, utility or other
party, to terminate, modify or adversely change the terms and conditions of
Seller's rights with respect to the Authorizations or Existing Contracts.
SECTION 7.12. ENVIRONMENTAL COMPLIANCE. (a) Except as set forth on
SCHEDULE 7.12 hereto, (i) Seller has not generated, used, transported, treated,
stored, released or disposed of, or suffered or knowingly permitted anyone else
to generate, use, transport, treat, store, release or dispose of any Hazardous
Substance (as hereinafter defined) with respect to the Assets or the Business in
violation of any applicable Environmental Laws (as hereinafter defined); (ii)
there has not been any generation, use, transportation, treatment, storage,
release or disposal of any
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Hazardous Substance in connection with Seller's or, to Seller's knowledge, its
predecessors' ownership or use of the Assets, the conduct of the Business or, to
Seller's knowledge, on, in or under any property or facility used, owned or
leased by Seller or, to Seller's knowledge any adjacent properties or
facilities, which has created or might reasonably be expected to create, to
Seller's knowledge any liability under any applicable Environmental Laws or
which would require reporting to or notification of any governmental entity;
(iii) to Seller's knowledge, no friable asbestos or polychlorinated biphenyl,
and no underground storage tank, is contained in or located on or under any
property or facility owned, used or leased by Seller; and (iv) any Hazardous
Substance handled or dealt with by Seller in any way with respect to the Assets
or the Business , or during Seller's ownership or use of the Assets or the
Business, has been and is being handled or dealt with in compliance with all
Environmental Laws.
(b) For purposes of this Agreement, the term "Hazardous
Substance" shall mean any substance which, as of the date of this Agreement, is
listed as hazardous or toxic in the regulations implementing the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Response Compensation and Liability Act ("RCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), or is, as of the
date of this Agreement, listed as a hazardous substance under any applicable
state environmental law, or any substance which, as of the date of this
Agreement, has been determined by regulation, ruling or otherwise by any agency
or court to be a hazardous or toxic substance regulated under federal or state
law, and shall include petroleum and petroleum products.
(c) For purposes of this Agreement, the term "Environmental
Laws" shall mean CERCLA, RCRA, RCLA and any applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises and similar items of all governmental
authorities and all applicable judicial, administrative and regulatory decrees,
judgments and orders, any of which relate to the protection of human health or
the environment from the effects of Hazardous Substances, including but not
limited to those pertaining to reporting, licensing, permitting, investigating
and remediating emissions, discharges, releases or threatened releases of
Hazardous Substances into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
SECTION 7.13. EMPLOYEES. SCHEDULE 7.13 sets forth a true and complete
list of the names and current salaries of all employees of Seller involved in
the operation of the Business. Such employees are employees at will. Seller has
withheld all amounts required by law or agreement to be withheld by it from the
wages, salaries and other payments to its employees and is not liable for any
arrears of wages or any taxes for failure to comply with any of the foregoing.
SCHEDULE 7.13 sets forth the only collective bargaining agreements covering any
of the employees of Seller. The Seller has not breached or otherwise failed to
comply with any provision of any collective bargaining agreement or other labor
union contract applicable to any of its employees. No consent of any union (or
similar group or organization) is required in connection with the consummation
of the transactions contemplated hereby. There are no
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pending, or, to Seller's knowledge, threatened or anticipated, and, there is no
factual basis for any (a) employment discrimination (including age, sex, racial
or handicap discrimination) charges or complaints against or involving Seller,
before any federal, state, or local board, department, commission or agency or
(b) unfair labor practice charges or complaints, disputes or grievances
affecting Seller. There are no pending or, to Seller's knowledge, threatened or
anticipated strikes, slow downs, work stoppages or lockouts affecting Seller's
Business.
SECTION 7.14. EMPLOYEE BENEFITS. Except as set forth on SCHEDULE 7.14
attached hereto, Seller has no pension plan, profit sharing plan, deferred
compensation plan, stock option or stock bonus plan, saving plan, or other
benefit plan, policy, practice, or procedure or contract concerning employee
benefits or fringe benefits of any kind (collectively, "Employee Benefit
Plans"), whether or not governed by the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). Except as set forth on SCHEDULE 7.14, Seller is
not a party to any employment contract. No officer, director or employee of
Seller participates or is eligible to participate in a "defined benefit pension
plan" as defined in Section 3(35) of ERISA, maintained or made available by
Seller. Neither Seller nor any Controlled Group Member maintains or contributes
to, or ever maintained or contributed to, a plan under which any employee of
Seller participates or is eligible to participate subject to Section 412 of the
Internal Revenue Code of 1986, as amended (the "Code"). The term "Controlled
Group Member" means any trade or business (whether or not incorporated) which
is, or was at any relevant time, aggregated with the Seller pursuant to Section
414(b), (c), (m) or (o) of the Code. Neither Seller nor any ERISA Affiliate has
participated in or made contributions to any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA. The term "ERISA Affiliate" means each trade or
business (whether or not incorporated) which is, or was at any relevant time,
treated as a single employer with Seller pursuant to Section 4001(b)(1) of
ERISA. Seller has furnished Purchaser with true, complete and accurate copies of
all Employee Benefit Plans and related trust agreements as in effect on the date
hereof, all summary plan descriptions, and the latest annual reports filed with
the Department of Labor or the Internal Revenue Service (the "IRS").
Each of the Employee Benefit Plans listed on SCHEDULE 7.14 is in
compliance with all applicable requirements of ERISA, the Code, and other
applicable law. Each of the said Employee Benefit Plans has been administered in
accordance with its terms and with applicable legal requirements. All "employee
pension plans" (within the meaning of Section 3(2) of ERISA) have been
determined by the IRS to be qualified under Section 401(a) of the Code, and no
action or proceeding has been instituted or threatened which would affect the
qualification of any pension plan of Seller. No unfunded liabilities, based upon
the Pension Benefit Guarantee Corporation (the "PBGC") rates currently in effect
for plan terminations, exist with respect to any Employee Benefit Plan which is
a "defined benefit plan" (within the meaning of Section 3(35) of ERISA). There
has not been any reportable event with respect to any pension plan of Seller.
Seller has not engaged in a "prohibited transaction" or breach of fiduciary
responsibility with respect to any Employee Benefit Plan which could subject
Purchaser or any affiliate of Purchaser to a penalty tax or other liability
under ERISA or the Code. Neither Seller nor any Affiliate of Seller has ever
incurred any liability under Title IV of ERISA to the PBGC or to a
multi-employer pension plan.
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SECTION 7.15. TAX MATTERS. Except as set forth on SCHEDULE 7.15
attached hereto: (a) Seller has timely filed all Tax (as defined below) returns
and statements which it is required to file; (b) all such returns are complete
and accurate and disclose all Taxes required to be paid for the periods covered
thereby; (c) Seller has not waived any statute of limitations in respect of
Taxes or agreed to an extension of time with respect to a Tax assessment or
deficiency; (d) no assessment of any additional Taxes for periods for which
returns have been filed has been asserted and no basis exists therefor; (e) to
Seller's knowledge, there are no unresolved questions or claims raised by any
taxing authority concerning the Tax liability of Seller; and (f) all Taxes which
Seller is required by law to withhold or to collect for payment have been duly
withheld and collected, and have been paid. Seller has paid all Taxes due prior
to the date hereof and will pay when due (or contest in good faith by
appropriate proceedings) all Taxes which may become due on or before the Closing
Date. For purposes of this Section 7.15, the term "Tax" or "Taxes" means all
taxes, charges, fees, levies, imposts and other assessments including all
income, sales, use, goods and services, value added, capital, capital gains,
alternative net worth, transfer, profits, withholding, payroll, employer health,
excise, real property and personal property taxes, and any other taxes, customs
duties, stamp duties, fees, assessments or similar charges in the nature of a
tax, together with any interest, fines and penalties imposed by any governmental
authority (including federal, state, provincial, municipal and foreign
governmental authorities), and whether disputed or not.
SECTION 7.16. FINANCIAL STATEMENTS.
(a) The Purchaser has heretofore been furnished with the
following:
(i) true and complete copies of the audited balance sheets of
Seller as of December 31, 1996, December 31, 1997, and December 31,
1998 and the related statements of income and retained earnings and
cash flows for the years then ended, each of such balance sheet and
income statement being attached hereto as SCHEDULE 7.16(a)(i)
(collectively, the "Historical Financial Statements");
(ii) true and complete copies of the unaudited balance sheet
(the "Interim Balance Sheet") of Seller as of September 30, 1999 (the
"Balance Sheet Date") and the related unaudited statement of income for
the nine-month period then ended (the "Interim Income Statement" and
together with the Interim Balance Sheet, the "Current Financial
Statements"), such balance sheet and income statement being attached
hereto as SCHEDULE 7.16(a)(ii); and
(iii) the budget for capital expenditures for the expansion of
the Cellular System is attached hereto as SCHEDULE 7.16(a)(iii).
(b) Each of the Historical and Current Financial Statements delivered
under Section 7.16 (a)(i) and (ii) hereof was prepared in accordance with GAAP
applied on a basis consistent with prior periods and past practices and, with
respect to the Current Financial Statements, subject to usual and customary
year-end adjustments and except for the omission of certain footnotes and other
presentation items required by GAAP with respect to reviewed
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financial statements; subject to the foregoing proviso, each of the balance
sheets included in such Historical and Current Financial Statements fairly
presents the financial condition of Seller, as at the close of business on the
date thereof; and, subject to the foregoing proviso, each of the statements of
income included in such Historical and Current Financial Statements fairly
presents the results of operations of Seller, for the fiscal period then ended.
(c) Except as set forth on SCHEDULE 7.16(c) attached hereto, since the
Balance Sheet Date, Seller has not:
(i) sold, assigned or transferred any of its Assets (except
for the Excluded Assets and except pursuant to existing contracts or
commitments disclosed on any Schedule to this Agreement or inventory in
the ordinary course of business consistent with past practice or for
assets sold or disposed of and replaced by other assets of comparable
use and value); or canceled any material debts or material claims;
(ii) waived any material rights, whether or not in the
ordinary course of business;
(iii) entered into any other transaction, except in the
ordinary course of business, or entered into any transaction with any
officer, director or shareholder of Seller, or any affiliate or family
member of any such Person;
(iv) suffered any material damage, destruction or casualty
loss with respect to the Assets, whether or not covered by insurance;
(v) made any distribution of any of the Assets to any officer,
director or shareholder of Seller or any affiliate or family member of
such officer, director or shareholder;
(vi) except as disclosed in writing by Seller to Purchaser,
obligated itself or the Business to give free or reduced price service
to customers with respect to the Business or entered into any agreement
with any governmental or regulatory authority granting the
authorization to freeze fees charged to customers of the Business; or
(vii) entered into any agreement or understanding to do any of
the foregoing.
SECTION 7.17. SUBSCRIBERS/AGENTS. SCHEDULE 7.17 attached hereto sets
forth (a) the number of subscribers receiving service from the Cellular System
and as of a date within five (5) days prior to the date hereof, (b) a list of
all agents who sell cellular telephone equipment and/or service on behalf of
Seller as of the date hereof, together with such agent's address and the number
of gross activations produced by each agent, and (c) all marketing and
promotional plans Seller has used, is using, or proposes to use during 1999 to
acquire subscribers. For purposes of
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this Agreement, the term "subscriber" means a person or entity subscribing for
cellular telephone service on the Cellular System.
SECTION 7.18. INSURANCE. Seller has delivered previously to Purchaser
all policies of title, liability, fire, worker's compensation and other forms of
insurance (including bonds) which insure against risk and liabilities to the
extent and in a manner customary in the cellular industry and which are adequate
to provide coverage against risk of a material nature to which Seller would
normally be exposed in the operation of the business. All such insurance
policies and binders are in full force and effect. Seller has complied with each
of such insurance policies and binders and has not failed to give any notice or
present any claim thereunder in a due and timely manner. There are no
outstanding unpaid claims under any of such insurance policies or binders and
Seller has not received any notice of cancellation or non-renewal of any such
policy or binder. There is no inaccuracy in any application for such policies or
binders which would reasonably be expected to materially adversely affect
coverage thereunder. No insurance carrier has canceled or reduced any insurance
coverage for Seller or has given any notice or other indication of its intention
to cancel or reduce any such coverage. All premiums due and payable under any
such insurance policies or binders of Seller have been duly paid or accrued to
the extent taken into account in the Working Capital Adjustment. Seller
maintains insurance policies for the Cellular System with the insurance
carriers, in such amounts and for such losses or casualties as are described on
SCHEDULE 7.18.
SECTION 7.19. BROKERS. Except for Daniels & Associates, Inc., Seller
has not engaged any agent, broker or other person acting pursuant to the express
or implied authority of Seller which is or may be entitled to a commission or
broker or finder's fee in connection with the transactions contemplated by this
Agreement or otherwise with respect to the sale of the Assets or the Business to
Purchaser.
SECTION 7.20. UNDISCLOSED LIABILITIES. Seller has no liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not reflected or reserved against the Interim Balance Sheet except for
liabilities and obligations that have arisen in the ordinary and usual course of
business and consistent with past practice (none of which results from, arises
out of, relates to, is in the nature of, or caused by any breach of contract,
breach of warranty, tort, infringement or violation of law) and except for
liabilities and obligations directly related to the transactions contemplated
hereby.
SECTION 7.21. PRICING OF SERVICES. SCHEDULE 7.21 sets forth a
description of all rate plans currently offered to subscribers of the Cellular
System.
SECTION 7.22. PROPRIETARY RIGHTS. Seller lawfully possesses, and
(except for rights with respect to intellectual property rights listed on
SCHEDULE 2.02) the Assets will include, all intellectual property rights that
are necessary to the conduct of the Business as it is currently being conducted.
SECTION 7.23. ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of Seller shown on the Interim Balance Sheet or thereafter acquired
were or (to the extent not
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heretofore collected) are valid and genuine, were acquired in the ordinary
course of business and are subject to no asserted counterclaims, defenses or
setoffs (subject to reserves therefor as will be taken into account in the
determination of Current Assets at Closing in accordance with Section 5.05).
SCHEDULE 7.23 attached hereto sets forth a true, complete and accurate list, as
of the end of the most recent normal billing cycle of the Cellular System,
listing the total amounts of subscriber receivables and the aging of such
subscriber receivables of the Cellular System based on the following Schedule:
0-30 days past due, 31-60 days past due, 61-90 days past due and over 90 days
past due, from the date thereof.
SECTION 7.24. PRODUCT INFORMATION. Except as disclosed on SCHEDULE
7.24, Seller has not sold and does not have in its inventory any refurbished
cellular telephone handsets. SCHEDULE 7.24 sets forth a list of manufacturers of
cellular telephone handsets presently in Seller's inventory.
SECTION 7.25. CERTAIN BUSINESS RELATIONSHIPS WITH SELLER. Except as set
forth in SCHEDULE 7.25 attached hereto, none of the officers, directors or
stockholders of the Seller and its affiliates or family members have been
involved in any business arrangement or relationship with Seller within the past
12 months.
SECTION 7.26. YEAR 2000 COMPLIANCE. SCHEDULE 7.26 sets forth the
representation and warranty received from Nortel Networks, Inc. with respect to
Year 2000 compliance.
ARTICLE VIII
PURCHASER'S REPRESENTATIONS
Purchaser hereby represents, warrants, covenants and agrees that:
SECTION 8.01. ORGANIZATION; QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma. Purchaser has all power and authority to (i) own and operate
its properties, (ii) carry on its business as it is now being conducted, and
(iii) carry out the transactions contemplated by this Agreement and to own and
operate the Assets and the Business, subject to obtaining all necessary consents
required for the transfer by Seller of the Assets.
SECTION 8.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF
AGREEMENT. All necessary consents and approvals have been obtained by Purchaser
for the execution and delivery of this Agreement. The execution and delivery of
this Agreement by Purchaser has been duly and validly authorized and approved by
all necessary corporate action. Purchaser has full power and authority to
execute and deliver and perform its obligations under this Agreement. This
Agreement is a valid and binding obligation of Purchaser, enforceable against it
in accordance with its terms.
SECTION 8.03. LITIGATION AND LEGAL PROCEEDINGS. There is no outstanding
judgment against Purchaser and there is no litigation, proceeding or
investigation pending, or, to Purchaser's knowledge, threatened, against
Purchaser or its assets, or against any affiliate of
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Purchaser, which individually or in the aggregate would, if adversely
determined, result in a material adverse change in the business condition
(financial or otherwise), properties or assets of Purchaser or which questions
the validity of any action taken or to be taken pursuant to or in connection
with the provisions of this Agreement or the consummation of the transactions
contemplated hereby by the Purchaser or which could have an adverse effect on
Purchaser's ability to perform its obligations hereunder.
SECTION 8.04. BROKERS. Purchaser has not engaged any agent, broker or
other person acting pursuant to the express or implied authority of Purchaser
which is or may be entitled to a commission or broker or finder's fee in
connection with the transactions contemplated by this Agreement or otherwise
with respect to the sale of the Assets or the Business.
SECTION 8.05. ACCESS TO FUNDS. Purchaser has available or shall have
available on the Closing Date sufficient funds to consummate the transactions
contemplated by this Agreement, including without limitation, payment of the
Purchase Price and Purchaser shall be solvent on the Closing Date with the
financial capability to meet its other obligations when they become due.
SECTION 8.06. QUALIFICATIONS TO HOLD FCC AUTHORIZATIONS. Purchaser is
legally, technically, financially and otherwise qualified under the
Communications Act of 1934, as amended, to hold the FCC Authorizations and to
consummate the transactions contemplated hereby. Purchaser has no knowledge of
any fact that would, under existing law (including the Communications Act),
disqualify Purchaser as an assignee of the FCC Authorizations.
SECTION 8.07. BANKRUPTCY. No insolvency proceedings of any character,
including without limitation, bankruptcy, receivership, reorganization,
composition, or arrangement with creditors, voluntary or involuntary, affecting
Purchaser (other than as a creditor) are pending, or to the best of Purchaser's
knowledge, threatened, and Purchaser has not made any assignment for the benefit
of creditors or taken any action in contemplation of or which would constitute
the basis for the institution of such insolvency proceedings.
ARTICLE IX
SELLER'S AND PURCHASER'S COVENANTS
SECTION 9.01. FINANCIAL STATEMENTS AND CELLULAR SYSTEM INFORMATION.
Seller covenants and agrees that during the period after the execution of this
Agreement and prior to the Closing (the "Interim Period"), Seller shall provide
Purchaser, within thirty (30) days of the end of each calendar month, Seller's
unaudited balance sheet and income statement for such month ("Interim Financial
Statements"). The Interim Financial Statements will be true and correct in all
material respects, will be prepared using the same accounting methods and
procedures as used in the preparation of the Historical Financial Statements
except for the absence of footnotes, subject to normal recurring adjustments,
and will present fairly the financial position of Seller at the date indicated
and the results of Seller's operations for such period. During the Interim
Period Seller also shall provide Purchaser within fourteen (14) days of the end
of each calendar month (i) the number of subscribers on the Cellular System at
the beginning and end of such month, (ii) an
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accounts receivable aging report for the Cellular System for such month and
(iii) other monthly reports normally generated by the Seller's billing system as
reasonably requested by Purchaser.
SECTION 9.02. GOVERNMENTAL APPROVALS. (a) Purchaser covenants and
agrees that it will cooperate with Seller, and do all things reasonably
necessary to assist Seller, to obtain all consents and approvals necessary for
assignment to Purchaser of the FCC Authorizations, including the furnishing of
financial and other information specifically with respect to Purchaser
reasonably required by the Person whose consent or approval is being sought.
Seller shall use all reasonable efforts to provide adequate prior written notice
to Purchaser of any meeting with governmental authorities the purpose of which
is to seek a consent or approval to the transactions contemplated hereby, and
Purchaser shall use all reasonable efforts to furnish a representative to attend
meetings with appropriate government authorities for the purpose of obtaining
such consents or approvals. Each of Purchaser and Seller hereby agrees to make
the necessary filings with the FCC transferring or assigning control of the FCC
Authorization for the Business to Purchaser and diligently pursue the processing
of the assignment of the FCC Authorizations to Purchaser and to file for all
other necessary regulatory approvals for the consummation of the transactions
contemplated by this Agreement within five (5) business days of the date of
execution of this Agreement to the extent any such filings have not been made
prior to the date of execution of this Agreement. Seller and Purchaser shall
share equally all filing fees in connection with any filings pursuant to this
Section 9.02(a).
(b) Seller and Purchaser shall each cooperate and use its
commercially reasonable efforts to prepare and file with the Federal Trade
Commission and the Department of Justice and other regulatory authorities as
promptly as possible all requisite applications and amendments thereto together
with related information, data and exhibits necessary to satisfy the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act ("Hart-Scott
Act"). Purchaser shall be responsible for payment of the application filing fee
under the Hart-Scott Act, but not the Seller's costs and expenses (including,
without limitation, attorneys fees and other legal fees and expenses) associated
with the preparation of the Seller's portion of such filing.
SECTION 9.03. THIRD PARTY CONSENTS; CLOSING CONDITIONS. (a) Seller
covenants and agrees to use its commercially reasonable efforts to obtain all
consents and approvals necessary for the transfer or assignment to Purchaser of
the Assumed Contracts. In addition, with respect to each real property lease
identified on SCHEDULE 2.01(d), Seller agrees that the instrument whereby Seller
requests the consent, estoppel and waiver of the lessor thereunder to the
assignment of such lease to such Purchaser shall be substantially in the form of
the letter attached hereto as SCHEDULE 9.03 and that Seller shall use its
commercially reasonable efforts to obtain each such lessor's consent to such
assignment by having each such lessor countersign such letter in the space
provided. Purchaser covenants and agrees to cooperate with Seller and assist
Seller in obtaining such consents and approvals including the furnishing of
financial and other information, reasonably required by the Person whose consent
or approval is being sought. Notwithstanding the foregoing, to the extent that
any Assumed Contracts listed on SCHEDULE 2.01(a) to be sold, assigned,
transferred or conveyed to Purchaser, or any claim, right or benefit arising
thereunder or resulting therefrom (individually, an "Interest" and collectively,
the "Interests"), is not capable of being sold, assigned, transferred or
conveyed without the approval,
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consent or waiver of the issuer thereof or the other party thereto, or any third
Person (including a government or governmental unit), and such approval, consent
or waiver has not been obtained, or if such sale, assignment, transfer or
conveyance or attempted assignment, transfer or conveyance would constitute a
breach thereof, and such approval, consent or waiver has not been obtained, this
Agreement shall not constitute a sale, assignment, transfer or conveyance
thereof, or an attempted assignment, transfer or conveyance thereof; provided
Seller shall use its commercially reasonable efforts to provide Purchaser the
benefits of any such Interest as provided in Section 17.01(b).
(b) Purchaser and Seller hereby covenant and agree to use all
reasonable efforts to satisfy, or assist the other party in satisfying, the
closing conditions applicable to the Purchaser in Article X hereof and the
Seller in Article XI hereof prior to the Closing Date.
SECTION 9.04. ACCESS. (a) Purchaser shall have the right, itself or
through its representatives, during normal business hours, after reasonable
notice (which may be oral) and without undue disruption to Seller's normal
business activities, to inspect the Assets and properties of Seller and to
inspect and make abstracts and reproductions of all books and records of Seller
including, without limitation, applications and reports to the FCC, all
financial information relevant to the Business, employee records, and
engineering and environmental reports and Seller shall furnish Purchaser with
such information respecting the Assets and Business and financial records as
Purchaser may, from time to time, reasonably request.
(b) Seller acknowledges and agrees, subject to any
restrictions placed thereon by an owner or lessor of any real property involved,
that Purchaser may commission, at Purchaser's cost and expense, a so-called
"Phase I" environmental site assessment of the Assets (the "Phase I
Assessment"). If the Phase I Assessment indicates that a so-called "Phase II"
assessment (the "Phase II Assessment") or other additional testing or analysis
of the Assets is advisable, the Purchaser may elect to cause its agents to
conduct such testing and analysis, again at Purchaser's cost and expense. Seller
will use its commercially reasonable efforts to comply with any reasonable
request for information made by Purchaser or its agents in connection with any
such investigation. Seller covenants that any response to any such request for
information will be complete and correct in all material respects. Seller will
afford Purchaser and its agents access to all operations of the Seller at all
reasonable times and in a reasonable manner in connection with any such
investigation subject to any required approval of Seller's landlords, which
approval Seller will use its commercially reasonable efforts to obtain. Should
Purchaser commission such an investigation, such investigation will have no
effect upon the representations and warranties made by Seller to Purchaser under
this Agreement except that if any Phase I Assessment or Phase II Assessment
uncovers an environmental condition which then comprises a breach of Seller's
representations or warranties herein, Seller shall not have breached such
representation or warranty if Seller cures such breach in accordance with the
provisions of Article 15.01 of this Agreement.
(c) Seller shall allow Purchaser a reasonable opportunity to
conduct an engineering review of the Assets to confirm that the Assets comply
with the FCC Authorizations
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and the regulations of the FCC and are otherwise in good condition and repair,
reasonable wear and tear excepted.
SECTION 9.05. CONDUCT OF BUSINESS. From and after the date hereof
Seller shall:
(a) subject to the disclosures made on Schedule 7.09, operate
the Cellular System in accordance with the FCC Authorizations, and
comply in all material respect with all laws, rules and regulations
applicable to Seller, including the regulations of the FCC;
(b) except for inventory sold in the ordinary course of
business, refrain from making any sale, lease, transfer or other
disposition of any of the Assets other than in connection with
replacements with assets of like use and value, or with the prior
written approval of Purchaser;
(c) refrain from modifying, amending or altering in any
material respect, or terminating any of the Assumed Contracts, and from
waiving or canceling any default or breach or modifying, altering or
terminating any right or asset relating to or included in the Assets
without Purchaser's prior written approval, which approval will not be
unreasonably withheld;
(d) maintain insurance on the Assets comparable to that
maintained prior to the date hereof, and subject to Article XII, use
the proceeds of any claims for loss under such policies, together with
such other funds as may be required, to repair, replace, or restore to
their former condition any Assets which may be damaged by fire or other
casualty, all as soon as reasonably possible;
(e) maintain its books and records in accordance with prior
practice; maintain all of its property and assets in their present
condition, ordinary wear and tear excepted, maintain supplies of
inventory and spare parts consistent with past practice; and otherwise
operate its business in the ordinary course in accordance with past
practices;
(f) refrain from changing the Cellular System's agents'
commission rate, sales practices (including the quality of the credit
of subscribers contracting for cellular telephone service) or marketing
practices without Purchaser's approval, which approval will not be
unreasonably withheld;
(g) refrain from increasing the compensation payable or to
become payable to any employee or agent without Purchaser's approval
(excluding any year-end bonuses given to employees consistent with past
practices), which approval will not be unreasonably withheld;
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(h) refrain from entering into any contract or renewal of any
existing contract for the employment of any employee or agent of Seller
other than "at-will" employees and agents;
(i) use its commercially reasonable efforts to (x) keep its
business organization intact, (y) retain the services of the key
employees of the Cellular System, and (z) maintain good relationships
with its employees, suppliers, advertisers, subscribers, agents and
others having business relations with it, in each case in accordance
with past practices;
(j) refrain from changing its Charter or by-laws in any way
which would materially adversely affect its power or authority to enter
into and perform this Agreement, or which would otherwise materially
adversely affect its performance of this Agreement;
(k) continue to advertise, promote and market the Cellular
System and its services in a manner consistent with past practice, and
in any event during the Interim Period, spend on advertising, marketing
and promotion, on an aggregate basis from the date hereof to the
Closing, at least the amounts set forth in Seller's 1998 income
statement attached hereto as SCHEDULE 9.05 and consult on a
mutually-agreeable basis with Purchaser on the status and effectiveness
of promotions and on any modifications to promotions to increase the
number of subscribers to the Cellular System;
(l) refrain from subjecting any of the Assets to any new Lien
other than Permitted Liens;
(m) refrain from doing or omitting to do any act which will
cause a material breach of, or material default under, or termination
of (except in accordance with its terms), any Assumed Contract;
(n) timely make all required filings with the FCC and timely
pay all regulatory and other fees as such filings and fees become due,
and provide to the Purchaser, concurrently with filing thereof, copies
of all reports to and other filings with the FCC;
(o) not permit the FCC Authorizations to expire or to be
surrendered or voluntarily modified in a matter adverse to the
Business, or take any action which would reasonably be expected to
cause the FCC Authorizations or any other governmental authority to
institute proceedings for the suspension, revocation or limitation of
rights under the FCC Authorizations; or fail to prosecute with due
diligence any pending applications to any governmental authority;
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(p) notify Purchaser in writing promptly after learning of the
institution or threat of any material action against Seller in any
court, or any action against Seller before the FCC or any other
governmental agency, and notify Purchaser in writing promptly upon
receipt of any administrative or court order relating to the Assets or
the Business;
(q) if Seller deems it to be prudent, promptly replace any
employee who leaves the employ of the Cellular System; notify Purchaser
of the hiring of any new employee, any material change in job function
of an employee, and the termination of any employee;
(r) pay or cause to be paid or provide for all Taxes of or
relating to Seller, the Assets and the employees required to be paid to
city, county, state, Federal and other governmental units up to the
Closing Date, except to the extent that there is a good faith basis for
contesting the imposition of such Taxes (provided such contested Taxes
shall be properly accrued), in which case Seller shall notify Purchaser
of such contestation and the basis thereof;
(s) refrain from taking any action not in Seller's usual
course of business regarding the Cellular System or the Assets without
Purchaser's prior approval, which approval will not be unreasonably
withheld;
(t) cooperate with Purchaser in connection with (x)
Purchaser's efforts to identify the current employees of Seller that
Purchaser would like to hire following the Closing consistent with all
applicable federal, state and/or local employment laws, rules and
regulations, and (y) the prompt and efficient transition of billing
services after Closing to Purchaser's billing system and (z)
Purchaser's efforts to upgrade equipment (at Purchaser's cost) after
Closing; and
(u) Upon Purchaser's reasonable request, Seller shall cause
the appropriate engineering, computer information system and other
personnel of Seller to meet (telephonically or otherwise) monthly after
the date hereof with representatives of Purchaser to discuss Year 2000
compliance issues.
SECTION 9.06. NO SHOPPING. Prior to the Closing or earlier termination
of this Agreement, neither Seller nor any of its affiliates, advisors or
representatives shall, directly or indirectly, solicit, encourage or initiate
any contact with, negotiate with, or provide any information to, endorse or
enter into any agreement with respect to, or take any other action to facilitate
any person or group, other than Purchaser and its representatives, concerning
any inquiries or the making of any proposals concerning any merger, sale of all
or substantially all of the Assets, acquisition of a substantial equity interest
in Seller or any similar transaction involving Seller.
SECTION 9.07. EMPLOYEES. Nothing contained in this Agreement shall
confer upon any employee of Seller any right with respect to continued
employment by Seller or Purchaser. No
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provision of this Agreement shall create any third-party rights in any such
employee, or any beneficiary or dependent thereof, with respect to the
compensation, terms and conditions of employment and benefits that may be
provided to such employee by Purchaser or under any benefit plan that
Purchaser may maintain. Notwithstanding any other provision of this Agreement
Purchaser shall use commercially reasonable efforts to (i) offer continued
employment to Seller's employees on the date of Closing for a period of at
least six (6) months subject to each employee's satisfactory job performance
and (ii) negotiate with Seller mutually agreeable severance terms for
employees of Seller that Purchaser elects not to employ on a going forward
basis.
SECTION 9.08. SUPPLEMENTAL DISCLOSURE. Seller shall promptly from
time to time prior to the Closing Date supplement in writing the Schedules
hereto with respect to any matter hereafter arising that, if existing or
known as of the date of this Agreement, would have been required to be set
forth or described in the Schedules hereto; provided, however, that no such
supplemental disclosure shall be deemed to cure any breach of any
representation or warranty of Seller made in this Agreement unless Purchaser
fails to object in writing to Seller to any such supplemental disclosure
within ten (10) business days after Purchaser's receipt thereof; PROVIDED,
HOWEVER, that Seller shall have the right to cure any breached representation
or warranty in accordance with Section 15.01 below.
SECTION 9.09. SELLER'S ACCESS TO RECORDS POST-CLOSING. After the
Closing, Purchaser shall provide to Seller, during normal business hours
after reasonable advance request, with access to books and records of the
Cellular System, Business or Assets relating to the operation of the Business
for the period prior to the Closing which are reasonably required by Seller
to prepare Seller's financial statements, complete tax returns, respond to
requests for information from taxing authorities or in connection with any
tax audits. In addition Purchaser shall permit, in a fashion not inconsistent
with any continuing responsibilities he might have to Purchaser, Mr. Thomas
Rider, to assist Seller in the preparation of tax returns.
SECTION 9.10. CONSUMMATE TRANSACTION. Purchaser shall preserve and
maintain its eligibility to be an assignee of the FCC Authorizations and use
all reasonable efforts to cause the transactions contemplated by this
Agreement to be consummated in accordance with the terms hereof, and to make
all filings with and to give all notices to third parties which may be
necessary or reasonably required of Purchaser in order to consummate the
transactions contemplated hereby. On the Closing Date, if the conditions set
forth in Article X have been satisfied, and if this Agreement has not been
terminated pursuant to Article XV, Purchaser shall purchase the Assets from
Seller as provided in Article V and shall make the deliveries provided in
Article VI.
SECTION 9.11. PURCHASER NOT TO CONTROL. Notwithstanding any other
provision of this Agreement that may be construed to the contrary, pending
the consummation of the Closing, Seller shall maintain actual (DE FACTO) and
legal (DE JURE) control over the Cellular System. Specifically, and without
limitation, the responsibility for the operation of Seller and the Cellular
System shall, pending the Closing, reside with the Board of Directors of
Seller, including, but not limited to, responsibility for the following
matters: (a) access to and the use of the facilities
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of and equipment owned by Seller; (b) control of the daily operation of the
Cellular System; (c) creation and implementation of policy decisions; (d)
employment and supervision of employees; (e) payment of financing obligations
and expenses incurred in the operation of the Cellular System; (f) receipt
and distribution of monies and profits derived from the operation of the
Cellular System; and (g) execution and approval of all contracts and
applications prepared and filed before regulatory agencies.
SECTION 9.12. RESCISSION. In the event that the Closing occurs prior
to the date on which the FCC approval for the assignment of the FCC
Authorizations becomes a Final Order and if such approval is subsequently
withdrawn and if at such time or thereafter the parties are legally obligated
to rescind the transactions contemplated by this Agreement, the parties shall
rescind the transaction in a manner that puts each party in the position it
would have been in as of the Closing Date, had the transactions contemplated
hereby not been consummated. Purchaser further covenants and agrees that in
the event of a rescission pursuant to this Section 9.12, Purchaser will
transfer, assign and deliver the Assets and the Cellular System to Seller in
substantially the same condition as the Assets and Cellular System existed on
the Closing Date, except and, to the extent there is a net diminution in the
value of the Assets, subject to appropriate compensation, except for (i)
ordinary wear and tear, (ii) Assets sold, transferred or otherwise disposed
of in the ordinary course of business and (iii) changes in any Assets
(including the loss or destruction thereof) after the Closing Date to the
extent such changes are not due to the acts or omissions of Purchaser or
would have occurred absent the Closing and Seller shall return the Purchase
Price to Purchaser net of compensation; provided that, in the event of the
loss or destruction of any Assets, Purchaser shall deliver to Seller all
insurance proceeds, if any, Purchaser receives with respect thereto and
provided, further, that if the acts, omissions or qualifications of Purchaser
were the proximate cause of the withdrawal of the FCC Consents, then Seller
shall be permitted to retain an amount equal to the Deposit as damages for
the failure of the transaction to be consummated.
ARTICLE X
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser under this Agreement with respect to the
purchase and sale of the Assets shall be subject to the fulfillment on or prior
to the Closing of each of the following conditions, any of which may be waived
in writing by Purchaser:
SECTION 10.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE
OF THIS AGREEMENT. All of the representations and warranties made by Seller in
this Agreement shall be true and correct at and as of the Closing except for
such uncured breaches and inaccuracies therein which, in the aggregate, have not
caused and would not reasonably be expected to cause Purchaser to suffer a Loss
(as defined in Section 13.01) in excess of $50,000 in the aggregate (a "Material
Loss") or otherwise result in a Material Adverse Effect. Seller shall have
complied with and performed all of the agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
except for such noncompliances which, in the aggregate, have not caused and
would not reasonably be expected to cause a
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Material Loss or otherwise result in a Material Adverse Effect. Purchaser
shall have been furnished with a certificate or certificates of Seller's
President, dated as of the Closing, certifying to the fulfillment of the
foregoing conditions. As used in this Agreement, the term "Material Adverse
Effect" means a material adverse effect on the Assets or the Business taken
as a whole, other than due to changes affecting the cellular telephone
industry generally.
SECTION 10.02. RESOLUTIONS. Seller shall deliver to Purchaser copies of
the resolutions of the board of directors and shareholders of Seller authorizing
the execution, delivery and performance of this Agreement and all instruments
and documents to be delivered in connection herewith and the transactions
contemplated hereby, duly certified by an officer of Seller.
SECTION 10.03. INCUMBENCY CERTIFICATE. Purchaser shall have received a
certificate or certificates of an officer of Seller, certifying as to the
genuineness of the signatures of officers of Seller authorized to take certain
actions or execute any certificate, document, instrument or agreement to be
delivered pursuant to this Agreement, which incumbency certificate shall include
the true signatures of such officers.
SECTION 10.04. THIRD PARTY CONSENTS; FCC; HART-SCOTT ACT. Seller
shall have delivered to Purchaser such instruments, consents and approvals
(the form and substance of which shall be reasonably satisfactory to
Purchaser) as are necessary to assign to Purchaser without modification
thereof, as of the Closing, the Assets. Prior to Closing Date, the FCC shall
have granted its consent to the assignment of the FCC Authorizations to
Purchaser and such grant shall have become a Final Order, without any
material conditions (excepting conditions generally applied to the grant of
such applications or applied on an industry-wide basis) which the Purchaser
reasonably deems to be materially adverse. Anything herein to the contrary
notwithstanding, but subject to the provisions of Section 17.01, the
Purchaser shall have the right (in its sole discretion) to waive the
requirement set forth in the preceding sentence by delivery to Seller of a
written notice to such effect (the "Finality Waiver Notice"). In addition,
all applicable waiting periods under the Hart-Scott Act shall have expired or
been terminated and no objection shall have been made by the Federal Trade
Commission ("FTC") or the United States Department of Justice ("DOJ"). For
the purposes of this Agreement, the term "Final Order" shall mean action by
the FCC as to which (i) no request for stay by the FCC, as applicable, of the
action is pending, no such stay is in effect, and, if any deadline for filing
any such request is designated by statute or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration of the action is
pending before the FCC, and the time for filing any such petition has passed;
(iii) the FCC, does not have the action under reconsideration on its own
motion and the time for such reconsideration has passed; and (iv) no appeal
to a court, or request for stay by a court, of the FCC's action, as
applicable, is pending or in effect, and, if any deadline for filing any such
appeal or request is designated by statute or rule, it has passed.
SECTION 10.05. NO MATERIAL ADVERSE CHANGE. Other than changes resulting
from business or regulatory developments affecting the cellular telephone
industry generally, there shall not have been any material adverse change in the
financial condition, assets, business, properties of the Cellular System or
Assets, from October 8, 1999 to the Closing.
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SECTION 10.06. OPINION OF COUNSEL TO SELLER. Purchaser shall have
been furnished with opinions of Patton Boggs LLP, corporate and FCC counsel
to Seller, dated as of the Closing and addressed to Purchaser, and to any
institution designated by Purchaser which has provided financing in
connection with the transactions contemplated by this Agreement,
substantially in the form of EXHIBIT E hereto.
SECTION 10.07. INTENTIONALLY OMITTED.
SECTION 10.08. CLOSING ESCROW AGREEMENT. Seller and the Escrow Agent
each shall have executed and delivered the Closing Escrow Agreement.
SECTION 10.09. TITLE INSURANCE; SURVEYS. Seller shall have provided
to Purchaser, at Seller's expense, and in a form satisfactory to Purchaser
and its lenders, all of the title commitments, title policies (including
endorsements thereto) and surveys with respect to (i) the leased real
property on which Seller's cell sites and equipment are situated and (ii) the
real property owned by Seller; PROVIDED, HOWEVER, that Seller shall not be
obligated to deliver any title commitments, title policies or surveys for the
leased property in items 1, 5, 7, 10, 11 and 12 of the Leases Payable and
Receivable section of SCHEDULE 2.01(a).
SECTION 10.10. OPERATION OF CELLULAR SYSTEM. Seller shall have
continued to operate the Cellular System and market the Cellular System's
services in the normal course of business and in accordance with past
practice.
ARTICLE XI
CONDITIONS PRECEDENT TO
SELLER'S OBLIGATION TO CLOSE
The obligations of Seller under this Agreement with respect to the
sale of the Assets shall be subject to the fulfillment on or prior to the
Closing of each of the following conditions, any of which may be waived in
writing by Seller:
SECTION 11.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES;
PERFORMANCE OF THIS AGREEMENT. All of the representations and warranties by
Purchaser contained in this Agreement shall be true and correct in all
material respects at and as of the Closing. Purchaser shall have complied
with and performed in all material respects all of the agreements and
covenants required by this Agreement to be performed and complied with by it
on or prior to the Closing. Seller shall have been furnished with a
certificate of an officer of Purchaser, dated as of the Closing, certifying
to the fulfillment of the foregoing conditions.
SECTION 11.02. DIRECTORS' RESOLUTIONS. Purchaser shall deliver to
Seller copies of the resolutions of its Board of Directors authorizing the
execution, delivery and performance of this Agreement and all instruments and
documents to be delivered in connection herewith and the transactions
contemplated hereby, duly certified by an authorized officer of Purchaser.
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SECTION 11.03. INCUMBENCY CERTIFICATE. Seller shall have received
the certificate of a Secretary of Purchaser, certifying as to the genuineness
of the signatures of representatives of Purchaser authorized to take certain
actions or execute any certificate, document, instrument or agreement to be
delivered pursuant to this Agreement, which incumbency certificate shall
include the true signatures of such representatives.
SECTION 11.04. FCC; HART-SCOTT ACT. The FCC shall have issued an
order granting its consent to the assignment of the FCC Authorization to
Purchaser. In addition, all applicable waiting periods under the Hart-Scott
Act shall have expired or been terminated and no objection shall have been
made by the FTC or DOJ.
SECTION 11.05. OPINION OF COUNSEL TO PURCHASER. Seller shall have
been furnished with an opinion of Edwards & Angell, LLP, counsel to
Purchaser, dated as of the Closing and addressed to Seller in substantially
the form of EXHIBIT F hereto.
SECTION 11.06. CLOSING ESCROW AGREEMENT. Purchaser and the Escrow
Agent each shall have executed and delivered the Closing Escrow Agreement.
SECTION 11.07. NO LITIGATION. On the Closing Date, (i) no
litigation, proceeding, investigation, or inquiry shall be pending that, if
sustained, would materially and adversely affect Purchaser's right to
acquire, retain and own the Assets or to operate the Cellular System, and
(ii) no judgment, decree, injunction, rule or order of any court of competent
jurisdiction or other legal authority shall be outstanding against Purchaser,
Seller or any affiliate purporting to enjoin or otherwise prevent the Closing
of the transactions contemplated hereunder.
SECTION 11.08. PAYMENT OF PURCHASE PRICE. Purchaser shall have paid
the Purchase Price to Seller.
ARTICLE XII
CASUALTY LOSSES
In the event that there shall have been suffered between the date
hereof and the Closing any casualty loss relating to the Assets that becomes
known to Seller, Seller will promptly notify Purchaser of such event. Seller
shall, to the extent reasonably practicable, repair, rebuild or replace the
portion of the Assets damaged, destroyed or lost prior to the Closing Date.
To the extent the repair, rebuild or replacement of the portion of the Assets
damaged, destroyed or lost prior to the Closing Date is not reasonably
practicable, then the Purchase Price shall be reduced by the amount, mutually
acceptable to Purchaser and Seller, which is estimated by the parties to
equal the out-of-pocket costs and expenses that Purchaser is reasonably
likely to incur to repair, rebuild or replace, in accordance with cellular
telephone industry practices, such damaged,
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destroyed or lost Assets after the Closing Date, and Seller shall retain all
insurance proceeds payable as a result of the occurrence of the event
resulting in such loss or damage.
ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. INDEMNIFICATION BY SELLER. (a) After the Closing and
subject to the provisions of Section 13.04, and regardless of any
investigation made at any time by or on behalf of Purchaser or any
information Purchaser may have, but subject to the terms of this Article
XIII, Seller agrees to indemnify and to hold Purchaser, its shareholders,
officers, directors, and employees (the "Indemnified Purchaser Parties")
harmless from and against and in respect of any losses (including lost
revenues), damages, costs, expenses (including costs of investigations and
reasonable attorney fees), suits, demands and judgments (each a "Loss" and
collectively "Losses") by Purchaser arising from or related to:
(i) Any Non-Assumed Liability, whether or not known or
asserted at or prior to Closing, relating to or arising from the
Seller's ownership, operation, control or sale of the Assets, the
Cellular System or the Business or any other state of facts relating to
Seller which existed at or prior to Closing, including, without
limitation, any environmental liabilities arising out of Seller's
interests in real property or any fines or forfeitures imposed or
threatened to be imposed by the FCC for the Seller's operation, at or
prior to Closing, of the Cellular System or the Business;
(ii) Any misrepresentation in, breach of, or omission from,
any representation or warranty of Seller in this Agreement, the
Schedules or Exhibits hereto, the Deposit Escrow Agreement, the Closing
Escrow Agreement, the Bill of Sale, the Assumption Agreement or in any
closing certificate delivered by Seller to Purchaser pursuant to
Article X hereof;
(iii) Any breach or non-fulfillment of any covenant or
agreement on the part of Seller under this Agreement, the Deposit
Escrow Agreement, the Closing Escrow Agreement, the Bill of Sale or the
Assumption Agreement to be performed on or following the Closing Date;
and
(iv) All reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Purchaser in connection with any action,
suit, proceeding, demand, assessment or judgment incident to any of the
matters Purchaser is indemnified against by Seller in this Agreement.
(b) In addition and subject to the terms of this Article
XIII, Seller shall indemnify Purchaser against and hold it harmless from any
and all Losses which Purchaser may incur by reason of the failure (if any) of
Seller to comply with the Bulk Transfers Article of the Uniform Commercial
Code of any state.
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SECTION 13.02. INDEMNIFICATION BY PURCHASER. After the Closing and
subject to the provisions of Section 13.04, and regardless of any
investigation made at any time by or on behalf of Seller or any information
Seller may have, but subject to the terms of this Article XIII, Purchaser
agrees to indemnify and to hold Seller, and its directors, officers,
stockholders, employees, representatives and agents harmless from and against
and in respect of any Losses incurred by Seller from:
(i) All liabilities and obligations of Purchaser, and all
claims and demands made in respect thereof relating to or arising from,
Purchaser's ownership, operation or control of the Assets or the
Cellular System or the Business after the Closing, including on account
of the Assumed Liabilities; and
(ii) Any misrepresentation in, breach of, or omission from,
any representation or warranty of Purchaser, in this Agreement, the
Schedules or Exhibits hereto, including the Deposit Escrow Agreement,
the Closing Escrow Agreement or the Assumption Agreement or in any
closing certificate delivered by Purchaser to Seller pursuant to
Article XI hereof;
(iii) Any breach or non-fulfillment of any covenant or
agreement on the part of Purchaser under this Agreement, the Deposit
Escrow Agreement, the Closing Escrow Agreement or the Assumption
Agreement to be performed on or following the Closing Date; and
(iv) All reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Seller in connection with any action,
suit, proceeding, demand, assessment or judgment incident to any of the
matters Seller is indemnified against by Purchaser in this Agreement.
SECTION 13.03. NOTICE OF CLAIMS; DEFENSE OF THIRD PARTY. A party
claiming indemnification under this Article XIII (the "Asserting Party") must
notify (in writing, in reasonable detail and within a reasonable period of
time after the Asserting Party becomes aware of such claim) the party from
which indemnification is sought (the "Defending Party") of the nature and
basis of such claim for indemnification. If such claim relates to a claim,
suit, litigation or other action by a third party against the Asserting Party
or any fixed or contingent liability to a third party (a "Third Party
Claim"), the Defending Party may elect to assume and control the defense of
the Third Party Claim at its own expense with counsel selected by the
Defending Party from and after such time as the Defending Party
unconditionally agrees in writing to accept, as against the Asserting Party,
all liabilities on account of such Third Party Claim. Assumption of such
liability, as against the Asserting Party, shall not be deemed an admission
of liability as against any such third party. Notwithstanding the foregoing,
the Defending Party may not assume or control the defense if the named
parties to the Third Party Claim (including any impleaded parties) include
both the Defending Party and the Asserting Party and representation of both
parties by the same counsel (in such counsel's reasonable determination)
would be inappropriate due to actual or potential differing interests between
them, in which case the Asserting Party shall have the right to defend the
Third Party Claim and to
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employ counsel reasonably approved by the Defending Party, and to the extent
the matter is determined to be subject to indemnification hereunder, the
Defending Party shall reimburse the Asserting Party for the reasonable costs
of its counsel. If the Defending Party assumes liability for the Third Party
Claim as against the Asserting Party and assumes the defense and control of
the Third Party Claim pursuant to this Section 13.03, the Defending Party
shall not be liable for any fees and expenses of counsel for the Asserting
Party incurred thereafter in connection with the Third Party Claim (except in
the case of actual or potential differing interests, as provided in the
preceding sentence), but shall not agree to any settlement of such Third
Party Claim which does not include an unconditional release of the Asserting
Party by the third party claimant on account thereof, PROVIDED that such
requirement shall be deemed waived to the extent that the Asserting Party
does not undertake to provide and promptly execute and, concurrently with the
delivery of any such release, deliver a corresponding release of the third
party claimant with respect to such Third Party Claim. If the Defending Party
does not assume liability for and the defense of the Third Party Claim
pursuant to this Section 13.03, the Asserting Party shall have the right (i)
to control the defense thereof and (ii), if the Asserting Party shall have
notified the Defending Party of the Asserting Party's intention to negotiate
a settlement of the Third Party Claim (at the Defending Party's expense to
the extent the matter is determined to be subject to indemnification
hereunder), which notice shall include the material terms of any proposed
settlement in reasonable detail, to settle the Third Party Claim (at the
Defending Party's expense to the extent the matter is determined to be
subject to indemnification hereunder) on terms not materially inconsistent
with those set forth in such notice, unless the Defending Party shall have
notified the Asserting Party in writing of the Defending Party's election to
assume liability for and the defense of the Third Party Claim pursuant to
this Section 13.03 within ten days after receipt of such notice, and the
Defending Party promptly thereafter shall have taken appropriate action to
implement such defense. The Asserting Party shall not be entitled to settle
any such Third Party Claim pursuant to the preceding sentence unless such
settlement includes an unconditional release of the Defending Party by the
third party claimant on account thereof, PROVIDED that such requirement shall
be deemed waived to the extent that the Defending Party does not undertake to
provide and promptly execute and, concurrently with delivery of any such
release, deliver a corresponding release of the third party claimant with
respect to such Third Party Claim. The Asserting Party and the Defending
Party shall use all reasonable efforts to cooperate fully with respect to the
defense and settlement of any Third Party Claim covered by this Article XIII.
SECTION 13.04. LIMITATIONS. The Defending Party's obligations to
indemnify the Asserting Party pursuant to this Article XIII shall be subject
to the following limitations:
(a) No indemnification shall be required to be made by the
Defending Party until the aggregate amount of the Asserting Party's Losses
exceeds $50,000 (the "Deductible") and then indemnification shall only be
required to be made by the Defending Party to the extent of such Losses that
exceed the Deductible; PROVIDED, HOWEVER, the Deductible shall not be
applicable to (i) Seller's obligation to indemnify Purchaser for Non-Assumed
Liabilities, (ii) Purchaser's obligation to indemnify Seller for Losses
arising from or related to the matters described in Section 13.02(i), (iii)
adjustments to the Purchase Price provided for in Section 5.05, (iv) a breach
by Seller of its representations set forth in Section 7.02, the first
sentence of Section
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7.04, and Section 7.15, (v) a breach by Purchaser of its representations set
forth in Section 8.02 or (vi) Losses resulting from fraud. Under no
circumstance will either Seller or Purchaser have any right to recover any
amounts under this Article XIII in excess of $6 million (the "Cap");
PROVIDED, HOWEVER, notwithstanding anything else set forth in this Agreement
to the contrary, the Cap shall not be applicable to (i) Seller's obligation
to indemnify Purchaser for Non-Assumed Liabilities, (ii) Purchaser's
obligation to indemnify Seller for Losses arising from or related to the
matters described in Section 13.02(i), (iii) adjustments to the Purchase
Price provided in Section 5.05, (iv) a breach by Seller of its
representations set forth in Section 7.02 and the first sentence of Section
7.04, (v) a breach by Purchaser of its representations set forth in Section
8.02 and (vi) Losses resulting from fraud.
(b) All representations and warranties contained in this
Agreement shall survive the Closing until the first anniversary thereof;
provided, however, that notwithstanding the foregoing, (x) the
representations and warranties contained in Section 7.02, the first sentence
of Section 7.04. Section 7.15 and Section 8.02 shall survive the Closing for
an unlimited duration and (y) the representations and warranties contained in
Section 7.12 (as it may relate to Environmental Laws) shall survive the
Closing until the second anniversary thereof (the applicable period of
survival being referred to as the "Survival Period"). To the extent a claim
is made in respect of a representation or warranty within the applicable
Survival Period, such representation or warranty shall survive after the
Survival Period for purposes of such claim until such claim is finally
determined or settled. Each party shall be precluded from asserting claims
against the other party as a result of a breached representation or warranty
after the applicable Survival Period. Subject to Section 17.06, the parties
sole and exclusive remedy for any and all claims relating to and arising out
of this Agreement and the transactions contemplated herein (whether made in
contract, tort, breach of warranty or otherwise) shall be governed by this
Article XIII.
(c) In addition, the liability of any indemnitor with
respect to any Losses shall be determined on a basis that is net of the
amount actually paid to the indemnified party in respect of any such Losses
pursuant to any policy of insurance maintained by such indemnified party.
ARTICLE XIV
CONFIDENTIALITY AND PRESS RELEASES
SECTION 14.01. CONFIDENTIALITY. Each party (in such capacity, a
"Recipient Party") shall hold in strict confidence all documents and
information concerning the other (in such capacity, a "Disclosing Party") and
its business and properties and, if the transaction contemplated hereby
should not be consummated, such confidence shall be maintained, and all such
documents and information (in written form) shall immediately thereafter be
returned to the Disclosing Party. In furtherance of the foregoing, without
the express prior written consent of the Disclosing Party, the Recipient
Party shall not, directly or indirectly, disclose, disseminate, publish,
reproduce, retain, use (for its benefit or for the benefit of others) or
otherwise make available in any manner whatsoever, any such documents or
information to anyone except as provided in Section 14.03.
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If the Recipient Party breaches, or threatens to commit a breach of, any of
the provisions of this Article XIV, the Disclosing Party shall have the right
(in addition to any other rights and remedies available at law or in equity)
to equitable relief (including injunctions) against such breach or threatened
breach, it being acknowledged and agreed that any such breach or threatened
breach will cause irreparable harm to the Disclosing Party and that money
damages would not be an adequate remedy.
SECTION 14.02. PRESS RELEASES. No press release or public
disclosure, either written or oral, of the existence or terms of this
Agreement shall be made by either Purchaser or Seller without the consent of
the other subject to the provisions of Section 14.03, and Purchaser and
Seller shall each furnish to the other advance copies of any release which it
proposes to make public concerning this Agreement or the transactions
contemplated hereby and the date upon which Purchaser or Seller, as the case
may be, proposes to make such press release.
SECTION 14.03. DISCLOSURES REQUIRED BY LAW. This Article XIV shall
not, however, be construed to prohibit any party from making any disclosures
to any governmental authority that it is required to make by law or from
filing this Agreement with, or disclosing the terms of this Agreement to, any
institutional lender to such party, or prohibit Seller, Purchaser or any of
their affiliates from disclosing to its investors, partners, accountants,
auditors, attorneys, parent company and broker/dealers such terms of this
transaction as are customarily disclosed to them in connection with the sale
or acquisition of a cellular telephone system; PROVIDED FURTHER, HOWEVER,
that any such party shall be informed of the confidential nature of such
information and shall agree to keep such information confidential; and
PROVIDED, HOWEVER, that each party shall provide to the other reasonable
advance copies of any public release except where the provision of such
advance notice is not permissible.
ARTICLE XV
TERMINATION
SECTION 15.01. BREACHES AND DEFAULTS; OPPORTUNITY TO CURE. Prior to
the exercise by a party of any termination rights afforded under this
Agreement, if either party (the "Non-Breaching Party") believes the other
(the "Breaching Party") to be in breach hereunder, the Non-Breaching Party
shall provide the Breaching Party with written notice specifying in
reasonable detail the nature of such breach, whereupon the Breaching Party
shall have thirty (30) days from the receipt of such notice to cure such
breach to the reasonable satisfaction of the Non-Breaching Party; PROVIDED,
HOWEVER, that if such breach is curable but is not capable of being cured
within such period and if the Breaching Party shall have commenced action to
cure such breach within such period and is diligently attempting to cure such
breach, then the Breaching Party shall be afforded an additional sixty (60)
days to cure such breach, PROVIDED FURTHER, HOWEVER, that the cure period for
a breach shall in no event extend beyond the Outside Date. If the breach is
not cured within such time period, then the Breaching Party shall be in
default hereunder and the Non-Breaching Party shall be entitled to terminate
this Agreement (as provided in Section 15.02). This right of termination
shall be in addition to, and not in lieu of, any legal or equitable remedies
available to the Non-Breaching Party. Notwithstanding anything to the
contrary set forth in this Section 15.01, the provisions of this Section
15.01 shall not apply in the event
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Purchaser fails to deliver the Purchase Price even though all of the closing
conditions set forth in Article X have been satisfied.
SECTION 15.02. TERMINATION. This Agreement may be terminated and the
transactions contemplated herein may be abandoned, by written notice given to
the other party hereto, at any time prior to the Closing:
(a) by mutual written consent of Seller and Purchaser;
(b) by either Purchaser or Seller, if any court of competent
jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise permanently
prohibiting the sale of the Assets to Purchaser (which Seller and
Purchaser shall have used all reasonable efforts to have lifted or
reversed) and such order, decree, ruling or other action shall have
become final and nonappealable;
(c) subject to Section 15.01, by Purchaser, if Seller shall
have breached any of its representations herein and such breaches, in
the aggregate, would reasonably be expected to have a Material Adverse
Effect or if Seller shall have materially breached any of its
covenants;
(d) subject to Section 15.01, by Seller, if Purchaser shall
have materially breached any of its representations or covenants herein
and such breaches, in the aggregate, would reasonably be expected to
have a Material Adverse Effect or if Purchaser shall have materially
breached any of its covenants herein; or
(e) by either Seller or Purchaser if the Closing shall not
have occurred on or before December 31, 2000 (the "Outside Date"),
unless (i) the parties agree in writing to extend the Outside Date, or
(ii) the failure to have the Closing shall be due to the failure of the
party seeking to terminate this Agreement to perform in any material
respect its obligations under this Agreement required to be performed
by it at or prior to the Closing.
ARTICLE XVI
BROKERS' FEES
Each party represents and warrants to the other that it shall be
solely responsible for the payment of any fee or commission due to any broker
or finder it has engaged with respect to this transaction and the other party
hereto shall be indemnified for any liability with respect thereto pursuant
to Article XIII hereof.
ARTICLE XVII
MISCELLANEOUS
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SECTION 17.01. ADDITIONAL INSTRUMENTS OF TRANSFER. (a) From time to
time after the Closing, each party shall, if requested by another party,
make, execute and deliver such additional assignments, bills of sale, deeds
and other instruments, as may be reasonably necessary or proper to carry out
the specific provisions of this Agreement, including transfer to Purchaser
all of Seller's right, title and interest in and to the Assets. Such efforts
and assistance shall be at the cost of the requesting party.
(b) Anything in this Agreement to the contrary
notwithstanding, Seller is not obligated to sell, assign, transfer or convey
to Purchaser any of its rights and obligations in and to any Interest without
first obtaining all necessary approvals, consents or waivers. To the extent
any of the approvals, consents or waivers have not been obtained by Seller as
of the Closing and Purchaser elects to proceed with the Closing, Seller
shall, for the remaining term of such Interest, use its commercially
reasonable efforts to (i) obtain the consent of any such third party; (ii)
cooperate with Purchaser in any reasonable and lawful arrangements designed
to provide the benefits (including, without limitation, the payment to
Purchaser of any monies received by Seller in connection therewith) of such
Interest to Purchaser so long as Purchaser performs all obligations with
respect to the Interest (and the payment of all expenses in connection
therewith); and (iii) enforce, at the request of Purchaser and at the expense
and for the account of Purchaser, any rights of Seller arising from such
Interest against such issuer thereof or the other party or parties thereto
(including the right to elect to terminate any such Interest in accordance
with the terms thereof upon the request of Purchaser); provided, however,
that neither of Purchaser nor Seller shall be obligated to pay any
consideration or other sums therefor (except for filing fees and other
ordinary administrative charges and except as set forth above) to the third
party, or to commence any proceedings against the third party, from whom such
approval, consent or waiver is requested.
SECTION 17.02. NOTICES. All notices and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered, sent by telecopier, recognized
overnight delivery service or registered or certified mail, return receipt
requested, postage prepaid, to the following addresses:
(i) If to Purchaser:
13439 N. Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
Attention: Everett R. Dobson
Facsimile No.: (405) 391-8515
with a required copy to:
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, Rhode Island 02903
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Attention: Joseph A. Kuzneski, Jr., Esq.
Facsimile No.: (401) 276-6611
(ii) If to Seller:
Lake Huron Cellular Corp.
c/o 209 Pondfield Road West
Bronxville, New York 10708
Attention: Joseph McBrien, Esq.
Facsimile No.: (914) 779-7457
with a required copy to:
Patton Boggs LLP
2550 M Street, N.W.
Washington, D.C. 20037
Attention: Paul C. Besozzi, Esq.
Facsimile No 202-457-6315
Notices delivered personally shall be effective upon delivery
against receipt. Notices transmitted by telecopy shall be effective when
received, provided that the burden of proving notice when notice is
transmitted by telecopy shall be the responsibility of the party providing
such notice. Notices delivered by overnight mail shall be effective when
received. Notices delivered by registered or certified mail shall be
effective on the date set forth on the receipt of registered or certified
mail, or seventy-two (72) hours after mailing, whichever is earlier.
SECTION 17.03. EXPENSES. Each party shall bear its own expenses and
costs, including the fees of any corporate or FCC attorney retained by it,
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby. Except as set forth in
Section 9.02(b), Seller and Purchaser shall bear equally FCC and other
governmental filing fees.
SECTION 17.04. TRANSFER TAXES. Purchaser shall bear all use, sales
and transfer taxes, if any, imposed in connection with the sale and delivery
of the Assets acquired by Purchaser under this Agreement. Notwithstanding
anything else to the contrary set forth in this Section 17.04, Purchaser
shall in no event be responsible in any manner for the payment of any Taxes
on any income or gain which Seller may realize as a result of the sale of the
Assets or otherwise related to the transactions contemplated by this
Agreement.
SECTION 17.05. COLLECTION PROCEDURES. From and after the Closing,
Purchaser shall have the right and authority, at its expense, to collect for
its account all items to which it is entitled as part of the Assets and
Business acquired pursuant to this Agreement and to endorse with the name of
the Seller any checks or drafts received on account of any such items.
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SECTION 17.06. SPECIFIC PERFORMANCE. The parties recognize and
acknowledge that in the event Seller shall fail to perform its obligations
under the terms of this Agreement, money damages alone will not be adequate
to compensate the Purchaser. The parties, therefore, agree and acknowledge
that in the event the Seller fails to perform its obligations under this
Agreement prior to Closing, the Purchaser shall be entitled, in addition to
any action for monetary damages, in addition to any other rights and remedies
on account of such failure, to specific performance of the terms of this
Agreement and of the covenants and obligations hereunder.
SECTION 17.07. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Michigan (without
application of principles of conflicts of law).
SECTION 17.08. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (by merger or other operation of law or otherwise) without the
prior written consent of the other party, which consent will not be
unreasonably withheld except that Purchaser shall have the right to assign
its rights under this Agreement after the Closing to any institutional
lender, PROVIDED, HOWEVER that Purchaser shall notify Seller ten (10) days in
advance of any such assignment and notwithstanding any such assignment
Purchaser shall remain obligated to perform post-Closing obligations imposed
on Purchaser under the terms of this Agreement.
SECTION 17.09. SUCCESSORS AND ASSIGNS. All agreements made and
entered into in connection with this transaction shall be binding upon and
inure to the benefit of the parties hereto, their successors and permitted
assigns.
SECTION 17.10. AMENDMENTS; WAIVERS. No alteration, modification or
change of this Agreement shall be valid except by an agreement in writing
executed by the parties hereto. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder (and no course of dealing
between or among any of the parties) shall operate as a waiver of any such
right, power or privilege. No waiver of any default on any one occasion shall
constitute a waiver of any subsequent or other default. No single or partial
exercise of any such right, power or privilege shall preclude the further or
full exercise thereof.
SECTION 17.11. ENTIRE AGREEMENT. This Agreement merges all previous
negotiations and agreements between the parties hereto, either verbal or
written, and constitutes the entire agreement and understanding between the
parties with respect to the subject matter of this Agreement.
SECTION 17.12. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which when so executed shall be an original,
but all of which together shall constitute one agreement. Facsimile
signatures shall be deemed original signatures.
SECTION 17.13. SEVERABILITY. If any provision of this Agreement or
the application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not
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be affected thereby and shall be enforced to the greatest extent permitted by
law, but only as long as the continued validity, legality and enforceability
of such provision or application does not materially (a) alter the terms of
this Agreement, (b) diminish the benefits of this Agreement or (c) increase
the burdens of this Agreement, for any person.
SECTION 17.14. SECTION HEADINGS. The section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 17.15. INTERPRETATION. As both parties have participated in
the drafting of this Agreement, any ambiguity shall not be construed against
either party as the drafter.
SECTION 17.16. FURTHER ASSURANCES. For a period of twelve (12)
months after Closing, Seller agrees to provide to Purchaser from time to time
any information that Seller possesses with respect to the operation of the
Business and Assets prior to the Closing which the Purchaser reasonably
requests in the future in connection with the Purchaser's financing efforts
now or in the future or in connection with any FCC or other regulatory filing
relating to the Cellular System.
SECTION 17.17. THIRD PARTIES. Nothing herein, expressed or implied,
is intended to or shall confer on any person other than the parties hereto
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 17.18. WAIVER OF JURY. THE PARTIES HERETO IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, COUNTERCLAIM, OR
CROSS CLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
[THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized representative as of the day
and year first above written.
SELLER:
LAKE HURON CELLULAR CORP.
By: /s/ Joseph J. McBrien
-------------------------------------
Print Name: Joseph J. McBrien
-----------------------------
Title: Executive Vice President
----------------------------------
PURCHASER:
DOBSON CELLULAR SYSTEMS, INC.
By: /s/ Bruce T. Knooihuizen
-------------------------------------
Print Name: Bruce T. Knooihuizen
-----------------------------
Title: CFO & Vice President
----------------------------------
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOBSON COMMUNICATIONS CORPORATION
The undersigned, Everett R. Dobson and Stephen T. Dobson, certify that
they are the President and Secretary, respectively, of DOBSON COMMUNICATIONS
CORPORATION, a corporation organized and existing under the laws of the State
of Oklahoma (the "Corporation"), and do hereby further certify as follows:
1. The name of this Corporation is DOBSON COMMUNICATIONS
CORPORATION.
2. The name under which the Corporation was originally
incorporated was Dobson Holdings Corporation and the original Certificate of
Incorporation of the Corporation was filed with the Secretary of State of
Oklahoma on February 3, 1997.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 1077 and 1080 of the
General Corporation Act of Oklahoma (the "Act") by the written consent of the
holders of not less than a majority of the outstanding stock of the
Corporation entitled to vote thereon, and written notice of the corporate
action has been given to the stockholders of the Corporation who have not so
consented in writing, all in accordance with the provisions of Section 1080
of the Act.
4. The text of the Certificate of Incorporation of the Corporation
is amended and restated to read in its entirety as follows:
ARTICLE I.
NAME
The name of the Corporation is:
DOBSON COMMUNICATIONS CORPORATION
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ARTICLE II.
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Oklahoma is 13439 North Broadway Extension, Oklahoma City, Oklahoma County,
Oklahoma 73114. The registered agent is Everett R. Dobson.
ARTICLE III.
PURPOSES
The nature of the business and the purpose of the Corporation shall be
to engage in any lawful act or activity and to pursue any lawful purpose for
which a corporation may be formed under the Act. The Corporation is
authorized to exercise and enjoy all powers, rights and privileges which
corporations organized under the Act may have as in force from time to time,
including, without limitation, all powers, rights and privileges necessary or
convenient to carry out the purposes of the Corporation.
ARTICLE IV.
RECLASSIFICATION AND STOCK SPLIT
Immediately upon the filing of this Amended and Restated Certificate
of Incorporation with the Secretary of State of the State of Oklahoma (the
"Effective Date"), (a) each share of Class A Common Stock, par value $.001
per share, outstanding immediately prior to the Effective Date ("Old Class A
Common Stock") shall be, without further action by the Corporation or any
holder thereof, changed, converted and reclassified into a number of shares
of newly authorized Class B Common Stock, par value $.001 per share ("Class B
Common Stock") equal to the number of shares representing a 111.44 for 1
stock split for each share (the "Class A Conversion Factor"), and each
certificate then outstanding stating on its face that it represents shares of
Old Class A Common Stock existing prior to the Effective Date, shall
automatically represent, from and after the Effective Date, a number of
shares of Class B Common Stock equal to the number of shares on the face of
the certificate of Old Class A Common Stock existing prior to the Effective
Date multiplied by the Class A Conversion Factor; (b) each share of Class B
Common Stock, par value $.001 per share, outstanding immediately prior to the
Effective Date ("Old Class B Common Stock") shall be, without further action
by the Corporation or any holder thereof, changed, converted and reclassified
into a number of shares of newly authorized Class A Common Stock, par value
$.001 per share ("Class A Common Stock") equal to the number of shares
representing a 111.44 for 1 stock split for each share (the "Class B
Conversion Factor"), and each certificate then outstanding stating on its
face that it represents shares of Old Class B Common Stock existing prior to
the Effective Date, shall automatically represent, from and after the
Effective Date, a number of shares of Class A Common Stock equal to the
number of shares on the face of the certificate of Old Class B Common Stock
existing prior to the Effective Date multiplied by the Class B Conversion
Factor, and (c) each share of Class C Comon Stock, par
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value $.001 per share, outstanding immediately prior to the Effective Date
shall be, without further action by the Corporation or any holder thereof,
changed, converted and reclassified into a number of shares of Class A Common
Stock equal to the number of shares representing a 111.44 for 1 stock split
for each share (the "Class C Conversion Factor"), and each certificate then
outstanding stating on its face that it represents shares of Class C Common
Stock existing prior to the Effective Date, shall automatically represent,
from and after the Effective Date, a number of shares of Class A Common Stock
equal to the number of shares on the face of the certificate of Class C
Common Stock existing prior to the Effective Date multiplied by the Class C
Conversion Factor; (d) each authorized but unissued share of Old Class B
Common Stock shall be redesignated as Class D Common Stock, par value $.001
per share ("New Class D Common Stock"), and (e) each authorized but unissued
share of Class C Common Stock shall continue to be designated as Class C
Common Stock. In connection with the stock splits described in this Article
IV, no fractional shares of newly authorized Class A Common Stock and newly
authorized Class B Common Stock shall be issued. Each fractional share of
newly authorized Class A Common Stock and newly authorized Class B Common
Stock which would otherwise be issued pursuant to this ARTICLE IV shall be
rounded to the nearest whole share.
ARTICLE V.
CAPITAL STOCK
5.1 AUTHORIZED CAPITAL STOCK. The maximum number of shares of
capital stock which the Corporation shall have authority to issue is Two
Hundred Fifty One Million Thirty Seven Thousand Two Hundred Twenty Six
(251,037,226) shares of capital stock, of which One Hundred Seventy Five
Million (175,000,000) shares shall be Class A Common Stock; Seventy Million
(70,000,000) shares shall be Class B Common Stock; Four Thousand Two Hundred
Twenty Six (4,226) shares shall be Class C Common Stock and Thirty Three
Thousand (33,000) shares shall be Class D Common Stock (the Class A Common
Stock, Class B Common Stock, Class C Common Stock and Class D Common Stock
shall collectively be referred to as the "Common Stock"), and of which Six
Million (6,000,000) shares shall be preferred stock, par value $1.00 per
share (the "Preferred Stock"), of which Seven Hundred Thirty Four Thousand
(734,000) shares have been designated as 121/4% Senior Exchangeable Preferred
Stock, Five Hundred Thousand (500,000) shares have been designated as 13%
Senior Exchangeable Preferred Stock due 2009, and Forty Thousand (40,000)
shares have been designated as Class E Preferred Stock. The Common Stock and
the Preferred Stock are sometimes referred to herein as the "Capital Stock"
of the Corporation.
5.2 PREFERRED STOCK; CERTIFICATES OF DESIGNATION.
5.2.1 PREFERRED STOCK. The Preferred Stock may be issued in
one or more series. The Corporation's Board of Directors is hereby expressly
authorized without further action by the Corporation's stockholders, subject
to limitations prescribed by the Act, to authorize and otherwise provide for
the issuance of the shares of Preferred Stock in one or more series, and by
filing a certificate pursuant to the applicable law of the State of Oklahoma,
to establish from time to time the number of shares to be included in each
such series, to determine the powers,
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designations, preferences and relative, participating, optional or other
special rights, including voting rights, and the qualifications, limitations
and restrictions thereof, of each series of Preferred Stock and may increase
or decrease the number of shares within each such series; provided, however,
that the Corporation's Board of Directors may not decrease the number of
shares within a series to less than the number of shares within such series
that are then outstanding and may not increase the number of shares within a
series above the total number of authorized shares of Preferred Stock for
which the powers, designations, preferences and rights have not otherwise
been set forth herein. The authority of the Board of Directors with respect
to each series shall include, but not be limited to, determination of the
following:
(a) the number of shares constituting that series and
the distinctive designation of that series;
(b) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date
or dates, and the relative rights of priority, if any, of payment
of dividends on shares of that series;
(c) whether that series shall have voting, optional
and/or special rights, in addition to the voting rights provided
by law, and, if so, the terms of such voting rights, including,
without limitation, the right to elect one or more members of the
Board of Directors;
(d) whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion
rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(f) whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if so,
the terms and amount of such sinking fund;
(g) the rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, and the relative rights of priority, if any,
of payment of shares of that series; and
(h) the preferences and relative rights among the series
of the Preferred Stock.
5.2.2 CERTIFICATE OF DESIGNATION FOR THE 12 1/4% SENIOR
EXCHANGEABLE PREFERRED STOCK. The powers, preferences and relative,
participating, optional and other special rights of the 12 1/4% Senior
Exchangeable Preferred Stock previously issued in two series, and the
qualifications, limitations and restrictions thereof, are set forth on
EXHIBIT A hereto, which is
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incorporated herein by this reference.
5.2.3 CERTIFICATE OF DESIGNATION FOR THE 13% SENIOR
EXCHANGEABLE PREFERRED STOCK DUE 2009. The powers, preferences and relative,
participating, optional and other special rights of the 13% Senior
Exchangeable Preferred Stock due 2009, and the qualifications, limitations
and restrictions thereof, are set forth on EXHIBIT B hereto, which is
incorporated herein by this reference.
5.2.4 CERTIFICATE OF DESIGNATION FOR THE CLASS D PREFERRED
STOCK. The powers, preferences and relative, participating, optional and
other special rights of the Class D Preferred Stock, and the qualifications,
limitations and restrictions thereof, are set forth on EXHIBIT C hereto,
which is incorporated herein by this reference.
5.2.5 CERTIFICATE OF DESIGNATION FOR THE CLASS E PREFERRED
STOCK. The powers, preferences and relative, participating, optional and
other special rights of the Class E Preferred Stock, and qualifications,
limitations and restrictions thereof, are set forth on EXHIBIT D hereto,
which is incorporated herein by this reference.
5.3 PROVISIONS APPLICABLE TO ALL CLASSES OF COMMON STOCK. Except
as otherwise required by the Act or as otherwise provided in this ARTICLE V,
the rights and preferences of the Class A Common Stock, the Class B Common
Stock, the Class C Common Stock and the Class D Common Stock, on a Fully
Converted Basis, shall be identical. As used in this Amended and Restated
Certificate of Incorporation, the term "Fully Converted Basis" shall mean,
with respect to the Class C Common Stock and Class D Common Stock, the number
of shares of Class A Common Stock which would be issued to and held by the
holders of all outstanding shares of Class C Common Stock and Class D Common
Stock had all outstanding shares of Class C Common Stock and Class D Common
Stock been converted into Class A Common Stock pursuant to Section 5.7
immediately prior to the occurrence of the related event or action.
5.3.1 VOTING RIGHTS. Except as otherwise required by the Act
or other applicable law, the holders of Class A Common Stock and Class B
Common Stock shall vote together as a single class with respect to all
matters submitted to a vote of stockholders with each holder having the
number of votes specified below. The holders of Class A Common Stock shall
be entitled to one (1) vote per share in person or by written proxy at all
annual or special meetings of the Corporation and on matters in which the
holders of Common Stock are entitled to vote. The holders of Class B Common
Stock shall be entitled to one (1) vote per share, in person or by written
proxy with respect to any proposal that the Corporation engage in a "Rule
13e-3 transaction" as defined in Rule 13e-3 promulgated under the Securities
Exchange Act of 1934, as amended, and any successor rule or regulation, and
to ten (10) votes per share, in person or by written proxy, at all annual or
special meetings of the Corporation and on all other matters in which the
holders of Common Stock shall be entitled to vote. Except as otherwise
required by the Act, the holders of Class C Common Stock and Class D Common
Stock will have no voting powers whatsoever, and no holder of Class C Common
Stock or Class D Common Stock shall vote on or otherwise participate in any
proceedings in which action shall be taken by the Corporation or the
shareholders thereof. The holders of Class C Common Stock and Class D
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Common Stock shall not be entitled to notification as to any meeting of the
Board of Directors or of the shareholders. The holders of Class A Common
Stock and Class B Common Stock shall each be entitled to vote separately as a
class with respect to (A) amendments to this Amended and Restated Certificate
of Incorporation that alter or change the powers, preferences or special
rights of their respective classes of stock so as to affect them adversely
and (B) such other matters as require class votes under the Act or other
applicable laws.
5.3.2 STOCK SPLITS. The Corporation shall not in any manner
subdivide (by any stock split, reclassification, stock dividend,
recapitalization or otherwise) or combine the outstanding shares of one class
of Common Stock unless the outstanding shares of all classes of Common Stock
shall be proportionately subdivided or combined; provided, however, that the
Corporation shall effect the reclassification and stock split set forth in
ARTICLE IV upon the filing of this Amended and Restated Certificate of
Incorporation. Notwithstanding anything herein to the contrary, additional
shares of Class B Common Stock may be issued to holders of Class B Common
Stock only upon a stock split or stock dividend of all classes of the
Company's stock on a pro rata basis.
5.3.3 LIQUIDATION RIGHTS. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation,
after payment shall have been made to holders of outstanding Preferred Stock,
if any, of the full amount to which they are entitled pursuant to this
Amended and Restated Certificate of Incorporation and any resolutions that
may be adopted from time to time by the Corporation's Board of Directors for
the purpose of fixing the designations, preferences, rights and restrictions
of any series of Preferred Stock, the holders of Common Stock shall be
entitled to share ratably, in accordance with the number of shares of Common
Stock held by each such holder, in all remaining assets of the Corporation
available for distribution among the holders of Class A Common Stock, Class B
Common Stock, Class C Common Stock, on a Fully Converted Basis, and Class D
Common Stock, on a Fully Converted Basis. For purposes of this paragraph,
neither the consolidation or merger of the Corporation with or into any other
entity or entities pursuant to which the holders of Capital Stock of the
Corporation receive capital stock and/or other securities (including debt
securities) of the acquiring entity (or of the direct or indirect parent
entity of the acquiring entity), nor the sale, lease or transfer by the
Corporation of all or any part of its assets, nor the reduction of the
capital stock of the Corporation, shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation as
those terms are used in this paragraph.
5.3.4 DIVIDENDS. If and when dividends on the Class A Common
Stock, Class B Common Stock, Class C Common Stock or Class D Common Stock are
declared payable from time to time by the Board of Directors as provided in
this SECTION 5.3.4, whether payable in cash, in property or in shares of
Class A Common Stock or Class B Common Stock of the Corporation to the
holders of Class A Common Stock, Class B Common Stock, Class C Common Stock
or Class D Common Stock, such dividends shall be payable at the same rate and
at the same time on all classes of Common Stock including, with respect to
the Class C Common Stock and the Class D Common Stock, on a Fully Converted
Basis. Dividends payable in respect of Class A Common Stock shall be payable
only in additional shares of Class A Common Stock to holders of Class A
Common Stock, and dividends payable to holders of Class C Common Stock and
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Class D Common Stock shall be payable in additional shares of Class A Common
Stock, on a Fully Converted Basis. Dividends payable in respect of Class B
Common Stock shall be payable in shares of Class B Common Stock only to
holders of Class B Common Stock. No dividends shall be payable in shares of
Class C Common Stock or Class D Common Stock. If the Corporation shall in
any manner subdivide or combine the outstanding shares of and class of Common
Stock, the outstanding shares of the other such class of Common Stock shall
be proportionally subdivided or combined in the same manner and on the same
basis as the outstanding shares of Common Stock that have been subdivided or
combined. The Corporation shall not declare a dividend on one class of
Common Stock unless it shall declare an essentially equivalent and identical
dividend (other than in respect of voting rights as provided above in the
case of in-kind dividends) on all other classes of outstanding Common Stock.
5.4 TRANSFER OF CLASS B COMMON STOCK.
5.4.1 CLASS B PERMITTED TRANSFEREES. A Beneficial Owner (as
hereinafter defined) of shares of Class B Common Stock (herein referred to in
this Section as a "Class B Stockholder") may transfer, directly or
indirectly, shares of Class B Common Stock, whether by sale, assignment, gift
or otherwise, only to a Class B Permitted Transferee (as hereinafter defined)
and no Class B Stockholder may otherwise transfer record or Beneficial
Ownership (as hereinafter defined) of any shares of Class B Common Stock. In
the event of any attempted transfer of the Beneficial Ownership of any shares
of Class B Common Stock in violation of the limitation provided in the
preceding sentence, the shares of Class B Common Stock with respect to which
the transfer of such Beneficial Ownership has been attempted shall be deemed
to have been converted automatically, without further deed or action by or on
behalf of any person, into the same number of shares of Class A Common Stock.
"Class B Permitted Transferee" shall mean, if the Class B
Stockholder is an individual:
(a) the estate of the Class B Stockholder or any
legatee, heir or distributee thereof;
(b) the spouse of the Class B Stockholder;
(c) any parent or grandparent and any lineal descendant
(including any adopted child) of any parent or grandparent of the
Class B Stockholder or of the Class B Stockholder's spouse;
(d) any guardian or custodian (including a custodian for
purposes of the Uniform Gift to Minors Act or Uniform Transfers to
Minors Act) for, or any executor, administrator, conservator
and/or other legal representative of, the Class B Stockholder
and/or any Class B Permitted Transferee or Class B Permitted
Transferees thereof;
(e) a trust (including a voting trust), and any savings
or retirement account,
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such as an individual retirement account for purposes of federal
income tax laws, whether or not involving a trust, principally
for the benefit of such Class B Stockholder and/or any Class B
Permitted Transferee or Class B Permitted Transferees thereof,
including any trust in respect of which such Class B Stockholder
and/or any Class B Permitted Transferee or Class B Permitted
Transferees thereof has any general or special power of
appointment or general or special non-testamentary power or
special testamentary power of appointment limited to any Class B
Permitted Transferee or Class B Permitted Transferees;
(f) any corporation, partnership or other business
entity if Substantial Beneficial Ownership (as hereinafter
defined) thereof is held by such Class B Stockholder and/or any
one or more Class B Permitted Transferees thereof; provided,
however, that if such Class B Stockholder, and all Class B
Permitted Transferees thereof, cease, for whatever reason, to hold
Substantial Beneficial Ownership of such corporation, partnership
or other business entity, then any and all shares of Class B
Common Stock that such corporation, partnership or other business
entity is the Beneficial Owner of shall be deemed to be converted
automatically, without further deed or action by or on behalf of
any person, into shares of Class A Common Stock; and
(g) Russell L. Dobson, Everett R. Dobson, Stephen T.
Dobson and the Dobson CC Limited Partnership, an Oklahoma limited
partnership (each a "Founding Investor") and/or any Class B
Permitted Transferee of any of Russell L Dobson, Everett R.
Dobson, Stephen T. Dobson or Class B Permitted Transferees of a
Founding Investor.
"Class B Permitted Transferee" shall mean, if the Class B
Stockholder is a corporation, partnership, limited liability company, business
trust or other business entity:
(a) any trust (including any voting or liquidating
trust) principally for the benefit of an individual Class B
Stockholder and/or any Class B Permitted Transferee or Class B
Permitted Transferees of such individual;
(b) any corporation, partnership or other business
entity if, immediately following the transfer to such corporation,
partnership or other business entity, direct or indirect
Substantial Beneficial Ownership (as hereafter defined) thereof is
held by such Class B Stockholder, its direct or indirect majority
owned parent, subsidiaries and affiliates, and/or by any Class B
Permitted Transferee or Class B Permitted Transferees thereof;
provided, however, that if such Class B Stockholder and all Class
B Permitted Transferees thereof, cease, for whatever reason, to
hold Substantial Beneficial Ownership of such corporation,
partnership or other business entity, then any and all shares of
Class B Common Stock that such corporation, partnership or other
business entity is the Beneficial Owner of shall be deemed to be
converted automatically, without further deed or action by or on
behalf of any person, into shares of Class A Common Stock;
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(c) Dobson CC Limited Partnership, an Oklahoma limited
partnership and its partners and any of its partners as of the
date of this Amended and Restated Certificate of Incorporation and
their Permitted Transferees who receive such shares, by way of
dividend or distribution (upon dissolution, liquidation or
otherwise);
(d) if the Class B Stockholder is a corporation, its
Permitted Transferees shall also include its majority owned parent
corporation, if any, and one or more of its majority owned
subsidiaries or majority owned subsidiaries of its majority owned
parent corporation; provided that such transfer will not result in
Beneficial Ownership of any of such shares by any person who did
not have the power to control such corporation, partnership or
business entity at the time such corporation, partnership or
business entity first acquired Beneficial Ownership of such shares
of Class B Common Stock (other than by any person who qualifies as
a Class B Permitted Transferee pursuant to any other provision of
this SECTION 5.4.1); and
(e) any Founding Investor or any Class B Permitted
Transferee of a Founding Investor.
5.4.2 TRANSFERS TO BENEFICIAL OWNERS. Any person who holds
shares of Class B Common Stock for the Beneficial Ownership of another,
including (A) any broker or dealer in securities; (B) any clearing house;
(C) any bank, trust company, savings and loan association or other financial
institution; (D) any other nominee; and (E) any savings plan or account or
related trust, such as an individual retirement account, may transfer such
shares to the person or persons for whose benefit it holds such shares.
Notwithstanding anything to the contrary set forth herein, any holder of
Class B Common Stock may pledge such shares to a bank or other financial
institution as pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee, provided that such
shares may not be transferred to or registered in the name of the pledgee
unless such pledgee is a Class B Permitted Transferee. In the event of
foreclosure or other similar action by the pledgee, such pledged shares shall
automatically, without any act or deed on the part of the Corporation or any
other person, be converted into shares of Class A Common Stock unless within
five business days after such foreclosure or similar event such pledged
shares are returned to the pledgor or transferred to a Class B Permitted
Transferee. The foregoing provisions of this paragraph shall not be deemed
to restrict or prevent any transfer of such shares, subject to any automatic
conversions into Class A Common Stock, depending on whether the transferee is
a Class B Permitted Transferee, by operation of law upon incompetence or
death of any Class B Stockholder.
5.4.3 EFFECT OF PROHIBITED TRANSFER. Any transferee of shares
of Class B Common Stock pursuant to a transfer made in violation of this
Section shall have no rights as stockholder of the Corporation and no other
rights against or with respect to the Corporation except the right to receive
the same number of shares of Class A Common Stock upon the automatic
conversion of such transferred shares of Class B Common Stock.
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5.4.4 PROOF OF PERMITTED TRANSFER. The Corporation and any
transfer agent of Class B Common Stock may as a condition to the transfer or
the registration of any transfer of shares of Class B Common Stock permitted
by this SECTION 5.4 require the furnishing of such affidavits or other proof
as they deem necessary to establish that such transferee is a Class B
Permitted Transferee.
5.4.5 For purposes of this SECTION 5.4: (A) the term
"Beneficial Ownership" in respect of shares of Class B Common Stock shall
mean possession of the power and authority, either singly or jointly with
another, to vote or dispose of or to direct the voting or disposition of such
shares and the term "Beneficial Owner" in respect of shares of Class B Common
Stock shall mean the person or persons who possess such power and authority;
and (B) the term "Substantial Beneficial Ownership" in respect of any
corporation, partnership or other business entity shall mean possession of
the power and authority, either singly or jointly with another, to vote or
dispose of, or to direct the voting or disposition of, securities
representing at least a 50.1% of the total combined voting power of all
securities entitled to vote, considered as one class, in such corporation,
partnership or other business entity.
5.5 CONVERSION OF CLASS B COMMON STOCK BY HOLDER.
5.5.1 RIGHT TO CONVERT TO CLASS A COMMON STOCK. Subject to
any necessary approvals by the Federal Communications Commission and of any
other federal or state regulatory authority, the holders of each share of
Class B Common Stock shall have the right at any time, or from time to time,
at such holder's option, to convert such share into one fully paid and
nonassessable share of Class A Common Stock on and subject to the terms and
conditions hereinafter set forth.
5.5.2 METHOD OF CONVERSION. In order to exercise his
conversion privilege, the holder of any shares of Class B Common Stock to be
converted shall present and surrender the certificate or certificates
representing such shares during usual business hours at any office or agency
of the Corporation maintained for the transfer of Class B Common Stock and
shall deliver a written notice of the election of the holder to convert the
shares represented by such certificate or any portion thereof specified in
such notice. Such notice shall also state the name or names (with address)
in which the certificate or certificates for shares of Class A Common Stock
issuable on such conversion shall be registered. If required by the
Corporation, any certificate for shares surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or his duly
authorized representative. Each conversion of shares of Class B Common Stock
shall be deemed to have been effected on the date (the "conversion date") on
which the certificate or certificates representing such shares shall have
been surrendered and such notice and any required instruments of transfer
shall have been received as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Class A Common
Stock shall be issuable on such conversion shall be, for the purpose of
receiving dividends and for all other corporate purposes whatsoever, deemed
to have become the holder or holders of record of the shares of Class A
Common Stock represented thereby on the conversion date.
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5.5.3 ISSUANCE OF CLASS A COMMON STOCK UPON CONVERSION. As
promptly as practicable after the presentation and surrender for conversion,
as herein provided, of any certificate for shares of Class B Common Stock,
the Corporation shall issue and deliver at such office or agency, to or upon
the written order of the holder thereof, certificates for the number of
shares of Class A Common Stock issuable upon such conversion. In case any
certificate for shares of Class B Common Stock shall be surrendered for
conversion of a part only of the shares represented thereby, the Corporation
shall deliver at such office or agency, to or upon the written order of the
holder thereof, a certificate or certificates for the number of shares of
Class B Common Stock represented by such surrendered certificate that are not
being converted. The issuance of certificates for shares of Class A Common
Stock issuable upon the conversion of shares of Class B Common Stock by the
registered holder thereof shall be made without charge to the converting
holder for any tax imposed on the Corporation in respect of the issue
thereof. The Corporation shall not, however, be required to pay any tax that
may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the registered
holder of the shares being converted, and the Corporation shall not be
required to issue or deliver any such certificate unless and until the person
requesting the issue thereof shall have paid to the Corporation the amount of
such tax or has established to the satisfaction of the Corporation that such
tax has been paid.
5.5.4 DIVIDENDS RELATED TO CONVERSION. Upon any conversion of
shares of Class B Common Stock into shares of Class A Common Stock pursuant
hereto, no adjustment with respect to cash dividends shall be made; only
those cash dividends shall be payable on the shares so converted as have been
declared and are payable to holders of record of shares of Class B Common
Stock on a date prior to the conversion date with respect to the shares so
converted; and only those cash dividends shall be payable on shares of Class
A Common Stock issued upon such conversion as have been declared and are
payable to holders of record of shares of Class A Common Stock on or after
such conversion date.
5.5.5 RETIREMENT OF CONVERTED SHARES. Shares of Class B
Common Stock converted into Class A Common Stock shall be retired and
cancelled, and shall not be reissued.
5.5.6 RESERVATION OF SHARES OF CLASS A COMMON STOCK. Such
number of shares of Class A Common Stock as may from time to time be required
for such purpose shall be reserved for issuance upon conversion of
outstanding shares of Class B Common Stock.
5.5.7 MERGERS, CONSOLIDATIONS, SALES OF ASSETS. In the case
of a merger or consolidation which reclassifies or changes the shares of
Common Stock, or in the case of the consolidation or merger of the
Corporation with or into another corporation or corporations or the transfer
of all or substantially all of the assets of the Corporation to another
corporation or corporations, each share of Class B Common Stock shall
thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of shares of Class A Common Stock
would have been entitled upon such reclassification, change, consolidation,
merger or transfer, and, in any
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such case, appropriate adjustment (as determined in good faith by the
Corporation's Board of Directors) may be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Class B Common Stock to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be practicable, in relation to any shares of stock or other
securities on property thereafter deliverable upon the conversion of shares
of Class B Common Stock, including, but not limited to, the provisions set
forth in SECTION 5.3.1 with respect to the ten (10) votes per share allocable
to each share of Class B Common Stock as compared to the one vote per share
allocable to each share of Class A Common Stock. In case of any such merger
or consolidation, the resulting or surviving corporation (if not the
Corporation) shall expressly assume the obligation to deliver, upon
conversion of the Class B Common Stock, such stock or other securities or
property as the holders of the Class B Common Stock remaining outstanding
shall be entitled to receive pursuant to the provisions hereof, and to make
provisions for the protection of the conversion rights provided for in this
ARTICLE V.
5.6 TRANSFER OF CLASS C COMMON STOCK AND CLASS D COMMON STOCK.
5.6.1 CLASS C PERMITTED TRANSFEREES. Except as provided in
this Section 5.6.1, a Beneficial Owner (as hereinafter defined) of shares of
Class C Common Stock (a "Class C Stockholder") may not transfer, directly or
indirectly, shares of Class C Common Stock, whether by sale, assignment, gift
or otherwise. In the event of any attempted transfer of the Beneficial
Ownership of any shares of Class C Common Stock in violation of the
limitation provided in the preceding sentence, the shares of Class C Common
Stock with respect to which the transfer of such Beneficial Ownership has
been attempted shall be deemed to have been converted automatically, without
further deed or action by or on behalf of any person, into the shares of
Class A Common Stock as provided in Section 5.7.
"Class C Permitted Transferee" shall mean, if the Class C
Stockholder is an individual:
(a) the estate of the Class C Stockholder or any
legatee, heir or distributee thereof;
(b) the spouse of the Class C Stockholder;
(c) any parent or grandparent and any lineal descendant
(including any adopted child) of any parent or grandparent of the
Class C Stockholder or of the Class C Stockholder's spouse;
(d) any guardian or custodian (including a custodian for
purposes of the Uniform Gift to Minors Act or Uniform Transfers to
Minors Act) for, or any executor, administrator, conservator
and/or other legal representative of, the Class C Stockholder
and/or any Class C Permitted Transferee or Class C Permitted
Transferees thereof;
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(e) a trust (including a voting trust), and any savings
or retirement account, such as an individual retirement account
for purposes of federal income tax laws, whether or not involving
a trust, principally for the benefit of such Class C Stockholder
and/or any Class C Permitted Transferee or Class C Permitted
Transferees thereof, including any trust in respect of which such
Class C Stockholder and/or any Class C Permitted Transferee or
Class C Permitted Transferees thereof has any general or special
power of appointment or general or special non-testamentary power
or special testamentary power of appointment limited to any Class
C Permitted Transferee or Class C Permitted Transferees;
(f) any corporation, partnership or other business
entity if Substantial Beneficial Ownership (as hereinafter
defined) thereof is held by such Class C Stockholder and/or any
Class C Permitted Transferee or Class C Permitted Transferees
thereof; provided, however, that if such Class C Stockholder, and
all Class C Permitted Transferees thereof, cease, for whatever
reason, to hold Substantial Beneficial Ownership of such
corporation, partnership or other business entity, then any and
all shares of Class C Common Stock that such corporation,
partnership or other business entity is the Beneficial Owner of
shall be deemed to be converted automatically, without further
deed or action by or on behalf of any person, into the number of
shares of Class A Common Stock as provided in Section 5.7;
(g) Russell L. Dobson, Everett R. Dobson, Stephen T.
Dobson and the Dobson CC Limited Partnership, an Oklahoma limited
partnership (each a "Founding Investor") and/or any Class C
Permitted Transferee or Class C Permitted Transferees of a
Founding Investor;
(h) the Corporation; and
(i) another Class C Stockholder or a Class C
Stockholder's Permitted Transferee.
"Class C Permitted Transferee" shall mean, if the Class C
Stockholder is a corporation, partnership, limited liability company, business
trust or other business entity:
(a) any employee benefit plan, or trust thereunder or
therefor, sponsored by the Class C Stockholder;
(b) any trust (including any voting or liquidating
trust) principally for the benefit of the Class C Stockholder
and/or any Class C Permitted Transferee or Class C Permitted
Transferees thereof;
(c) any corporation, partnership or other business
entity if Substantial Beneficial Ownership thereof is held by such
Class C Stockholder and/or any Class C Permitted Transferee or
Class C Permitted Transferees thereof; provided,
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however, that if such Class C Stockholder, and all Class C
Permitted Transferees thereof, cease, for whatever reason, to
hold Substantial Beneficial Ownership of such corporation,
partnership or other business entity, then any and all shares of
Class C Common Stock that such corporation, partnership or other
business entity is the Beneficial owner of shall be deemed to be
converted automatically, without further deed or action by or on
behalf of any person, into the number of shares of Class A
Common Stock as provided in Section 5.7;
(d) the partners of a partnership or other owners of
equity interests in any other unincorporated business entity who
receive such shares, by way of dividend or distribution (upon
dissolution, liquidation or otherwise), provided that such
transfer will not result in Beneficial Ownership of any of such
shares by any person who did not have the power to control such
corporation, partnership or business entity at the time such
corporation, partnership or business entity first acquired
Beneficial Ownership of such shares of Class C Common Stock (other
than by any person who qualifies as a Class C Permitted Transferee
pursuant to any other provision of this SECTION 5.6);
(e) the Corporation; and
(f) any Founding Investor, any Class C Permitted
Transferee, any Class C Permitted Transferees of a Founding
Investor, and any Class C Stockholder.
5.6.2 CLASS D PERMITTED TRANSFEREES. A Beneficial Owner (as
hereinafter defined) of shares of Class D Common Stock (a "Class D
Stockholder") may transfer, directly or indirectly, shares of Class D Common
Stock, whether by sale, assignment, gift or otherwise, only to a Class D
Permitted Transferee (as hereinafter defined) and no Class D Stockholder may
otherwise transfer Beneficial Ownership (as hereinafter defined) of any
shares of Class D Common Stock. In the event of any attempted transfer of
the Beneficial Ownership of any shares of Class D Common Stock in violation
of the limitation provided in the preceding sentence, the shares of Class D
Common Stock with respect to which the transfer of such Beneficial Ownership
has been attempted shall be deemed to have been converted automatically,
without further deed or action by or on behalf of any person, into the shares
of Class A Common Stock as provided in Section 5.7.
"Class D Permitted Transferee" shall mean, if the Class D
Stockholder is an individual:
(a) the estate of the Class D Stockholder or any
legatee, heir or distributee thereof;
(b) the spouse of the Class D Stockholder;
(c) any parent or grandparent and any lineal descendant
(including any adopted child) of any parent or grandparent of the
Class D Stockholder or of the Class D Stockholder's spouse;
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(d) any guardian or custodian (including a custodian for
purposes of the Uniform Gift to Minors Act or Uniform Transfers to
Minors Act) for, or any executor, administrator, conservator
and/or other legal representative of, the Class D Stockholder
and/or any Class D Permitted Transferee or Class D Permitted
Transferees thereof;
(e) a trust (including a voting trust), and any savings
or retirement account, such as an individual retirement account
for purposes of federal income tax laws, whether or not involving
a trust, principally for the benefit of such Class D Stockholder
and/or any Class D Permitted Transferee or Class D Permitted
Transferees thereof, including any trust in respect of which such
Class D Stockholder and/or any Class D Permitted Transferee or
Class D Permitted Transferees thereof has any general or special
power of appointment or general or special non-testamentary power
or special testamentary power of appointment limited to any Class
D Permitted Transferee or Class D Permitted Transferees;
(f) any corporation, partnership or other business
entity if Substantial Beneficial Ownership (as hereinafter
defined) thereof is held by such Class D Stockholder and/or any
Class D Permitted Transferee or Class D Permitted Transferees
thereof; provided, however, that if such Class D Stockholder, and
all Class D Permitted Transferees thereof, cease, for whatever
reason, to hold Substantial Beneficial Ownership of such
corporation, partnership or other business entity, then any and
all shares of Class D Common Stock that such corporation,
partnership or other business entity is the Beneficial Owner of
shall be deemed to be converted automatically, without further
deed or action by or on behalf of any person, into the number of
shares of Class A Common Stock as provided in Section 5.7;
(g) Russell L. Dobson, Everett R. Dobson, Stephen T.
Dobson and the Dobson CC Limited Partnership, an Oklahoma limited
partnership (each a "Founding Investor") and/or any Class D
Permitted Transferee or Class D Permitted Transferees of a
Founding Investor;
(h) the Corporation; and
(i) another Class D Stockholder or a Class D
Stockholder's Permitted Transferee.
"Class D Permitted Transferee" shall mean, if the Class D
Stockholder is a corporation, partnership, limited liability company,
business trust or other business entity:
(a) any employee benefit plan, or trust thereunder or
therefor, sponsored by the Class D Stockholder;
(b) any trust (including any voting or liquidating
trust) principally for the
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benefit of the Class D Stockholder and/or any Class D Permitted
Transferee or Class D Permitted Transferees thereof;
(c) any corporation, partnership or other business
entity if Substantial Beneficial Ownership thereof is held by such
Class D Stockholder and/or any Class D Permitted Transferee or
Class D Permitted Transferees thereof; provided, however, that if
such Class D Stockholder, and all Class D Permitted Transferees
thereof, cease, for whatever reason, to hold Substantial
Beneficial Ownership of such corporation, partnership or other
business entity, then any and all shares of Class D Common Stock
that such corporation, partnership or other business entity is the
Beneficial owner of shall be deemed to be converted automatically,
without further deed or action by or on behalf of any person, into
the number of shares of Class A Common Stock as provided in
Section 5.7;
(d) the partners of a partnership or other owners of
equity interests in any other unincorporated business entity who
receive such shares, by way of dividend or distribution (upon
dissolution, liquidation or otherwise), provided that such
transfer will not result in Beneficial Ownership of any of such
shares by any person who did not have the power to control such
corporation, partnership or business entity at the time such
corporation, partnership or business entity first acquired
Beneficial Ownership of such shares of Class D Common Stock (other
than by any person who qualifies as a Class D Permitted Transferee
pursuant to any other provision of this SECTION 5.6);
(e) the Corporation; and
(f) any Founding Investor, any Class D Permitted
Transferee, any Class D Permitted Transferees of a Founding
Investor, and any Class D Stockholder.
5.6.3 TRANSFERS TO BENEFICIAL OWNERS. Any person who holds
shares of Class C Common Stock or Class D Common Stock for the Beneficial
Ownership of another, including (A) any broker or dealer in securities; (B)
any clearing house; (C) any bank, trust company, savings and loan association
or other financial institution; (D) any other nominee; and (E) any savings
plan or account or related trust, such as an individual retirement account,
may transfer such shares to the person or persons for whose benefit it holds
such shares. Notwithstanding anything to the contrary set forth herein, any
holder of Class C Common Stock may pledge such shares to a pledgee pursuant
to a bona fide pledge of such shares as collateral security for indebtedness
due to the pledgee, provided that such shares may not be transferred to or
registered in the name of the pledgee unless such pledgee is a Class C
Permitted Transferee or Class D Permitted Transferee. In the event of
foreclosure or other similar action by the pledgee, such pledged shares shall
automatically, without any act or deed on the part of the Corporation or any
other person, be converted into the number of shares of Class A Common Stock
as provided in Section 5.7 unless within five business days after such
foreclosure or similar event such pledged shares are returned to the pledgor
or transferred to a Class C Permitted Transferee or Class D Permitted
Transferee. The foregoing provisions of this paragraph shall not be deemed
to restrict
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or prevent any transfer of such shares, subject to any automatic conversions
into Class A Common Stock, depending on whether the transferor is a Class C
Permitted Transferee or a Class D Permitted Transferee, by operation of law
upon incompetence or death of any Class C Stockholder or Class D Stockholder.
5.6.4 EFFECT OF PROHIBITED TRANSFER. Any transferee of shares
of Class C Common Stock or Class D Common Stock pursuant to a transfer made
in violation of this Section shall have no rights as stockholder of the
Corporation and no other rights against or with respect to the Corporation
except the right to receive the same number of shares of Class A Common Stock
upon the automatic conversion of such transferred shares of Class C Common
Stock or Class D Common Stock. Notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation, the Corporation shall, to
the full extent permitted by law, be entitled to issue shares of Class C
Common Stock or Class D Common Stock to any person from time to time.
5.6.5 PROOF OF PERMITTED TRANSFER. The Corporation and any
transfer agent of Class C Common Stock or Class D Common Stock may, as a
condition to the transfer or the registration of any transfer of shares of
Class C Common Stock or Class D Common Stock permitted by this SECTION 5.6,
require the furnishing of such affidavits or other proof as they deem
necessary to establish that such transferee is a Class C Permitted Transferee
or Class D Permitted Transferee, as the case may be.
5.6.6 For purposes of this Section: (A) the term "Beneficial
Ownership" in respect of shares of Class C Common Stock or Class D Common
Stock shall mean possession of the power and authority, either singly or
jointly with another, to vote or dispose of or to direct the voting or
disposition of such shares and the term "Beneficial Owner" in respect of
shares of Class C Common Stock or Class D Common Stock shall mean the person
or persons who possess such power and authority; and (B) the term
"Substantial Beneficial Ownership" in respect of any corporation, partnership
or other business entity shall mean possession of the power and authority,
either singly or jointly with another, to vote or dispose of, or to direct
the voting or disposition of, securities representing at least a majority of
the total combined voting power of all securities entitled to vote,
considered as one class, in such corporation, partnership or other business
entity.
5.7 CONVERSION OF CLASS C COMMON STOCK OR CLASS D COMMON STOCK BY
HOLDER.
5.7.1 RIGHT TO CONVERT TO CLASS A COMMON STOCK. A holder of
each share of Class C Common Stock and a holder of each share of Class D
Common Stock shall have the right at any time, or from time to time, at such
holder's option, to convert such share into One Hundred Eleven and 44/100
(111.44) shares, rounded to the nearest number of whole shares, of fully paid
and nonassessable shares of Class A Common Stock (the "Class C and Class D
Conversion Ratio") on and subject to the terms and conditions hereinafter set
forth.
5.7.2 METHOD OF CONVERSION. In order to exercise his
conversion privilege, the holder of any shares of Class C Common Stock and
the holder of any shares of Class D Common Stock to be converted shall
present and surrender the certificate or certificates representing such shares
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during usual business hours at any office or agency of the Corporation
maintained for the transfer of shares of Class C Common Stock or shares of
Class D Common Stock and shall deliver a written notice of the election of
the holder to convert the shares represented by such certificate or any
portion thereof specified in such notice. Such notice shall also state the
name or names (with address) in which the certificate or certificates for
shares of Class A Common Stock issuable on such conversion shall be
registered. If required by the Corporation, any certificate for shares
surrendered for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Corporation, duly executed by the holder of such
shares or his duly authorized representative. Each conversion of shares of
Class C Common Stock and Class D Common Stock shall be deemed to have been
effected on the date (the "conversion date") on which the certificate or
certificates representing such shares shall have been surrendered and such
notice and any required instruments of transfer shall have been received as
aforesaid, and the person or persons in whose name or names any certificate
or certificates for shares of Class A Common Stock shall be issuable on such
conversion shall be, for the purpose of receiving dividends and for all other
corporate purposes whatsoever, deemed to have become the holder or holders of
record of the shares of Class A Common Stock represented thereby on the
conversion date.
5.7.3 ISSUANCE OF CLASS A COMMON STOCK UPON CONVERSION. As
promptly as practicable after the presentation and surrender for conversion,
as herein provided, of any certificate for shares of Class C Common Stock or
Class D Common Stock, the Corporation shall issue and deliver at such office
or agency, to or upon the written order of the holder thereof, certificates
for the number of shares of Class A Common Stock issuable upon such
conversion. In case any certificate for shares of Class C Common Stock or
shares of Class D Common Stock shall be surrendered for conversion of a part
only of the shares represented thereby, the Corporation shall deliver at such
office or agency, to or upon the written order of the holder thereof, a
certificate or certificates for the number of shares of Class C Common Stock
or shares of Class D Common Stock represented by such surrendered certificate
that are not being converted. The issuance of certificates for shares of
Class A Common Stock issuable upon the conversion of shares of Class C Common
Stock or Class D Common Stock by the registered holder thereof shall be made
without charge to the converting holder for any tax imposed on the
Corporation in respect of the issue thereof. The Corporation shall not,
however, be required to pay any tax that may be payable with respect to any
transfer involved in the issue and delivery of any certificate in a name
other than that of the registered holder of the shares being converted, and
the Corporation shall not be required to issue or deliver any such
certificate unless and until the person requesting the issue thereof shall
have paid to the Corporation the amount of such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
5.7.4 CERTAIN ADJUSTMENTS. In case the corporation shall (i)
pay a dividend or make a distribution in Class A Common Stock, (ii) subdivide
its outstanding Class A Common Stock into a greater number of shares of
Common Stock, (iii) combine its outstanding shares of Class A Common Stock
into a smaller number of shares of Class A Common Stock, (iv) issue by
reclassification of its shares of Class A Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
corporation is the continuing entity) any additional shares of Class A Common
Stock, or (v) convey or transfer to another person or entity
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the property of the corporation as an entirety or substantially as an
entirety, the Conversion Ratio in effect at the time of the record date of
such dividend or distribution, or of the effective date of such subdivision,
combination, reclassification, or transfer, shall be adjusted so that the
holder of any shares of Class C Common Stock or Class D Common Stock
surrendered for conversion after such time shall be entitled to receive the
number and kind of shares of Class A Common Stock which he would have owned
or been entitled to receive had such Class C Common Stock or Class D Common
Stock been converted immediately prior to such time.
The issue of certificates on conversion of Class C Common Stock
and Class D Common Stock shall be made without charge to the converting
holder for any tax in respect of the issue thereof. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of shares of Class A Common
Stock in any name other than that of the holder of any shares of Class C
Common Stock or Class D Common Stock converted, and the Corporation shall not
be required to issue or deliver any certificate in respect of shares of Class
C Common Stock or Class D Common Stock unless and until the person or persons
requesting the issue thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
All shares of Class A Common Stock which may be issued upon
conversion of Class C Common Stock and Class D Common Stock will, upon issue,
be fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof and free of pre-emptive rights.
In case at any time the Corporation shall propose to:
(a) pay any dividend payable in shares of Class A Common
Stock upon its Class A Common Stock or to make any distribution
(other than a cash dividend or other cash distribution payable out
of net income or undistributed earnings of the corporation) to the
holders of its Class A Common Stock;
(b) offer for subscription pro rata to the holders of
its Class A Common Stock any additional shares of any class or any
other rights or warrants to purchase Class A Common Stock;
(c) consoliate or merge with or into another person;
(d) effect any reorganization, reclassification,
liquidation, dissolution or winding-up of the corporation; or
(e) take any other action which would require an
adjustment in the Conversion Ratio;
then, and in any one or more such cases, the corporation shall cause at least
ten days' notice thereof to be given to each holder of Class C Common Stock
and Class D Common Stock of the date on which (x) the books of the
corporation shall close, or a record be taken, for such dividend
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on Class A Common Stock, distribution or offering of rights or warrants or
other action or (y) such consolidation, merger, reorganization,
reclassification, liquidation, dissolution or winding-up shall be effective,
as the case may be.
5.7.5 DIVIDENDS RELATED TO CONVERSION. Upon conversion of
shares of Class C Common Stock and Class D Common Stock into shares of Class
A Common Stock pursuant hereto, no adjustment with respect to cash dividends
shall be made; only those cash dividends shall be payable on the shares so
converted as have been declared and are payable to holders of record of
shares of Class C Common Stock and shares of Class D Common Stock on a date
prior to the conversion date with respect to the shares so converted; and
only those cash dividends shall be payable on shares of Class A Common Stock
issued upon such conversion as have been declared and are payable to holders
of record of shares of Class A Common Stock on or after such conversion date.
5.7.6 RETIREMENT OF CONVERTED SHARES. Shares of Class C
Common Stock and Class D Common Stock converted into Class A Common Stock
shall be retired and cancelled, and shall not be reissued.
5.7.7 RESERVATION OF SHARES OF CLASS A COMMON STOCK. Such
number of shares of Class A Common Stock as may from time to time be required
for such purpose shall be reserved for issuance upon conversion of
outstanding shares of Class C Common Stock and of Class D Common Stock.
5.7.8 MERGERS, CONSOLIDATIONS, SALES OF ASSETS. In the case
of a merger or consolidation which reclassifies or changes the shares of
Common Stock, or in the case of the consolidation or merger of the
Corporation with or into another corporation or corporations or the transfer
of all or substantially all of the assets of the Corporation to another
corporation or corporations, each share of Class C Common Stock and each
share of Class D Common Stock shall thereafter be convertible into the number
of shares of stock or other securities or property to which a holder of the
number of shares of Class A Common Stock into which each share of Class C
Common Stock and each share of Class D Common Stock is then convertible would
have been entitled upon such reclassification, change, consolidation, merger
or transfer, and, in any such case, appropriate adjustment (as determined in
good faith by the Corporation's Board of Directors) may be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Class C Common Stock and Class D
Common Stock to the end that the provisions set forth herein shall thereafter
be applicable, as nearly as reasonably may be practicable, in relation to any
shares of stock or other securities on property thereafter deliverable upon
the conversion of shares of Class C Common Stock and Class D Common Stock.
In case of any such merger or consolidation, the resulting or surviving
corporation (if not the Corporation) shall expressly assume the obligation to
deliver, upon conversion of the Class C Common Stock and Class D Common
Stock, such stock or other securities or property as the holders of the Class
C Common Stock and Class D Common Stock remaining outstanding shall be
entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion rights provided for in this ARTICLE V.
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5.8 NO INTERFERENCE. Except as otherwise provided in ARTICLE X of
this Amended and Restated Certificate of Incorporation, the Corporation will
not close its books against the transfer of any share of Common Stock or of
any of the shares of Common Stock issued or issuable upon the conversion of
such shares of Common Stock in any manner which interferes with the timely
conversion of any of such shares.
ARTICLE VI.
EXISTENCE
The Corporation is to have a perpetual existence.
ARTICLE VII.
GENERAL PROVISIONS
7.1 REGISTRATION OF TRANSFER OF CAPITAL STOCK. The Corporation
shall maintain, or cause to be maintained, a register for the registration of
Capital Stock. Upon the surrender of any certificate representing Capital
Stock at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange therefor representing
in the aggregate the number of shares represented by the surrendered
certificate or certificates. Each such new certificate shall be registered in
such name and shall represent such number of shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the
Capital Stock represented by such new certificate from the date to which
dividends have been fully paid on such Capital Stock represented by the
surrendered certificate. The issuance of new certificates shall be made
without charge to the original holders of the surrendered certificates for
any issuance tax in respect thereof or other cost incurred by the Corporation
in connection with such issuance.
7.2 REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing shares of any class or series of Capital Stock,
and in the case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class or series represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate, and dividends shall accrue
on the Capital Stock represented by such new certificate from the date to
which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
7.3 ISSUANCE OF CAPITAL STOCK. The shares of all classes and series
of Capital Stock of the Corporation may be issued by the Corporation from
time to time for such consideration as from
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time to time may be fixed by the Board of Directors of the Corporation,
provided that shares having a par value shall not be issued for a
consideration less than such par value, as determined by the Board. At any
time, or from time to time, the Corporation may grant rights or options to
purchase from the Corporation any shares of its Capital Stock of any class or
series (other than Class B Common Stock) to run for such period of time, for
such consideration, upon such terms and conditions, and in such form as the
Board of Directors of the Corporation may determine. The Board of Directors
of the Corporation shall have authority, as provided by law, to determine
that only a part of the consideration which shall be received by the
Corporation for the shares of its Capital Stock having a par value be capital
provided that the amount of the part of such consideration so determined to
be capital shall at least be equal to the aggregate par value of such shares.
The excess, if any, at any time of the total net assets of the Corporation
over the amount so determined to be capital, as aforesaid, shall be surplus.
All classes and series of Capital Stock of the Corporation shall be and
remain at all times nonassessable.
The Board of Directors of the Corporation is hereby expressly
authorized, in its discretion, in connection with the issuance of any
obligations or Capital Stock (other than Class B Common Stock) of the
Corporation (but without intending hereby to limit its general power so to do
in other cases), to grant rights or options to purchase Capital Stock of the
Corporation of any class or series upon such terms and during such period as
the Board of Directors of the Corporation shall determine, and to cause such
rights to be evidenced by such warrants or other instruments as it may deem
advisable.
7.4 INSPECTION OF BOOKS AND RECORDS. The Board of Directors of the
Corporation shall have power from time to time to determine to what extent
and at what times and places and under what conditions and regulations the
accounts and books of the Corporation, or any of them shall be open to the
inspection of the stockholders; and no stockholder shall have any right to
inspect any account or book or document of the Corporation, except as
conferred by law, unless and until authorized so to do by resolution of the
Board of Directors or the stockholders of the Corporation.
7.5 LOCATION OF MEETINGS, BOOKS AND RECORDS. Except as otherwise
provided in the Bylaws, the stockholders of the Corporation and the Board of
Directors of the Corporation may hold their meetings and have an office or
offices outside of the State of Oklahoma, and, subject to the provisions of
the laws of said State, may keep the books of the Corporation outside of said
State at such places as may, from time to time, be designated by the Board of
Directors.
ARTICLE VIII.
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereinafter prescribed herein and by the
laws of the State of Oklahoma, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, (i) the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the issued
and outstanding Class A Common Stock and Class B Common Stock having voting
power, voting together as a single class, shall be required to amend, repeal
or adopt any provision inconsistent with ARTICLES VIII, IX, X AND XI of this
Amended and Restated Certificate of Incorporation and (ii) the affirmative
vote of the holders of at least a majority of the outstanding shares of Class
A Common Stock and the affirmative vote of the holders of at least a majority
of the outstanding shares of Class B Common Stock, each voting separately as
a class, shall be required to amend ANY OTHER ARTICLE of this Amended and
Restated Certificate of Incorporation.
ARTICLE IX.
LIMITATION OF LIABILITY
9.1 LIMITATION OF LIABILITY. To the fullest extent permitted by
the Act as it now exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted as of
the date this Amended and Restated Certificate of Incorporation is filed
with the State of Oklahoma), and except as otherwise provided in the
Corporation's Bylaws, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages arising from a breach of
fiduciary duty owed to the Corporation or its stockholders. Any repeal or
modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
9.2 RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved
(including involvement as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an
action, suit or proceeding by or in the right of the Corporation
(hereinafter, a "proceeding"), by reason of the fact that he or she is or was
a director or officer of the Corporation or, while a director or officer of
the Corporation, is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation (including any
subsidiary of the Corporation) or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), where the basis of such proceeding is an
alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Act, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide for broader indemnification rights than permitted as
of the date this Amended and Restated Certificate of Incorporation is filed
with the State of Oklahoma), against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection with the action, suit or proceeding, therewith and
such indemnification shall continue as to an indemnitee who
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has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that except as provided in SECTION 9.3 of this ARTICLE IX
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this SECTION 9.2 of
this ARTICLE IX shall be a contract right and shall include the obligation of
the Corporation to pay the expenses incurred in defending any such proceeding
in advance of its final disposition (hereinafter, an "advance of expenses");
provided, however, that if and to the extent that the Board of Directors of
the Corporation requires, an advance of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter, an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise. The Corporation may, by action
of its Board of Directors, provide indemnification to employees and agents of
the Corporation with the same or lesser scope and effect as the foregoing
indemnification of directors and officers.
9.3 PROCEDURE FOR INDEMNIFICATION. Any indemnification of a
director or officer of the Corporation or advance of expenses under SECTION
9.2 of this ARTICLE IX shall be made promptly, and in any event within
forty-five days (or, in the case of an advance of expenses, twenty days) upon
the written request of the director or officer. If a determination by the
Corporation that the director or officer is entitled to indemnification
pursuant to this ARTICLE IX is required, and the Corporation fails to respond
within sixty days to a written request for indemnity, the Corporation shall
be deemed to have approved the request. If the Corporation denies a written
request for indemnification or advance of expenses, in whole or in part, or
if payment in full pursuant to such request is not made within forty-five
days (or, in the case of an advance of expenses, twenty days), the right to
indemnification or advances as granted by this ARTICLE IX shall be
enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
SECTION 9.2 of this ARTICLE IX, if any, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it
permissible under the Act for the Corporation to indemnify the claimant for
the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Act, nor an actual
determination by the Corporation (including its Board of Directors,
independent
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legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
The procedure for indemnification of other employees and agents for whom
indemnification is provided pursuant to SECTION 9.2 of this ARTICLE IX shall
be the same procedure set forth in this Section for directors or officers,
unless otherwise set forth in the action of the Board of Directors of the
Corporation providing for indemnification for such employee or agent.
9.4 INSURANCE. The Corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director,
officer, employee or agent of the Corporation or was serving at the request
of the Corporation as a director, officer, employee or agent of another
Corporation (including any subsidiary of the Corporation), partnership, joint
venture, trust or other enterprise against any expense, liability or loss
asserted against him or her and incurred by him or her in any such capacity,
whether or not the Corporation would have the power to indemnify such person
against such expenses, liability or loss under the Act.
9.5 SERVICE FOR SUBSIDIARIES. Any director, officer, employee or
agent of the Corporation serving as a director, officer, employee or agent of
another corporation, partnership, limited liability company, joint venture or
other enterprise, at least 50% of whose equity interests are owned by the
Corporation (hereinafter, a "subsidiary" for this ARTICLE IX) shall be
conclusively presumed to be serving in such capacity if requested to do so by
the Corporation.
9.6 RELIANCE. Persons who after the date of the adoption of this
provision are directors or officers of the Corporation or who, while a
director, officer, employee or agent of the Corporation, or who serves as a
director, officer, employee or agent of a subsidiary, shall be conclusively
presumed to have relied on the rights to indemnity, advance of expenses and
other rights contained in this ARTICLE IX in entering into or continuing such
service. The rights to indemnification and to the advance of expenses
conferred in this ARTICLE IX shall apply to claims made against an indemnitee
arising out of acts or omissions which occurred or occur both prior and
subsequent to the adoption hereof.
9.7 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to
the advance of expenses conferred in this ARTICLE IX shall not be exclusive
of any other right which any person may have or hereafter acquire under this
Amended and Restated Certificate of Incorporation or under any statute,
Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
9.8 MERGER OR CONSOLIDATION. For purposes of this ARTICLE IX,
references to "the Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed into the Corporation in
a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this ARTICLE IX with
respect to the resulting or surviving corporation as he or she would have
with respect to such constituent
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corporation if its separate existence had continued.
ARTICLE X.
ALIEN OWNERSHIP OF STOCK
10.1 APPLICABILITY. This ARTICLE X shall be applicable to the
Corporation so long as the provisions of Section 310 of the Communications
Act of 1934, as the same may be amended from time to time (the
"Communications Act") (or any successor, provisions thereto) are applicable
to the Corporation. As used herein, the term "alien" shall have the meaning
ascribed thereto by the Federal Communications Commission ("FCC") on the date
hereof and in the future as Congress or the FCC may change such meaning from
time to time. If the provisions of Section 310 of the Communications Act (or
any successor provisions thereto) are amended, the restrictions in this
ARTICLE X shall be amended in the same way, and as so amended, shall apply to
the Corporation. The Board of Directors of the Corporation may make such
rules and regulations as it shall deem necessary or appropriate to enforce
the provisions of this ARTICLE X.
10.2 VOTING. Except as otherwise provided by law, not more than
twenty-five percent of the aggregate number of shares of Capital Stock of the
Corporation outstanding in any class or series entitled to vote on any matter
before a meeting of stockholders of the Corporation shall at any time be held
for the account of aliens or their representatives or for the account of a
foreign government or representative thereof, or for the account of any
corporation organized under the laws of a foreign country.
10.3 STOCK CERTIFICATES. Shares of Capital Stock issued to or held
by or for the account of aliens and their representatives, foreign
governments and representatives thereof, and corporations organized under the
laws of foreign countries shall be represented by Foreign Share Certificates.
All other shares of Capital Stock shall be represented by Domestic Share
Certificates. All of such certificates shall be in such form not inconsistent
with this Amended and Restated Certificate of Incorporation as shall be
prepared or approved by the Board of Directors of the Corporation.
10.4 LIMITATION ON FOREIGN OWNERSHIP. Except as otherwise provided
by law, not more than twenty-five percent of the aggregate number of shares
of Capital Stock of the Corporation outstanding shall at any time be owned of
record by or for the account of aliens or their representatives or by or for
the account of a foreign government or representatives thereof, or by or for
the account of any corporation organized under the laws of a foreign country.
Shares of Capital Stock shall not be transferable on the books of the
Corporation to aliens or their representatives, foreign governments or
representatives thereof, or corporations organized under the laws of foreign
countries if, as a result of such transfer, the aggregate number of shares of
Capital Stock owned by or for the account of aliens and their
representatives, foreign governments and representatives thereof, and
corporations organized under the laws of foreign countries shall be more then
twenty-five percent of the number of shares of Capital Stock then
outstanding. If it shall be found by the Corporation that Capital Stock
represented by a Domestic
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Share Certificate is, in fact, held by or for the account of aliens or their
representative, foreign governments or representatives thereof, or
corporations organized under the laws of foreign countries, then such
Domestic Share Certificate shall be canceled and a new certificate
representing such Capital Stock marked "Foreign Share Certificate" shall be
issued in lieu thereof, but only to the extent that after such issuance the
Corporation shall be in compliance with this ARTICLE X; provided, however,
that if, and to the extent, such issuance would violate this ARTICLE X, then,
the holder of such Capital Stock shall not be entitled to vote, to receive
dividends, or to have any other rights with regard to such Capital Stock to
such extent, except the right to transfer such Capital Stock to a citizen of
the United States.
10.5 TRANSFER OF FOREIGN SHARE CERTIFICATES. Any Capital Stock
represented by Foreign Share Certificates may be transferred either to aliens
or non-aliens. In the event that any Capital Stock represented by a
certificate marked "Foreign Share Certificate" is sold or transferred to a
non-alien, then such non-alien shall be required to exchange such certificate
for a certificate marked "Domestic Share Certificate." If the Board of
Directors of the Corporation reasonably determines that a Domestic Share
Certificate has been or is to be transferred to or for the account of aliens
or their representatives, foreign governments or representatives thereof, or
corporations organized under the laws of foreign countries, the Corporation
shall issue a new certificate for the shares of Capital Stock transferred to
the transferee marked "Foreign Shares Certificate", cancel the old Domestic
Share Certificate, and record the transaction upon its books, but only to the
extent that after such transfer is complete, the Corporation shall be in
compliance with this ARTICLE X.
Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation, the transfer or conversion of the Corporation's
Capital Stock, whether voluntary or involuntary, shall not be permitted, and
shall be ineffective, if such transfer or conversion would (i) violate (or
would result in violation of) the Communications Act or any of the rules or
regulations promulgated thereunder or (ii) require the prior approval of the
FCC, unless such prior approval has been obtained.
ARTICLE XI.
BOARD OF DIRECTORS
11.1 MANAGEMENT BY BOARD OF DIRECTORS. The business and affairs of
the Corporation shall be under the direction of the Board of Directors.
11.2 NUMBERS OF DIRECTORS. The number of directors which shall
constitute the whole board shall be not less than three nor more than fifteen
(plus such number of additional directors as the holders of Preferred Stock
from time to time may be entitled to elect), and, except with respect to
directors entitled to be elected by holders of Preferred Stock, shall be
determined by resolution adopted by a vote of a majority of the entire board,
or at an annual or special meeting of stockholders by the affirmative vote of
the holders of sixty-six and two-thirds percent (66-2/3%) of the total
combined voting power of the Common Stock entitled to vote generally in the
election of directors voting together as a single class. The directors
elected by the holders of Common Stock shall be divided into three classes,
as nearly equal in number as may be
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practicable, to serve in the first instance until the annual meeting of
stockholders to be held in 2001, 2002 and 2003, respectively, and until their
successors shall be elected and shall qualify. At each annual meeting of
stockholders beginning with the annual meeting in 2001, the successors to the
class of directors whose terms expire at that time, shall be elected to serve
for a term of three years and until their successors shall be elected and
shall qualify. In the event of any increase or decrease in the number of
directors, the additional or eliminated directorships shall be so classified
so that all classes of directors shall remain or become equal in number, as
nearly as may be practicable. Each director shall hold office for the term
for which he is elected or appointed and until his successor shall be elected
and shall qualify, or until his death, or until he shall resign or be
removed. The successors to the class of directors whose terms expire shall
be elected at the annual meeting of stockholders; and those persons who
receive the highest number of votes shall be deemed to have been elected. No
reduction in number shall have the effect of removing any director prior to
the expiration of his term. The number of directors of the Corporation may,
from time to time, be increased or decreased in such manner as may be
provided in the Bylaws of the Corporation.
11.3 ELECTION OF DIRECTORS. Election of directors need not be by
written ballot unless otherwise provided in the Bylaws.
11.4 EXPRESS AUTHORIZATION. In furtherance and not in limitation of
the powers conferred by statute, the Board of Directors is expressly
authorized:
(a) To adopt, amend or repeal the Bylaws of the Corporation;
but the powers of such directors in this regard shall at all times be
subject to the rights of the stockholders to alter or repeal such Bylaws
at any meeting of stockholders;
(b) To authorize and cause to be executed or granted mortgages,
security interests and liens upon the real and personal property of the
Corporation;
(c) To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and
to abolish any such reserve in the manner in which it was created;
(d) By a majority of the whole Board of Directors, to designate
one or more committees, each committee to consist of one (1) or more of
the directors of the Corporation. The board may designate one (1) or more
directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution or in the Bylaws of
the Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; provided, however, the Bylaws may
provide that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may
- -
<PAGE>
unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member; and
When and as authorized by the affirmative vote of the holders of
Common Stock representing a majority of the total combined voting power of
all classes of Capital Stock, issued and outstanding and entitled to vote
generally, given at a stockholders' meeting duly called upon such notice as
is required by law, or when authorized by the written consent of the holders
of a majority of the voting power of all classes of Common Stock issued and
outstanding and entitled to vote, or as otherwise required by the Act, to
sell, lease or exchange all or substantially all of the property and assets
of the Corporation, including its goodwill and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in
whole or in part of other securities of, any other corporation or
corporations, as the Board of Directors shall deem expedient and for the best
interests of the Corporation.
ARTICLE XII.
BYLAWS
12.1 BYLAWS. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to
adopt, repeal, alter, amend or rescind the Bylaws of the Corporation. In
addition, the Bylaws of the Corporation may be adopted, repealed, altered,
amended, or rescinded by the affirmative vote of the holders of Common Stock
representing sixty-six and two-thirds percent (66-2/3%) of the total combined
voting power of all classes of Common Stock entitled to vote generally in the
election of directors, issued and outstanding and entitled to vote thereon.
IN WITNESS WHEREOF, Dobson Communications Corporation has caused its
corporate seal to be hereunto affixed and this Amended and Restated
Certificate of Incorporation to be signed by Everett R. Dobson, its President
and attested by Stephen T. Dobson, its Secretary, this _____ day of
_________________, 2000.
DOBSON COMMUNICATIONS CORPORATION
Ronald L. Ripley, Vice President
Attest:
- ------------------------------------
Trent LeForce, Assistant Secretary
- -
<PAGE>
AMENDED, RESTATED, AND CONSOLIDATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
among
DOBSON OPERATING CO., L.L.C.
(SUCCESSOR BY MERGER WITH DOBSON OPERATING COMPANY AND
DOBSON CELLULAR OPERATIONS COMPANY),
BORROWER
BANC OF AMERICA SECURITIES, LLC,
SOLE LEAD ARRANGER AND BOOK RUNNING MANAGER
BANK OF AMERICA, N.A.,
ADMINISTRATIVE AGENT
LEHMAN COMMERCIAL PAPER INC. and TORONTO DOMINION (TEXAS), INC.,
CO-SYNDICATION AGENTS
and
FIRST UNION NATIONAL BANK and PNC BANK, NATIONAL ASSOCIATION,
CO-DOCUMENTATION AGENTS,
The MANAGING AGENTS and CO-AGENTS defined herein
and
THE LENDERS NAMED HEREIN,
LENDERS
$800,000,000
DATED AS OF JANUARY 18, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 DEFINITIONS AND TERMS...............................................2
1.1 Definitions.........................................................2
1.2 Number and Gender of Words; Other References.......................30
1.3 Accounting Principles..............................................30
SECTION 2 BORROWING PROVISIONS...............................................31
2.1 Revolver Facility..................................................31
2.2 Term Loan A Facility...............................................31
2.3 Term Loan B Facility...............................................31
2.4 LC Subfacility.....................................................31
2.5 Swing Line Subfacility.............................................34
2.6 Discretionary Facility.............................................35
2.7 Terminations or Reductions of Commitments..........................39
2.8 Borrowing Procedure................................................40
SECTION 3 TERMS OF PAYMENT...................................................41
3.1 Loan Accounts, Notes, and Payments.................................41
3.2 Interest and Principal Payments....................................42
3.3 Prepayments........................................................43
3.4 Interest Options...................................................49
3.5 Quotation of Rates.................................................49
3.6 Default Rate.......................................................49
3.7 Interest Recapture.................................................49
3.8 Interest Calculations..............................................50
3.9 Maximum Rate.......................................................50
3.10 Interest Periods...................................................50
3.11 Conversions........................................................50
3.12 Order of Application...............................................51
3.13 Sharing of Payments, Etc...........................................52
3.14 Offset.............................................................52
3.15 Booking Borrowings.................................................52
SECTION 4 CHANGE IN CIRCUMSTANCES............................................52
4.1 Increased Cost and Reduced Return..................................52
4.2 Limitation on Types of Loans.......................................53
4.3 Illegality.........................................................54
4.4 Treatment of Affected Loans........................................54
4.5 Compensation.......................................................54
4.6 Taxes..............................................................55
SECTION 5 FEES...............................................................56
5.1 Treatment of Fees..................................................56
5.2 Fees of Administrative Agent and Arranger..........................57
5.3 Revolver Facility Commitment Fees..................................57
5.4 Term Loan A Facility Commitment Fees...............................57
5.5 LC Fees............................................................57
5.6 Discretionary Revolver Loan Commitment Fees........................57
(i)
<PAGE>
5.7 Discretionary Facility Fronting Fees...............................58
SECTION 6 SECURITY; GUARANTIES...............................................58
6.1 Guaranties.........................................................58
6.2 Collateral.........................................................58
6.3 Existing Collateral Documents......................................58
6.4 Future Liens.......................................................59
6.5 Release of Collateral..............................................59
6.6 Negative Pledge....................................................60
6.7 Control; Limitation of Rights......................................61
SECTION 7 CONDITIONS PRECEDENT...............................................61
7.1 Conditions Precedent to Closing....................................61
7.2 Conditions Precedent to an Acquisition.............................61
7.3 Conditions Precedent to Each Borrowing.............................61
SECTION 8 REPRESENTATIONS AND WARRANTIES.....................................62
8.1 Purpose of Credit Facility.........................................62
8.2 Existence, Good Standing, Authority, and Authorizations............62
8.3 Subsidiaries; Capital Stock........................................63
8.4 Authorization and Contravention....................................63
8.5 Binding Effect.....................................................64
8.6 Financial Statements...............................................64
8.7 Litigation, Claims, Investigations.................................64
8.8 Taxes..............................................................64
8.9 Environmental Matters..............................................64
8.10 Employee Benefit Plans.............................................65
8.11 Properties; Liens..................................................65
8.12 Government Regulations.............................................65
8.13 Transactions with Affiliates.......................................65
8.14 Debt...............................................................65
8.15 Material Agreements; Management Agreements.........................65
8.16 Insurance..........................................................65
8.17 Labor Matters......................................................65
8.18 Solvency...........................................................66
8.19 Intellectual Property..............................................66
8.20 Compliance with Laws...............................................66
8.21 Permitted Acquisitions.............................................66
8.22 Regulation U.......................................................66
8.23 Tradename..........................................................67
8.24 Year 2000..........................................................67
8.25 Full Disclosure....................................................67
8.26 No Default.........................................................67
8.27 Perfection of Security Interests...................................67
8.28 Reorganization and Communications Bond Debt........................67
SECTION 9 COVENANTS..........................................................68
9.1 Use of Proceeds....................................................68
9.2 Books and Records..................................................68
9.3 Items to be Furnished..............................................68
(ii)
<PAGE>
9.4 Inspections........................................................70
9.5 Taxes..............................................................70
9.6 Payment of Obligations.............................................70
9.7 Maintenance of Existence, Assets, and Business.....................70
9.8 Insurance..........................................................71
9.9 Preservation and Protection of Rights..............................71
9.10 Employee Benefit Plans.............................................72
9.11 Environmental Laws.................................................72
9.12 Debt and Guaranties................................................72
9.13 Liens..............................................................73
9.14 Transactions with Affiliates.......................................74
9.15 Compliance with Laws and Documents.................................74
9.16 Permitted Acquisitions, Subsidiary Guaranties, and Collateral
Documents..........................................................74
9.17 Assignment.........................................................75
9.18 Fiscal Year and Accounting Methods.................................75
9.19 Government Regulations.............................................75
9.20 Loans, Advances, Investments, and Restricted Payments..............75
9.21 Restrictions on Subsidiaries.......................................78
9.22 Sale of Assets.....................................................78
9.23 Sale-Leaseback Financings..........................................78
9.24 Mergers and Dissolutions; Sale of Capital Stock....................78
9.25 New Business.......................................................78
9.26 Financial Hedges...................................................79
9.27 Affiliate Subordination Agreements.................................79
9.28 Amendments to Documents............................................79
9.29 Financial Covenants................................................80
9.30 Covenants of Communications........................................81
SECTION 10 DEFAULT............................................................83
10.1 Payment of Obligation..............................................83
10.2 Covenants..........................................................83
10.3 Debtor Relief......................................................84
10.4 Judgments and Attachments..........................................84
10.5 Government Action..................................................84
10.6 Misrepresentation..................................................84
10.7 Change of Management...............................................84
10.8 Change of Control..................................................84
10.9 Authorizations.....................................................85
10.10 Default Under Other Debt and Agreements............................85
10.11 LCs................................................................85
10.12 Validity and Enforceability of Loan Documents......................85
10.13 Material Adverse Effect............................................85
10.14 Environmental Liability............................................85
10.15 Pledged Stock......................................................85
10.16 Dissolution........................................................86
10.17 Payment of Certain Other Agreements................................86
10.18 Default or Acceleration under Certain Other Agreements.............86
10.19 Redemption of Certain Other Debt or Obligation.....................86
(iii)
<PAGE>
SECTION 11 RIGHTS AND REMEDIES................................................86
11.1 Remedies Upon Default..............................................86
11.2 Company Waivers....................................................87
11.3 Performance by Administrative Agent................................87
11.4 Delegation of Duties and Rights....................................87
11.5 Not in Control.....................................................87
11.6 Course of Dealing..................................................88
11.7 Cumulative Rights..................................................88
11.8 Application of Proceeds............................................88
11.9 Certain Proceedings................................................88
11.10 Limitation of Rights...............................................88
11.11 Expenditures by Lenders............................................88
11.12 INDEMNIFICATION....................................................89
SECTION 12 AGREEMENT AMONG LENDERS............................................89
12.1 Administrative Agent...............................................89
12.2 Expenses...........................................................91
12.3 Proportionate Absorption of Losses.................................91
12.4 Delegation of Duties; Reliance.....................................91
12.5 Limitation of Liability............................................91
12.6 Default; Collateral................................................92
12.7 Limitation of Liability............................................94
12.8 Relationship of Lenders............................................94
12.9 Benefits of Agreement..............................................94
12.10 Agents.............................................................94
12.11 Obligations Several................................................94
12.12 Financial Hedges...................................................94
12.13 Successor Administrative Agent.....................................94
SECTION 13 MISCELLANEOUS......................................................95
13.1 Headings...........................................................95
13.2 Nonbusiness Days...................................................95
13.3 Communications.....................................................95
13.4 Form and Number of Documents.......................................95
13.5 Exceptions to Covenants............................................95
13.6 Survival...........................................................95
13.7 Governing Law......................................................96
13.8 Invalid Provisions.................................................96
13.9 Entirety...........................................................96
13.10 Jurisdiction; Venue; Service of Process; Jury Trial................96
13.11 Amendments, Consents, Conflicts, and Waivers.......................97
13.12 Multiple Counterparts..............................................98
13.13 Successors and Assigns; Assignments and Participations.............98
13.14 Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances.....................................................102
13.15 Restatement of Existing Credit Agreement..........................102
</TABLE>
(iv)
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
Schedule 2.1 - Lenders and Commitments
Schedule 7.1 - Conditions Precedent to Closing
Schedule 7.1A - Post Closing Requirements
Schedule 7.2 - Conditions Precedent to Permitted Acquisition
Schedule 8.2 - FCC and PUC Licenses
Schedule 8.3 - Capital Stock and Partnership Interests;
Schedule 8.3A - Cellular Partnership Obligors and Loans
Schedule 8.15 - Material Agreements
Schedule 9.13 - Existing Liens
Schedule 9.20 - Existing Investments
Schedule 9.30 - Existing Liens of Communications
Exhibit A-1 - Form of Revolver Note
Exhibit A-2 - Form of Term Loan A Note
Exhibit A-3 - Form of Term Loan B Note
Exhibit A-4 - Form of Swing Line Note
Exhibit A-5 - Form of Discretionary Revolver Note
Exhibit A-6 - Form of Discretionary Term A Loan Note
Exhibit A-7 - Form of Discretionary Term B Loan Note
Exhibit B-1 - Form of Borrowing Notice
Exhibit B-2 - Form of Conversion Notice
Exhibit B-3 - Form of LC Request
Exhibit C - Form of Guaranty
Exhibit D-1 - Form of Pledge, Assignment, and Security Agreement
Exhibit D-2 - Form of Pledge, Assignment, and Security Agreement for
Communications
Exhibit E-1 - Form of Compliance Certificate
Exhibit E-2 - Form of Permitted Acquisition Compliance Certificate
Exhibit E-3 - Form of Permitted Acquisition Loan Closing Certificate
Exhibit F - Form of Assignment and Acceptance Agreement
Exhibit G-1 - Form of Opinion of Counsel of Borrower
Exhibit G-2 - Form of Opinion of New York Counsel of Borrower
Exhibit G-3 - Form of Opinion of Special Regulatory Counsel
Exhibit H - Form of Affiliate Subordination Agreement
</TABLE>
(v)
<PAGE>
AMENDED, RESTATED, AND CONSOLIDATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS AMENDED, RESTATED, AND CONSOLIDATED REVOLVING CREDIT AND TERM LOAN
AGREEMENT is entered into as of January 18, 2000, among DOBSON OPERATING CO.,
L.L.C. (SUCCESSOR BY MERGER WITH DOBSON OPERATING COMPANY AND DOBSON CELLULAR
OPERATIONS COMPANY), an Oklahoma limited liability company ("BORROWER"), Lenders
(hereinafter defined), BANK OF AMERICA, N.A., as Administrative Agent
(hereinafter defined), for itself and the other Lenders, LEHMAN COMMERCIAL PAPER
INC. and TORONTO DOMINION (TEXAS), INC., as Co-Syndication Agents (hereinafter
defined), FIRST UNION NATIONAL BANK and PNC BANK, NATIONAL ASSOCIATION, as
Co-Documentation Agents (hereinafter defined), and the Managing Agents
(hereinafter defined) and Co-Agents (hereinafter defined).
RECITALS
A. Borrower's predecessor in interest, Dobson Operating Company
("DOC"), is a party to the credit agreement described in PART A of SCHEDULE 1
(the "EXISTING DOC CREDIT AGREEMENT").
B. Borrower's predecessor in interest, Dobson Cellular Operations
Company ("DCOC"), a wholly-owned subsidiary of Dobson Communications Corporation
("COMMUNICATIONS") is a party to the credit agreements described in PART B of
SCHEDULE 1 (the "EXISTING DCOC CREDIT AGREEMENTS").
C. In a series of related transactions occurring substantially
concurrently, Communications effected a corporate reorganization whereby among
other things, (i) DCOC and DOC Cellular Subsidiary Company merged with and into
DOC, and then DOC merged with and into Borrower; (ii) Borrower assumed all
liabilities and indebtedness of DOC under the Existing DOC Credit Agreement and
of DCOC under the Existing DCOC Credit Agreements, as well as certain existing,
unsecured, subordinated debt owed by DCOC to Communications, (iii) all of the
direct subsidiaries of DCOC and several direct and indirect subsidiaries of DOC
merged with and into Dobson Cellular Systems, Inc. ("DOBSON CELLULAR SYSTEMS"),
and (iv) Communications contributed all of the stock of Dobson/Sygnet
Communications Company to Borrower, who in turn, contributed such stock to
Dobson Cellular Systems, such that Dobson/Sygnet Communications Company and its
Subsidiaries are direct Subsidiaries of Dobson Cellular Systems (collectively,
the "REORGANIZATION").
D. In connection with the Reorganization and subject to the terms and
conditions set forth below, Borrower and Lenders desire to amend, restate, and
consolidate the Existing DOC Credit Agreement and the Existing DCOC Credit
Agreements, in the form of this Amended, Restated, and Consolidated Revolving
Credit and Term Loan Agreement (the "AGREEMENT"), in order to, among other
things, (i) provide for three credit facilities totaling $800,000,000 in the
form of a revolving loan facility in the aggregate principal amount of
$300,000,000, and two term loan facilities in the aggregate principal amount of
$500,000,000; (ii) provide an uncommitted discretionary facility in the
aggregate principal amount of up to $300,000,000; (iii) extend the maturity
dates; (iv) substitute Bank of America, N.A., as Administrative Agent for the
Lenders under the Existing DOC Credits Agreement; and (v) add additional Lenders
and to substitute additional Lenders for certain existing lenders under the
Existing Credit Agreements, which existing lenders are not participating in this
Agreement.
E. This amendment, restatement, and consolidation of the Existing DOC
Credit Agreement and the Existing DCOC Credit Agreements hereunder is not
intended by the parties to constitute either a novation or a discharge or
satisfaction of the indebtedness under the Existing DOC Credit Agreement or the
Existing
<PAGE>
DCOC Credit Agreements, which indebtedness shall remain outstanding hereunder
on the terms and conditions hereinafter provided.
F. In consideration of the foregoing and the promises and the
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto agree that, effective upon the Closing Date as hereinafter
defined, the Existing DOC Credit Agreement and the Existing DCOC Credit
Agreements are amended, restated, and consolidated in their entirety as follows:
SECTION 1 DEFINITIONS AND TERMS.
1.1 DEFINITIONS. As used herein:
ACQUISITION means any transaction or series of related transactions for
the purpose of, or resulting in, directly or indirectly, (a) the acquisition by
any Company of all or substantially all of the assets of a Person or of any
business or division of a Person, (b) the acquisition by any Company of more
than 50% of any class of Voting Stock (or similar ownership interests) of any
Person (PROVIDED THAT, formation or organization of any entity shall not
constitute an "ACQUISITION" to the extent that the amount of the loan, advance,
investment, or capital contribution in such entity constitutes a permitted
investment under SECTION 9.20); or (c) a merger, consolidation, amalgamation, or
other combination by any Company with another Person if a Company is the
surviving entity; PROVIDED THAT, in any merger involving Borrower, Borrower must
be the surviving entity.
ADJUSTED EURODOLLAR RATE means, for any Eurodollar Rate Borrowing for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to
the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar
Rate Borrowing for such Interest Period by (b) 1 minus the Reserve Requirement
for such Eurodollar Rate Borrowing for such Interest Period.
ADMINISTRATIVE AGENT means Bank of America, N.A., and its permitted
successors or assigns as "ADMINISTRATIVE AGENT" for Lenders under the Loan
Documents.
AFFILIATE of any Person means any other individual or entity who
directly or indirectly controls, or is controlled by, or is under common control
with, such Person, and, for purposes of this definition only, "CONTROL,"
"CONTROLLED BY," and "UNDER COMMON CONTROL WITH" mean possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract, or
otherwise).
AFFILIATE SUBORDINATION AGREEMENT means, individually, and AFFILIATE
SUBORDINATION AGREEMENTS means, collectively, (a) the Affiliate Subordination
Agreements and reconfirmations thereof executed and delivered by Affiliates of
Loan Parties pursuant to the Existing Credit Agreements, as amended and ratified
pursuant to this Agreement; (b) any other Affiliate Subordination Agreement
(substantially in the form of EXHIBIT H) executed and delivered by any Person
pursuant to the requirements of the Loan Documents; and (c) any amendments,
modifications, supplements, ratifications, or restatements of any Affiliate
Subordination Agreement made in accordance with the Loan Documents.
AGENTS means, collectively, Administrative Agent, Co-Syndication
Agents, Co-Documentation Agents, Managing Agents, and Co-Agents.
AGREEMENT means this Amended, Restated, and Consolidated Revolving
Credit and Term Loan Agreement (as the same may hereafter be amended, modified,
supplemented, or restated from time to time).
2
<PAGE>
ALASKA 1 RSA ACQUISITION means the Acquisition of the Alaska #1 rural
service area #315 Wade Hampton pursuant to the Asset Purchase Agreement dated as
of October 6, 1999, by and between Pacific Telecom Cellular of Alaska RSA #1,
Inc., an Alaska corporation, and Dobson Cellular Systems or its designee (as
such Asset Purchase Agreement may have been and may be amended from time to
time; PROVIDED THAT any such amendments after the Closing Date must be consented
to by Administrative Agent, which consent will not be unreasonably withheld or
delayed).
ALASKA 3 RSA ACQUISITION means the Acquisition of the Alaska #3 rural
service area #317A Haines, Alaska pursuant to the Asset Purchase Agreement dated
as of September 30, 1999, by and between Alaska-3 Cellular, LLC, a Mississippi
limited liability company, and Dobson Cellular Systems or its designee (as such
Asset Purchase Agreement may have been and may be amended from time to time;
PROVIDED THAT any such amendments after the Closing Date must be consented to by
Administrative Agent, which consent will not be unreasonably withheld or
delayed).
ANNUALIZED INTEREST EXPENSE means (i) from the Closing Date through
March 31, 2000, the cash Interest Expense of the Companies for the period from
January 1, 2000, through March 31, 2000, MULTIPLIED BY four; (ii) for the fiscal
quarter ending June 30, 2000, the cash Interest Expense of the Companies for the
period from January 1, 2000, through June 30, 2000, MULTIPLIED BY two; and (iii)
for the fiscal quarter ending September 30, 2000, the cash Interest Expense of
the Companies for the period from January 1, 2000, through September 30, 2000,
MULTIPLIED BY 4/3.
APPLICABLE LENDING OFFICE means, for each Lender and for each Type of
Borrowing, the "LENDING OFFICE" of such Lender (or an affiliate of such Lender)
designated on SCHEDULE 2.1 attached hereto or such other office that such Lender
(or an affiliate of such Lender) may from time to time specify to Administrative
Agent and Borrower by written notice in accordance with the terms hereof.
APPLICABLE MARGIN means either:
(a) Solely with respect to Borrowings under the Revolver
Facility, the Discretionary Revolver Subfacility, the Term Loan A
Facility, and the Discretionary Term A Loan Subfacility and commitment
fees under the Revolver Facility, the Discretionary Revolver
Subfacility, and the Term Loan A Facility:
(i) on any date of determination occurring on or
prior to the date that the Determining Compliance Certificate
shall have been delivered hereunder, 1.500% for Base Rate
Borrowings, 2.500% for Eurodollar Rate Borrowings, and .50%
for Commitment Fees; or
(ii) on any date of determination occurring after the
date that the Determining Compliance Certificate shall have
been delivered hereunder, the percentage per annum set forth
in the table below for the Type of Borrowing or commitment
fees (as the case may be) that corresponds to the Leverage
Ratio at such date of determination, as calculated based on
the quarterly Compliance Certificate of Borrower most recently
delivered pursuant to SECTION 9.3 hereof (or the most recent
Permitted Acquisition Compliance Certificate for a Permitted
Acquisition, as the case may be):
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------------------------------------------
APPLICABLE MARGIN (PER ANNUM)
LEVERAGE RATIO ------------------------------------------------------------------------------------------
BASE RATE EURODOLLAR RATE COMMITMENT FEES
BORROWINGS BORROWINGS
- ------------------------------------- ------------------------------- --------------------------------- ------------------------
<S> <C> <C> <C>
Less than 4.00:1.0 0.500% 1.500% 0.250%
- --------------------------------------------------------------------------------------------------------------------------------
Greater than or equal
to 4.00 to 1.0, 0.750% 1.750% 0.250%
but less than 5.00:1.0
- --------------------------------------------------------------------------------------------------------------------------------
Greater than or equal
to 5.00:1.0, 1.000% 2.000% 0.375%
but less than 6.00:1.0
- --------------------------------------------------------------------------------------------------------------------------------
Greater than or equal
to 6.00:1.0, 1.250% 2.250% 0.500%
but less than 7.00:1.0
- --------------------------------------------------------------------------------------------------------------------------------
Greater than or equal 1.500% 2.500% 0.500%
to 7.00:1.0
- ------------------------------------- ------------------------------- --------------------------------- ------------------------
</TABLE>
(b) Solely with respect of Borrowings under the Term Loan
B Facility,
(i) on any date of determination occurring on or
prior to the date that the Determining Compliance Certificate
shall have been delivered hereunder, 2.000% for Base Rate
Borrowings and 3.000% for Eurodollar Rate Borrowings; or
(ii) on any date of determination occurring after the
date that the Determining Compliance Certificate shall have
been delivered hereunder, the percentage per annum set forth
in the table below for the Type of Borrowing that corresponds
to the Leverage Ratio at such date of determination, as
calculated based on the quarterly Compliance Certificate of
Borrower most recently delivered pursuant to SECTION 9.3
hereof (or the most recent Permitted Acquisition Compliance
Certificate for a Permitted Acquisition, as the case may be):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABLE MARGIN (PER ANNUM)
LEVERAGE RATIO -----------------------------------------------------------------------------------------------
BASE RATE BORROWINGS EURODOLLAR RATE BORROWINGS
- ----------------------------------- -------------------------------------------- --------------------------------------------------
<S> <C> <C>
Less than 5.00:1.0 1.750% 2.750%
- -----------------------------------------------------------------------------------------------------------------------------------
Greater than or 2.000% 3.000%
equal to 5.00:1.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Solely with respect of Borrowings under the Discretionary
Term B Loan Subfacility, the Applicable Margin for each Discretionary
Term B Loan shall be the amount set forth in the Supplemental Credit
Documents for such Discretionary Term B Loan.
(d) The provisions in ITEMS a(ii) and (b)(ii) preceding are
further subject to the following:
4
<PAGE>
(i) With respect to any adjustments in the Applicable
Margin as a result of changes in the Leverage Ratio, such
adjustment shall be effective commencing on the second
Business Day after the delivery of Financial Statements (and
related Compliance Certificate) pursuant to SECTIONS 9.3(a)
and 9.3(b) or the most recent Permitted Acquisition Compliance
Certificate for a Permitted Acquisition, as the case may be.
(ii) If Borrower fails to timely furnish to Lenders
the Financial Statements and related Compliance Certificates
as required to be delivered pursuant to SECTIONS 9.3(a) and
9.3(b), and such failure shall not be remedied within five
days, then (unless the Default Rate has been effected by
Required Lenders pursuant to SECTION 3.6) the Applicable
Margin for the Revolver Facility, the Discretionary Revolver
Subfacility, the Term Loan A Facility, the Discretionary Term
A Loan Subfacility, the Term Loan B Facility, and the
Commitment Fees shall be the maximum Applicable Margin for the
respective Facilities or Subfacilities (as the case may be) or
the Commitment Fees specified in the tables above.
APPROVED FUND means, with respect to any Lender that is a fund or
commingled investment vehicle that invests in loans, any other fund that invests
in loans and is managed or advised by the same investment advisor as such Lender
or by an Affiliate of such investment advisor.
ARRANGER means Banc of America Securities LLC, and its successors and
assigns, in its capacity as sole lead arranger and book manager under the Loan
Documents.
ASSUMED TAXES means, with respect to any Equity Issuance, an amount
equal to such incremental annual increase in franchise Taxes as Borrower
estimates in good faith shall be payable as a result of such Equity Issuance.
AUTHORIZATIONS means (i) all material filings, recordings, and
registrations with, and all material validations or exemptions, approvals,
orders, authorizations, consents, franchises, licenses, certificates, and
permits from, any Governmental Authority (OTHER THAN the FCC and applicable
PUCs), including without limitation, any of the foregoing authorizing or
permitting the acquisition, construction, or operation of any System and (ii)
all filings, recordings, and registrations with, and all validations or
exemptions, approvals, orders, authorizations, consents, franchises, licenses,
certificates, and permits from, the FCC and applicable PUCs, including without
limitation, any of the foregoing authorizing or permitting the acquisition,
construction, or operation of any System.
BANK OF AMERICA means Bank of America, N.A., in its individual capacity
as a Lender, and its successors and assigns.
BASE RATE means, for any day, the rate per annum equal to the HIGHER of
(a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and
(b) the Prime Rate for such day. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Rate shall be effective on the effective
date of such change in the Prime Rate or the Federal Funds Rate.
BASE RATE BORROWING means a Borrowing bearing interest at the SUM of
the Base Rate PLUS the Applicable Margin for Base Rate Borrowings.
BORROWER is defined in the preamble to this Agreement.
BORROWING means any amount disbursed (a) by one or more Lenders under
the Loan Documents (under the Revolver Facility, the LC Subfacility, the Swing
Line Subfacility, the Term Loan A Facility, the
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Term Loan B Facility, or any Discretionary Loan under the Discretionary
Facility), whether such amount constitutes an original disbursement of funds,
the continuation of an amount outstanding, or payment of a draft under an LC, or
(b) by any Lender in accordance with, and to satisfy the obligations of any Loan
Party under, any Loan Document.
BORROWING DATE is defined in SECTION 2.8(a).
BORROWING NOTICE means a request for Borrowing made pursuant to SECTION
2.8(a), substantially in the form of EXHIBIT B-1.
BUDGET means the most recently delivered of the (a) annual financial
budgets for the Companies and Communications and their respective Restricted
Subsidiaries delivered by the Companies and Communications on the Closing Date
as required in ITEM 21 on SCHEDULE 7.1 delivered pursuant to SECTION 7.1 or (b)
the Budgets delivered pursuant to SECTION 9.3(d), together with any adjustments
to any Budget (whether described in CLAUSE (a) or (b)) made from time to time
based on projections delivered in connection with Permitted Acquisitions
pursuant to SECTION 7.2 and the requirements of a "PERMITTED ACQUISITION" as set
forth in this SECTION 1.1, SO LONG AS such projections have been approved by
Administrative Agent.
BUSINESS DAY means (a) for all purposes, any day OTHER THAN Saturday,
Sunday, and any other day on which commercial banking institutions are required
or authorized by Law to be closed in Dallas, Texas or New York, New York, and
(b) in addition to the foregoing, in respect of any Eurodollar Rate Borrowing, a
day on which dealings in United States dollars are conducted in the London
interbank market and commercial banks are open for international business in
London.
CAPITAL EXPENDITURES means an expenditure (determined in accordance
with GAAP) for any fixed asset owned by any Company and used in the operations
of such Company having a useful life of more than one year, or any improvements
or additions thereto, including the direct or indirect acquisition of such
assets, and including any obligations to pay rent or other amounts under a
Capital Lease; PROVIDED, HOWEVER, that Capital Expenditures shall not include
acquisitions of stock or assets which are made in accordance with SECTION 9.20
hereof.
CAPITAL LEASE means any capital lease or sublease which should be
capitalized on a balance sheet in accordance with GAAP.
CASH EQUIVALENTS means:
(a) Readily marketable, direct, full faith and credit
obligations of the United States of America, or obligations guaranteed
by the full faith and credit of the United States of America, maturing
within not more than one year from the date of acquisition;
(b) Short term certificates of deposit and time deposits,
which mature within one year from the date of issuance and which are
fully insured by the Federal Deposit Insurance Corporation;
(c) Commercial paper maturing in 365 days or less from the
date of issuance and rated either "P-1" by Moody's Investors Service,
Inc. ("MOODY'S"), or "A-1" by Standard and Poor's Rating Group (a
division of McGraw-Hill, Inc., "S&P");
(d) Debt instruments of a domestic issuer which mature in one
year or less and which are rated "A" or better by Moody's or S&P on the
date of acquisition of such investment; and
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(e) Demand deposit accounts which are maintained in the
ordinary course of business.
CASH-PAY DATE means, with respect to any issue of Preferred Stock or
Exchange Debentures, the date specified in the related Certificate of
Designation or Indentures for such series of Preferred Stock or Exchange
Debentures after which all dividends or payments must be paid in cash.
CELLULAR ASSETS means any Cellular Systems or Franchise Interest owned
directly or indirectly by any Person and used in connection with such Person's
Cellular Business.
CELLULAR BUSINESS means the business of owning or operating one or more
Cellular Systems and other business directly related thereto.
CELLULAR ENTITY means a Cellular Licensee or Cellular Permittee.
CELLULAR LICENSEE means any Person that is authorized to own, control,
and operate a Cellular System.
CELLULAR PARTNERSHIP means, individually, and CELLULAR PARTNERSHIPS
means, collectively, any entity in which Borrower or one of its Restricted
Subsidiaries owns, directly or indirectly, a partnership interest.
CELLULAR PARTNERSHIP OBLIGOR means, on any date of determination, any
Cellular Partnership which is not Wholly-owned directly or indirectly by
Borrower, for which Borrower or one of its Restricted Subsidiaries, directly or
indirectly, serves as the Managing General Partner or equivalent position, and
which has incurred Debt or has a Cellular Partnership Promissory Note
outstanding, SO LONG AS (i) such Debt has not been repaid in full and the
related commitment to lend has not been terminated and (ii) all requirements of
SECTION 9.12(e) with respect to such Debt have been satisfied.
CELLULAR PARTNERSHIP PROMISSORY NOTES means certain intercompany notes,
now or hereafter existing, each executed by a Cellular Partnership Obligor and
payable to the order of a Company, and CELLULAR PARTNERSHIP PROMISSORY NOTE
means any one of such intercompany notes.
CELLULAR PERMITTEE means a Person that is authorized by the FCC to
construct a Cellular System.
CELLULAR SYSTEM means a domestic public cellular radio
telecommunications service system licensed under Part 22 of the rules
promulgated by the FCC.
CLASS A PREFERRED STOCK means the 214,286 shares of Non-Cumulative,
NonVoting, Non-Convertible, Class A 5% Preferred Stock of Communications owned
by Borrower.
CLOSING DATE means the date upon which this Agreement has been executed
by Borrower, Lenders, and Administrative Agent and all conditions precedent
specified in SECTION 7.1 have been satisfied or waived.
CO-AGENTS means, collectively Mercantile Bank National Association,
Citizens Bank of Massachusetts, and U.S. Bank National Association.
CO-DOCUMENTATION AGENT means First Union National Bank and PNC Bank,
National Association, and their respective permitted successors and assigns as
"CO-DOCUMENTATION AGENTS" under the Loan Documents.
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CO-SYNDICATION AGENTS means Lehman Commercial Paper Inc. and Toronto
Dominion (Texas), Inc. and their respective permitted successors or assigns as
"CO-SYNDICATION AGENTS" under the Loan Documents.
CODE means the INTERNAL REVENUE CODE OF 1986, as amended, TOGETHER WITH
the rules and regulations promulgated thereunder.
COLLATERAL means all of the items and types of property described as
"COLLATERAL" in now existing or hereafter created Collateral Documents and all
cash and non-cash proceeds thereof.
COLLATERAL DOCUMENTS means all security agreements, pledge agreements,
financing statements, assignments of partnership interests, Guaranties,
mortgages, and deeds of trust at any time delivered to Administrative Agent to
create or evidence Liens securing the Obligation, TOGETHER WITH all
reaffirmations, amendments, and modifications thereof or supplements thereto.
COMMITMENT NOTICE is defined in SECTION 2.6(d).
COMMITMENT PERCENTAGE means, at any date of determination, for any
Lender with respect to a particular Facility or Discretionary Loan, the
proportion (stated as a percentage) that its Committed Sum for such Facility or
Discretionary Loan bears to the aggregate Committed Sums of all Lenders for such
Facility or Discretionary Loan.
COMMITMENT REQUEST is defined in SECTION 2.6(c).
COMMITTED SUM means (a) for any Revolver Lender or Discretionary
Revolver Lender, with respect to the Revolver Facility or any Discretionary
Revolver Loan, as applicable, at any date of determination occurring prior to
the respective Termination Date for the Revolver Facility or Discretionary
Revolver Loan, the amount stated beside such Lender's name under the heading for
the Revolver Facility or the applicable Discretionary Loan on the most-recently
amended SCHEDULE 2.1 to this Agreement (which amount is subject to increase,
reduction, or cancellation in accordance with the Loan Documents), and (b) for
any other Lender, with respect to any other Facility or Discretionary Loan, at
any date of determination occurring prior to the initial Borrowing Date for such
Facility or Discretionary Loan, the amount stated beside such Lender's name
under the heading for the applicable Facility or Discretionary Loan on the
most-recently amended SCHEDULE 2.1 to this Agreement (which amount is subject to
increase, reduction, or cancellation in accordance with the Loan Documents).
COMMUNICATIONS means Dobson Communications Corporation, an Oklahoma
corporation, which owns all of the issued and outstanding shares of capital
stock of Borrower.
COMMUNICATIONS ACT means, collectively, THE FEDERAL COMMUNICATIONS ACT
OF 1934, as amended from time to time, and the rules and regulations in effect
at any time thereunder.
COMMUNICATIONS BOND DEBT means the 11 3/4% Senior Notes due 2007 issued
By Communications pursuant to that certain Indenture dated as of February 28,
1997, between Communications and United States Trust Company of New York, in an
aggregate original principal amount of $160,000,000, and the documents and
agreements evidencing and establishing such Debt, as the same may be amended
from time to time in accordance with the terms thereof and hereof.
COMPANIES means, at any date of determination thereof, Borrower and
each of its Restricted Subsidiaries; and COMPANY means, on any date of
determination, Borrower or any of its Restricted Subsidiaries.
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COMPLIANCE CERTIFICATE means a certificate signed by a Responsible
Officer, substantially in the form of EXHIBIT E-1.
CONSEQUENTIAL LOSS means any loss or expense which any Lender may
reasonably incur in respect of a Eurodollar Rate Borrowing as a consequence of
any event described in SECTION 4.5.
CONTINUING LENDERS is defined in SECTION 13.15.
CONVERSION NOTICE means a request pursuant to SECTION 3.11,
substantially in the form of EXHIBIT B-2.
CURRENT FINANCIALS means, at the time of any determination thereof,
the more recently delivered to Lenders of either (a) (i) the audited
Financial Statements for the fiscal years ended December 31, 1996, December
31, 1997, and December 31, 1998, calculated on a consolidated basis for
Communications and its Subsidiaries; (ii) the unaudited Financial Statements
for the fiscal quarter ended September 30, 1999, calculated on a consolidated
basis for each of DOC and its Subsidiaries and DCOC and its Subsidiaries;
(iii) an unaudited PRO FORMA balance sheet of Borrower and its Restricted
Subsidiaries, which balance sheet shall be prepared giving PRO FORMA effect
to the Reorganization, the Alaska 1 RSA Acquisition, the Alaska 3 RSA
Acquisition, the Michigan 3 RSA Acquisition, and the Michigan 10 RSA
Acquisition, and the incurrence of Debt under this Agreement as of September
30, 1999; and (iv) an unaudited PRO FORMA income statement of Borrower and
its Restricted Subsidiaries (including a calculation of Operating Cash Flow
for such entities), for the three fiscal quarters ending September 30, 1999,
which income statement gives PRO FORMA effect to the Reorganization, the
Alaska 1 RSA Acquisition, the Alaska 3 RSA Acquisition, the Michigan 3 RSA
Acquisition, and the Michigan 10 RSA Acquisition, and the incurrence of Debt
under this Agreement; or (b) the Financial Statements required to be
delivered under SECTIONS 9.3(a) or 9.3(b), as the case may be, calculated on
a consolidated basis for the Companies and for Communications and its
Restricted Subsidiaries.
DEBT means (without duplication), for any Person, the sum of the
following: (a) all liabilities, obligations, and indebtedness of such Person
which in accordance with GAAP should be classified upon such Person's balance
sheet as liabilities in respect of (i) money borrowed, including, without
limitation, the Principal Debt, (ii) obligations of such Person under Capital
Leases, (iii) obligations of such Person under non-compete agreements entered
into in connection with Permitted Acquisitions, and (iv) obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations, and obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (b) all obligations of the type referred to in CLAUSES (a)(i)
through (a)(iii) preceding of other Persons for the payment of which such Person
is responsible or liable as obligor, guarantor, or otherwise; (c) all
obligations of the type referred to in CLAUSES (a)(i) through CLAUSE (a)(iii)
and CLAUSE (b) preceding of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; (d) the face
amount of all letters of credit and banker's acceptances issued for the account
of such Person, and without duplication, all drafts drawn and unpaid thereunder;
and (e) net payments under Financial Hedges.
DCOC is defined in the recitals to this Agreement.
DEBT ISSUANCE means any Debt of Borrower or any Company for borrowed
money issued or incurred after the Closing Date, other than Permitted Debt.
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DETERMINING COMPLIANCE CERTIFICATE means the quarterly Compliance
Certificate for the fiscal quarter ending March 31, 2000.
DEBTOR RELIEF LAWS means the BANKRUPTCY CODE OF THE UNITED STATES OF
AMERICA and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, fraudulent
transfer or conveyance, suspension of payments, or similar Laws from time to
time in effect affecting the Rights of creditors generally.
DECLINING B LENDER is defined in SECTION 3.3(f).
DEFAULT is defined in SECTION 10.
DEFAULT RATE means a per annum rate of interest equal from day to day
to the LESSER of (a) the SUM of the Base Rate PLUS the highest Applicable Margin
for Base Rate Borrowings for the relevant Facility PLUS 2% AND (b) the Maximum
Rate.
DISCRETIONARY COMMITMENT means, for any Discretionary Lender with
respect to any Discretionary Loan, the commitment amount designated for such
Lender in the Supplemental Credit Documents for such Discretionary Loan in
accordance with the procedures described in SECTION 2.6(d).
DISCRETIONARY FACILITY means the uncommitted discretionary facility
described in and subject to the limitations of SECTION 2.6.
DISCRETIONARY LENDER means, at any date of determination, each Lender
who has a Discretionary Commitment or to whom Discretionary Principal Debt is
owed.
DISCRETIONARY LOAN EFFECTIVE DATE, for each Discretionary Loan, is the
date specified by Administrative Agent in accordance with SECTION 2.6(d) and set
forth in the Supplemental Credit Documents for such Discretionary Loan.
DISCRETIONARY LOAN REQUEST has the meaning as defined in SECTION
2.6(c), which shall have attached thereto a proposed "Sources and Uses" table
and, if applicable, a revised SCHEDULE 8.3 to this Agreement reflecting the
corporate structure after giving effect to any proposed Permitted Acquisition.
DISCRETIONARY LOANS has the meaning as defined in SECTION 2.6(c).
DISCRETIONARY LOAN SUBFACILITIES means, collectively, the Discretionary
Revolver Subfacility, the Discretionary Term A Loan Subfacility, and the
Discretionary Term B Loan Subfacility; DISCRETIONARY LOAN SUBFACILITY means, any
of the Discretionary Revolver Subfacility, the Discretionary Term A Loan
Subfacility, or the Discretionary Term B Loan Subfacility.
DISCRETIONARY PRINCIPAL DEBT means, at any date of determination, the
SUM of (a) the Discretionary Revolver Principal Debt arising under all
Discretionary Revolver Loans, (b) the Discretionary Term A Loan Principal Debt
arising under all Discretionary Term A Loans, and (c) the Discretionary Term B
Loan Principal Debt arising under all Discretionary Term B Loans.
DISCRETIONARY REVOLVER COMMITMENT means, with respect to any
Discretionary Revolver Loan, on any date of determination, the aggregate
Committed Sums of all Discretionary Lenders for such Discretionary Revolver
Loan.
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DISCRETIONARY REVOLVER LENDERS means, on any date of determination, all
Discretionary Lenders that have Committed Sums under the Discretionary Revolver
Subfacility.
DISCRETIONARY REVOLVER LOAN means any Discretionary Loan under the
Discretionary Revolver Subfacility.
DISCRETIONARY REVOLVER NOTE means a note substantially in the form of
EXHIBIT A-5, and all renewals and extensions of all or any part thereof.
DISCRETIONARY REVOLVER PRINCIPAL DEBT means, on any date of
determination, for any Discretionary Revolver Loan, the aggregate unpaid
principal balance of all Borrowings under such Discretionary Revolver Loan.
DISCRETIONARY REVOLVER SUBFACILITY means the subfacility under the
Discretionary Facility, described in, and subject to the limitations of, SECTION
2.6(a)(i).
DISCRETIONARY TERM A COMMITMENT means, with respect to any
Discretionary Term A Loan, on any date of determination, the aggregate Committed
Sums of all Discretionary Lenders for such Discretionary Term A Loan.
DISCRETIONARY TERM A LOAN LENDERS means, on any date of determination,
all Discretionary Lenders that have Committed Sums under the Discretionary Term
A Loan Subfacility or that are owed any Discretionary Term A Loan Principal Debt
under any Discretionary Term A Loan.
DISCRETIONARY TERM A LOANS means any Discretionary Loans under the
Discretionary Term A Loan Subfacility.
DISCRETIONARY TERM A LOAN NOTE means a note substantially in the form
of EXHIBIT A-6, and all renewals and extensions of all or any part thereof.
DISCRETIONARY TERM A LOAN PRINCIPAL DEBT means, on any date of
determination, for any Discretionary Term A Loan, the aggregate unpaid principal
balance of all Borrowings under such Discretionary Term A Loan.
DISCRETIONARY TERM A LOAN SUBFACILITY means the subfacility under the
Discretionary Facility, described in, and subject to the limitations of, SECTION
2.6(a)(ii).
DISCRETIONARY TERM B COMMITMENT means, with respect to any
Discretionary Term B Loan, on any date of determination, the aggregate Committed
Sums of all Discretionary Lenders for such Discretionary Term B Loan.
DISCRETIONARY TERM B LOAN LENDERS means, on any date of determination,
all Discretionary Lenders that have Committed Sums under the Discretionary Term
B Loan Subfacility or that are owed any Discretionary Term B Loan Principal Debt
under any Discretionary Term B Loan.
DISCRETIONARY TERM B LOANS means any Discretionary Loans under the
Discretionary Term B Loan Subfacility.
DISCRETIONARY TERM B LOAN NOTE means a note substantially in the form
of EXHIBIT A-7, and all renewals and extensions of all or any part thereof.
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DISCRETIONARY TERM B LOAN PRINCIPAL DEBT means, on any date of
determination, for any Discretionary Term B Loan, the aggregate unpaid principal
balance of all Borrowings under such Discretionary Term B Loan.
DISCRETIONARY TERM B LOAN SUBFACILITY means the subfacility under the
Discretionary Facility, described in, and subject to the limitations of, SECTION
2.6(a)(iii).
DISTRIBUTION for any Person means, with respect to any shares of any
capital stock, membership interest, or any other equity securities issued by
such Person, (a) the retirement, redemption, purchase, or other acquisition for
value of any such securities, (b) the declaration or payment of any dividend or
distribution on or with respect to any such securities, and (c) any other
payment by such Person with respect to such securities.
DOBSON CELLULAR SYSTEMS is defined in the recitals to this Agreement.
DOLLARS and the symbol $ means lawful money of the United States of
America.
DOMESTIC SUBSIDIARY of any Person means a direct or indirect Subsidiary
of such Person that is organized or incorporated under the Laws of a
jurisdiction of the United States, OTHER THAN a direct or indirect Subsidiary of
a Foreign Subsidiary of such Person.
ELIGIBLE ASSIGNEE means (a) a Lender; (b) an Affiliate of a Lender (so
long as such assignment is not made in conjunction with the sale of such
Affiliate); (c) an Approved Fund of the assigning Lender; and (d) any other
Person approved by Administrative Agent (which approval will not be unreasonably
withheld or delayed by Administrative Agent) and, unless a Default or Potential
Default has occurred and is continuing at the time any assignment is effected in
accordance with SECTION 13.13, Borrower, such approval not to be unreasonably
withheld or delayed by Borrower and such approval to be deemed given by Borrower
if no objection is received by the assigning Lender and Administrative Agent
from Borrower within five Business Days after notice of such proposed assignment
has been provided by the assigning Lender to Borrower; PROVIDED, HOWEVER, that
neither Borrower nor any Affiliate of Borrower shall qualify as an Eligible
Assignee.
EMPLOYEE PLAN means, at any time, each Single-Employer Plan and each
Multiemployer Plan.
ENVIRONMENTAL LAW means any applicable Law that relates to (a) the
condition or protection of air, groundwater, surface water, soil, or other
environmental media, (b) the environment, including natural resources or any
activity which affects the environment, (c) the regulation of any pollutants,
contaminants, wastes, substances, and Hazardous Substances, including,
without limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"), the Clean Air
Act (42 U.S.C. Section 7401 ET SEQ.), the Federal Water Pollution Control
Act, as amended by the Clean Water Act (33 U.S.C. Section 1251 ET SEQ.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET
SEQ.), the Emergency Planning and Community Right to Know Act of 1986 (42
U.S.C. Section 11001 ET SEQ.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 ET SEQ.), the National Environmental Policy Act of 1969
(42 U.S.C. Section 4321 ET SEQ.), the Oil Pollution Act (33 U.S.C. Section
2701 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. Section
6901 ET SEQ.), the Rivers and Harbors Act (33 U.S.C. Section 401 ET SEQ.),
the Safe Drinking Water Act (42 U.S.C. Section 201 and Section 300f ET SEQ.),
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984 (42
U.S.C. Section 6901 ET SEQ.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 ET SEQ.), and analogous state and local Laws, as any of the
foregoing may have been and may be amended or supplemented from time to time,
and any analogous future enacted or adopted Law, or (d) the Release or
threatened Release of Hazardous Substances.
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ENVIRONMENTAL LIABILITY means any obligation, liability (including,
without limitation, any strict liability), loss, fine, penalty, charge, Lien,
damage, cost, or expense of any kind to the extent that it results (a) from any
violation of or any obligation or liability under any Environmental Law, (b)
from the presence, Release, or threatened Release of any Hazardous Substance, or
(c) from actual or threatened damages to natural resources.
ENVIRONMENTAL PERMIT means any permit, license, or other Authorization
from any Governmental Authority that is required under any Environmental Law for
the lawful conduct of any business, process, or other activity.
EQUITY ISSUANCE means the issuance on and after the Closing Date by
Communications or any Company of any shares of any class of stock, warrants, or
other equity interests, OTHER THAN (a) present and future shares of stock,
options, or warrants issued to employees, directors, or consultants of the
Companies under Communication's or any Company's stock option plan or other
benefit or compensation plans or arrangements, (b) stock issued upon the
exercise of any such warrants or options, (c) the Preferred Stock, (d) any
shares of any class of stock, warrants, or other equity interests issued from a
Company solely to another Company, (e) Distribution of the stock of Logix
Communications Enterprises, Inc. pursuant to the Logix Spinoff, (f) the common
stock of Communications issued pursuant to the initial public offering of
Communications, (g) common stock of Communications issued solely in connection
with Permitted Acquisitions structured as a merger, SO LONG AS, no Default or
Potential Default exists or arises as a result thereof, and (h) prior to or
concurrently with the initial public offering of Communications, any issuance of
voting securities of Communications in exchange for, or as consideration for the
cancellation of, other securities of Communications, OTHER THAN the Preferred
Stock.
ERISA means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended, and the regulations and rulings thereunder.
ERISA AFFILIATE means any company or trade or business (whether or not
incorporated) which, for purposes of TITLE IV of ERISA, is, or has been within
the past six years, a member of any Loan Party's controlled group or which is,
or has been within the past six years, under common control with any Loan Party
within the meaning of SECTION 414(b), (c), (m), or (o) of the Code.
EURODOLLAR RATE means, for any Eurodollar Rate Borrowing for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Dow Jones Markets Page 3750 (or any
successor page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period. If for
any reason such rate is not available, the term "EURODOLLAR RATE" shall mean,
for any Eurodollar Rate Borrowing for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
EURODOLLAR RATE BORROWING means a Borrowing bearing interest at the SUM
of the Adjusted Eurodollar Rate PLUS the Applicable Margin for Eurodollar Rate
Borrowings.
EXCESS CASH FLOW means, on any date of determination with respect to
the fiscal year then most recently ended, Operating Cash Flow of the Companies,
PLUS any net decrease in Working Capital of the Companies, LESS the SUM of,
without duplication, (a) Capital Expenditures made by the Companies during
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such fiscal year which were permitted to be made under the terms of the Loan
Documents, (b) required payments of principal on Permitted Debt of the Companies
made during such fiscal year (other than payments made pursuant to SECTION
3.3(b) and (c)), (c) the aggregate Taxes actually paid in cash by the Companies
during such fiscal year, (d) Distributions (including, without limitation,
Partnership Distributions) made by the Companies during such fiscal year to the
extent permitted by the Loan Documents, OTHER THAN cash Distributions made under
SECTION 9.20(q); (e) Interest Expense paid by the Companies during such fiscal
year or accrued during such fiscal year in compliance with the Loan Documents,
SO LONG AS such accrued interest is actually paid by the Companies during such
fiscal year or the first two (2) calendar months of the following fiscal year in
compliance with the Loan Documents; and (f) any net increase in Working Capital.
EXCHANGE DEBENTURES means any subordinated debentures issued in
exchange for all or any portion of the Preferred Stock, all as more particularly
described in the related Offering Memorandum for such Preferred Stock.
EXECUTIVE MANAGEMENT TEAM means Everett Dobson, Bruce Knooihuizen, and
G. Edward Evans.
EXISTING CREDIT AGREEMENTS means, collectively, the Existing DOC Credit
Agreement and the Existing DCOC Credit Agreements.
EXISTING COLLATERAL DOCUMENTS is defined in SECTION 6.3.
EXISTING DCOC CREDIT AGREEMENTS is defined in the recitals to this
Agreement.
EXISTING DOC CREDIT AGREEMENT is defined in the recitals to this
Agreement.
EXISTING FINANCIAL HEDGES means that certain CAP Transaction effective
as of June 14, 1999, between DCOC and Toronto-Dominion Bank.
EXHIBIT means an exhibit to this Agreement unless otherwise specified.
FACILITIES means, collectively, the Revolver Facility, the Term Loan A
Facility, and the Term Loan B Facility, BUT NOT the Discretionary Facility;
FACILITY means any of the Revolver Facility, the Term Loan A Facility, or the
Term Loan B Facility.
FCC means the Federal Communications Commission and any successor
regulatory body.
FEDERAL FUNDS RATE means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined (which
determination shall be conclusive and binding, absent manifest error) by
Administrative Agent to be equal to the weighted average of the rates on
overnight Federal funds transactions with member banks of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding such day;
PROVIDED THAT (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding Business
Day as so published on the next succeeding Business Day, and (b) if no such rate
is so published on such next succeeding Business Day, the Federal Funds Rate for
such day shall be the average rate charged to Administrative Agent (in its
individual capacity) on such day on such transactions as determined by
Administrative Agent (which determination shall be conclusive and binding,
absent manifest error).
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FINANCIAL HEDGE means a swap, collar, floor, cap, or other contract
which is intended to reduce or eliminate the risk of fluctuations in interest
rates and which complies with the applicable requirements of SECTION 9.26(c) and
is otherwise in compliance with the requirements of the Loan Documents.
FINANCIAL STATEMENTS means balance sheets, statements of operations,
statements of shareholders' equity, and statements of cash flows prepared in
accordance with GAAP, which statements of operations and statements of cash
flows shall be in comparative form to the corresponding period of the preceding
fiscal year, and which balance sheets and statements of shareholders' equity
shall be in comparative form to the prior fiscal year-end figures.
FIXED CHARGE COVERAGE RATIO means, for the Companies, at any date of
determination with respect to the most recently ended Rolling Period, the ratio
of: (a) the Operating Cash Flow of the Companies MINUS the amount paid for
Capital Expenditures by the Companies to (b) the SUM of (i) all
regularly-scheduled principal payments with respect to Total Debt required to be
paid, (ii) cash Interest Expense, and (iii) Distributions paid in cash by
Borrower.
FOREIGN SUBSIDIARY of any Person means a Subsidiary of such Person that
is organized or incorporated under the Laws of a jurisdiction OTHER THAN a
jurisdiction of the United States.
FRANCHISE INTEREST means a direct or indirect ownership in any Person
that is a Cellular Entity.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board which are applicable from time to time.
GOVERNMENTAL AUTHORITY means any (a) local, state, municipal, or
federal judicial, executive, or legislative instrumentality, (b) private
arbitration board or panel, or (c) central bank.
GRTI means Gila River Telecommunications Subsidiary, Inc., a
corporation organized pursuant to Gila River Indian Resolution Number GR-10-97.
GRTI NOTE means the Secured Non-Recourse Term Note dated September 30,
1997, by GRTI in favor of DOC in the original principal amount of $6,110,554.75,
executed pursuant to that certain Non-Recourse Term Loan Agreement dated
September 30, 1997, executed by GRTI, as "BORROWER", and DOC, as the lender
thereunder.
GUARANTOR means any Person, including, but not limited to, each
Restricted Subsidiary of Borrower or any other Company that is a Domestic
Subsidiary of Borrower and any Cellular Partnership Obligor, which undertakes to
be liable for all or any part of the Obligation by execution of a Guaranty or
otherwise.
GUARANTY means (a) a Guaranty in substantially the form and upon the
terms of EXHIBIT C, executed and delivered by any Person pursuant to the
requirements of the Loan Documents; and (b) any amendments, modifications,
supplements, restatements, ratifications, or reaffirmations of any Guaranty made
in accordance with the Loan Documents.
HAZARDOUS SUBSTANCE means (a) any substance that is designated,
defined, or classified as a hazardous waste, hazardous material, pollutant,
contaminant, or toxic or hazardous substance, or that is otherwise regulated,
under any Environmental Law, including without limitation, any hazardous
substance within the meaning of SECTION 101(14) of CERCLA, (b) petroleum, oil,
gasoline, natural gas, fuel oil, motor
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oil, waste oil, diesel fuel, jet fuel, and other petroleum hydrocarbons, (c)
asbestos and asbestos-containing materials in any form, (d) polychlorinated
biphenyls, or (e) urea formaldehyde foam.
INTEREST COVERAGE RATIO means, EITHER (a) at any date of determination
on or prior to September 30, 2000, the ratio of the Operating Cash Flow of the
Companies to Annualized Interest Expense or (b) on any date of determination
occurring after September 30, 2000, the ratio of the Operating Cash Flow of the
Companies to the cash Interest Expense of the Companies for the Rolling Period
then ended.
INTEREST EXPENSE means, for any period of calculation thereof, for any
Person, the aggregate amount of all interest (including commitment fees) on all
Debt of such Person, whether paid in cash or accrued as a liability and payable
in cash during such period (including, without limitation, imputed interest on
Capital Lease obligations; the amortization of any original issue discount on
any Debt; the interest portion of any deferred payment obligation; all
commissions, discounts, and other fees and charges owed with respect to letters
of credit or bankers' acceptance financing; net costs associated with Financial
Hedges; the interest component of any Debt that is guaranteed or secured by such
Person), and all cash premiums or penalties for the repayment, redemption, or
repurchase of Debt.
INTEREST PERIOD is determined in accordance with SECTION 3.10.
LAWS means all applicable statutes, laws, treaties, ordinances, tariff
requirements, rules, regulations, orders, writs, injunctions, decrees,
judgments, opinions, or interpretations of any Governmental Authority.
LC means the letter(s) of credit issued hereunder in the form agreed
upon among Borrower, Administrative Agent, and the beneficiary thereof at the
time of issuance thereof and participated in by Lenders pursuant to the terms
and conditions of SECTION 2.4 hereof.
LC AGREEMENT means a letter of credit application and agreement (in
form and substance satisfactory to Administrative Agent) submitted by Borrower
to Administrative Agent for an LC for its own account (and for its benefit or
the benefit of any other Company); PROVIDED THAT this Agreement shall control
any conflict between this Agreement and any such LC Agreement.
LC EXPOSURE means, at any time and without duplication, the SUM of (a)
the aggregate undrawn portion of all uncancelled and unexpired LCs PLUS (b) the
aggregate unpaid reimbursement obligations of Borrower in respect of drawings of
drafts under any LC.
LC REQUEST means a request pursuant to SECTION 2.4(a), substantially in
the form of EXHIBIT B-3.
LC SUBFACILITY means a subfacility of the Revolver Facility for the
issuance of LCs as described in and subject to the limitations of SECTION 2.4,
under which the LC Exposure may never (a) collectively exceed $20,000,000 and
(b) TOGETHER WITH the Revolver Principal Debt may never exceed the Revolver
Commitment.
LENDERS means, on any date of determination, the financial institutions
named on SCHEDULE 2.1 (as the same may be amended from time to time by
Administrative Agent to reflect the addition of new Discretionary Lenders
pursuant to SECTION 2.6(e) and to reflect the assignments made in accordance
with SECTION 13.13(b) of this agreement), and subject to the terms and
conditions of this Agreement, and their respective successors and assigns (but
not any Participant who is not otherwise a party to this Agreement); PROVIDED
THAT, solely for purposes of any Collateral Document and SECTION 12 and SECTIONS
3.13 and 3.14; "LENDERS" shall also include any Lender or Affiliate of a Lender
who is party to a Financial Hedge with Borrower and their respective successors
and assigns (for purposes hereof, each Lender shall be deemed to
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have entered into this Agreement for and on behalf of any Affiliate now or
hereafter party to a Financial Hedge with Borrower).
LEVERAGE RATIO means, with respect to the Companies on a consolidated
basis, at any date of determination thereof, the ratio of (a) the Total Debt
outstanding on such date to (b) Operating Cash Flow of the Companies.
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind, and any other
Right of or arrangement with any creditor (other than under or relating to
subordination or other intercreditor arrangements) to have its claim satisfied
out of any property or assets, or the proceeds therefrom, prior to the general
creditors of the owner thereof.
LITIGATION means any action by or before any Governmental Authority.
LOAN DOCUMENTS means (a) this Agreement, the Notes, the Collateral
Documents, LCs, and LC Agreements, (b) all Supplemental Credit Documents with
respect to Discretionary Loans, (c) all agreements, documents, or instruments in
favor of Agents or Lenders ever delivered pursuant to this Agreement or
otherwise delivered in connection with all or any part of the Obligation, and
(d) any and all future renewals, extensions, restatements, reaffirmations, or
amendments of, or supplements to, all or any part of the foregoing.
LOAN PARTIES means, on any date of determination, Borrower and all
Guarantors.
LOGIX SPINOFF means the proposed transaction or series of transactions
pursuant to which the stock of Logix Communications Enterprises, Inc. is
transferred from Borrower to Communications and from Communications to its
shareholders, SO LONG AS (i) no Default or Potential Default exists or arises as
a result of such transaction, (ii) such transaction is structured on an
arms-length basis and on such terms and conditions as are customary between and
among unrelated entities, (iii) all Debt owed by Logix Communications
Enterprises, Inc. or any Subsidiary thereof to Communications or any Restricted
Subsidiary thereof is repaid in full on or prior to consummation of such Logix
Spinoff; and (iv) such transaction is otherwise on terms acceptable to
Administrative Agent.
MANAGING AGENTS means, collectively, CoBank, ACB, Union Bank of
California, N.A., The Bank of Novia Scotia, Barclays Bank PLC, CIBC Inc., Credit
Lyonnais New York Branch, Bankers Trust Company, Dresdner Bank AG New York and
Grand Caymen Branches, Fleet National Bank, Key Corporate Capital Inc., National
City, and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland," New York Branch.
MATERIAL ADVERSE EVENT means any set of one or more circumstances or
events which, individually or collectively, would reasonably be expected to
result in any (a) material impairment of the ability of any Loan Party to
perform any of its payment or other material obligations under the Loan
Documents or the ability of Administrative Agent or any Lender to enforce any
such obligations or any of their respective Rights under the Loan Documents, (b)
material and adverse effect on the business, properties, condition (financial or
otherwise), or results of operations of any Loan Party or any Subsidiary
thereof, taken as a whole, or (c) Default or Potential Default.
MAXIMUM DISCRETIONARY COMMITMENT means an amount (subject to reduction
or cancellation as herein provided) equal to $300,000,000.
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MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for each Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest which,
under applicable Law, such Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MICHIGAN 3 RSA ACQUISITION means the Acquisition of the Rural Service
Area # 3, Michigan-3-Emmet and the management and operation of the Rural Service
Area # 5, Michigan-5-Manistee under the Management Agreement dated August 20,
1991, between Radiofone, Inc. and Interstate Cellular Holdings Corp. pursuant to
the Asset Purchase Agreement dated as of October 25, 1999, by and between
Trillium Cellular Corp., a Florida corporation, Universal Telecell, Inc. (d/b/a
Unitel Wireless Communications Systems), a Delaware corporation, Interstate
Cellular Holdings Corp., a Florida corporation, and Dobson Cellular Systems (as
such Asset Purchase Agreement may have been and may be amended or modified;
PROVIDED THAT any such amendments after the Closing Date must be consented to by
Administrative Agent, which consent will not be unreasonably withheld or
delayed).
MICHIGAN 10 RSA ACQUISITION means the Acquisition of the Rural Service
Area, Michigan-10-Tuscola, Market No. 481, pursuant to the Asset Purchase
Agreement dated as of December 14, 1999, by and between Lake Huron Cellular
Corp. and Dobson Cellular Systems (as such Asset Purchase Agreement may have
been and may be amended or modified; PROVIDED THAT any such amendments after the
Closing Date must be consented to by Administrative Agent, which consent will
not be unreasonably withheld or delayed).
MULTIEMPLOYER PLAN means a multiemployer plan as defined in SECTIONS
3(37) or 4001(a)(3) of ERISA or SECTION 414(f) of the Code to which any Loan
Party, any Restricted Subsidiary thereof, or any ERISA Affiliate of any Loan
Party is making, has made, is accruing, or has accrued, an obligation to make
contributions or has, within any of the preceding five plan years, made or
accrued an obligation to make contributions.
NET CASH PROCEEDS means (a) with respect to any Significant Sale or
Permitted Asset Swap, cash (freely convertible into Dollars) (including, any
cash received by way of deferred payment pursuant to a promissory note or
otherwise, but only as and when received) received in connection with and as
consideration therefor, on or after the date of consummation of such Significant
Sale or Permitted Asset Swap, by any Company or Cellular Partnership Obligor
from such Significant Sale or Permitted Asset Swap, after (i) deduction of Taxes
actually paid, (ii) payment of all usual and customary brokerage commissions and
all other reasonable fees and expenses related to such Significant Sale or
Permitted Asset Swap (including, without limitation, reasonable attorneys' fees
and closing costs incurred in connection with such Significant Sale or Permitted
Asset Swap), (iii) deduction of appropriate amounts to be provided by any
Company or Cellular Partnership Obligor as a reserve, in accordance with GAAP,
against any liabilities retained by any Company or Cellular Partnership Obligor
after such Significant Sale or Permitted Asset Swap, which liabilities are
associated with the asset or assets being sold, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such Significant Sale or Permitted Asset Swap, and (iv) deduction for the amount
of any Debt (other than the Obligation) secured by the respective asset or
assets being sold, which Debt is required to be repaid as a result of such
Significant Sale or Permitted Asset Swap; (b) with respect to any Debt Issuance,
cash (freely convertible into Dollars) received, on or after the date of
incurrence of such Debt, by any Company from the incurrence of such Debt after
(i) payment of all reasonable attorneys' fees and usual and customary
underwriting commissions, closing costs, and other reasonable expenses
associated with such incurrence of Debt, (ii) deduction of all deposits, escrow
amounts, or other reserves required to be maintained by any Company in
connection with such Debt, and (iii) deductions for the amount of any other Debt
(other than the Obligation) which is required to be repaid concurrently with or
otherwise as a result of the incurrence of such Debt; and (c) with respect to
any Equity Issuance, cash (freely convertible into Dollars) (including any cash
received by way of deferred payment
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pursuant to a promissory note, or otherwise, but only as and when received)
received, on or after the date of such Equity Issuance, by Communications or any
Company from such Equity Issuance, net of usual and customary transaction costs
and expenses and Assumed Taxes.
NEW LENDER is defined in SECTION 2.6(e).
NON-CONTINUING LENDER is defined in SECTION 13.15.
NOTES means, at the time of any determination thereof, all outstanding
and unpaid Revolver Notes, Term Loan A Notes, Term Loan B Notes, Discretionary
Revolver Notes, Discretionary Term A Loan Notes, Discretionary Term B Loan
Notes, and the Swing Line Note.
OBLIGATION means all present and future indebtedness, liabilities, and
obligations, and all renewals and extensions thereof, or any part thereof, now
or hereafter owed to Administrative Agent, any other Agent, any Lender, or any
Affiliate of any Lender by any Loan Party arising from, by virtue of, or
pursuant to any Loan Document, TOGETHER WITH all interest accruing thereon,
fees, costs, and expenses (including, without limitation, all attorneys' fees
and expenses incurred in the enforcement or collection thereof) payable under
the Loan Documents; PROVIDED THAT, all references to the "OBLIGATION" in the
Collateral Documents and in SECTIONS 3.12, 3.13 and 3.14, shall, in addition to
the foregoing, also include all present and future indebtedness, liabilities,
and obligations (and all renewals and extensions thereof or any part thereof)
now or hereafter owed to any Lender or any Affiliate of a Lender arising from,
by virtue of, or pursuant to any Financial Hedge entered into by Communications
or any Company.
OPERATING CASH FLOW means, for any Person, as calculated at any date of
determination with respect to the most recently ended Rolling Period (unless
otherwise indicated), the SUM (without duplication and without giving effect to
any extraordinary losses or gains during such period) of (a) net income or
deficit during such period, PLUS (b) to the extent already deducted in computing
such net income, (i) income Tax expense; (ii) Interest Expense during such
period, (iii) depreciation, amortization, and other non-cash expense items
during such period, PLUS (c) the amount of all payments under the GRTI Note
received by Borrower during such period, PLUS (d) to the extent not otherwise
included in Operating Cash Flow pursuant to the adjustments made in CLAUSE (a)
through (c) below, Partnership Distributions from any Cellular Partnership
during such period; LESS (e) interest and dividend income, LESS (f) other
non-cash components of income, in each case adjusted as required to take into
account any minority ownership interest (other than the Santa Cruz Minority
Interest); PROVIDED, HOWEVER, in determining Operating Cash Flow of the
Companies (and any reference to "OPERATING CASH FLOW OF THE COMPANIES" in the
Loan Documents shall expressly include/exclude the following adjustments, as
appropriate, and shall be calculated without duplication):
(A) No adjustments for minority interests in Cellular Partnership
Obligors will be required SO LONG AS the Operating Cash Flow
of such Cellular Partnership Obligor is included in Operating
Cash Flow of the Companies pursuant to CLAUSE (b) hereof;
(B) To the extent that any Company has extended financing to any
Cellular Partnership Obligor which is not 100% owned by a
Company and SO LONG AS such financing has not been repaid in
full and no "DEFAULT" exists with respect to such Debt, then
the lesser of (i) 100% of the Operating Cash Flow of such
Cellular Partnership Obligor for the applicable period of
determination or (ii) the intercompany Debt owed by such
Cellular Partnership Obligor to any Company on the last day of
the applicable period of determination shall be included in
Operating Cash Flow of the Companies;
(C) The Operating Cash Flow of (w) any Cellular Partnership that
is not either (i) a Wholly-
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owned Subsidiary of Borrower or (ii) a Cellular Partnership
Obligor and (x) any Cellular Partnership Obligor which has no
outstanding intercompany Debt owed to any Company (but whose
Cellular Partnership Promissory Note remains outstanding)
shall be included in the Operating Cash Flow of the Companies
in an amount equal to (y) the applicable Company's percentage
ownership of such Cellular Partnership or Cellular Partnership
Obligor MULTIPLIED BY (z) the difference between (i) the
Operating Cash Flow of such Cellular Partnership or Cellular
Partnership Obligor for the applicable period and (ii) the
Debt of such Cellular Partnership or Cellular Partnership
Obligor (to the extent permitted by the Loan Documents) owed
to any Person OTHER THAN a Loan Party;
(D) The provision for income taxes and reductions in deferred
taxes shall be adjusted in accordance with the Tax Sharing
Agreement;
(E) In determining Operating Cash Flow for any Company, such
amount shall be calculated after giving effect to Acquisitions
and divestitures of such Company (to the extent permitted by
the Loan Documents) during such period as if such transactions
had occurred on the first day of such period, regardless of
whether the effect is positive or negative.
OSHA means the OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970, 29 U.S.C.
Section 671 ET SEQ.
PARTICIPANT is defined in SECTION 13.13(e).
PARTICIPATION CERTIFICATE is defined in SECTION 9.31.
PARTNERSHIP AGREEMENT means, individually, and PARTNERSHIP AGREEMENTS
means, collectively, on any date of determination the partnership agreements
which create the Cellular Partnerships, as each may be amended from time to time
in accordance with the terms hereof and thereof.
PARTNERSHIP DISTRIBUTION for any Person means, with respect to such
Person's partnership interest in any Cellular Partnership, a cash distribution
with respect thereto paid from the operating income of such Cellular Partnership
(expressly excluding any partnership distributions representing a return on such
Person's capital investments in such Cellular Partnership or non-recurring or
other extraordinary gains realized by such Cellular Partnership).
PBGC means the Pension Benefit Guaranty Corporation, or any successor
thereof, established pursuant to ERISA.
PCS SYSTEMS means the wireless cellular communication systems offering
"PERSONAL COMMUNICATION SERVICES" authorized under PART 24 of the FCC Rules (47
C.F.R. ss. 24.1 ET SEQ).
PERMITTED ACQUISITION means:
(a) The Alaska 1 RSA Acquisition, the Alaska 3 RSA
Acquisition, the Michigan 3 RSA Acquisition, and the Michigan 10 RSA
Acquisition; PROVIDED, HOWEVER, that such Acquisitions shall not
constitute "PERMITTED ACQUISITIONS" hereunder unless and until Borrower
satisfies the conditions precedent set forth in SECTION 7.2 prior to
the consummation of each Acquisition (OTHER THAN the delivery of the
Permitted Acquisition Compliance Certificate and the Annexes thereto)
and complies with CLAUSE (b)(vi) hereunder;
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(b) Acquisitions and Permitted Asset Swaps by any Company of
businesses which are engaged in the domestic cellular industry, with
respect to which each of the following requirements shall have been
satisfied:
(i) the Purchase Price for such Acquisition or
Permitted Asset Swap must be less than or equal to
$200,000,000, and when aggregated with the Purchase Price of
all other Acquisitions and Permitted Asset Swaps consummated
in any calendar year, including, without limitation, the
Michigan 10 RSA Acquisition, may not exceed $400,000,000 in
the aggregate;
(ii) immediately prior to the Acquisition or
Permitted Asset Swap and after giving effect thereto and all
Borrowings under the Revolver Facility to be made in
connection therewith, there is at least $25 million of
availability under the Revolver Commitment;
(iii) as of the closing of any Acquisition or
Permitted Asset Swap, the Acquisition or Permitted Asset Swap
has been approved and recommended by the board of directors of
the Person to be acquired or from which such business is to be
acquired;
(iv) not less than 14 days prior to the closing of
any Acquisition or Permitted Asset Swap, Borrower shall have
delivered to Administrative Agent a Permitted Acquisition
Compliance Certificate, demonstrating pro forma compliance
with the terms and conditions of the Loan Documents, after
giving effect to the Acquisition or Permitted Asset Swap,
including (A) pro forma income statement and balance sheet for
the Companies (after giving effect to the Acquisition or
Permitted Asset Swap), and (B) cash flow projections for the
Acquisition or Permitted Asset Swap for the period from the
date of any such Acquisition or Permitted Asset Swap through
the last-to-occur of the then-effective Termination Dates,
demonstrating compliance with the Companies' applicable
financial covenants and debt amortization schedules;
(v) not less than 30 days prior to the closing of any
Acquisition or Permitted Asset Swap, Borrower shall have
delivered to Administrative Agent a copy of the purchase
agreement (including all schedules and exhibits thereto)
relating to such Acquisition or Permitted Asset Swap; and
prior to consummation of any Acquisition or Permitted Asset
Swap, Borrower shall have satisfied the conditions precedent
set forth in SECTION 7.2;
(vi) each Authorization issued by the FCC or any PUC
to be acquired by any Company shall be valid, binding,
enforceable, and subsisting without any defaults thereunder or
enforceable adverse limitations thereon and shall not be
subject to any proceedings or claims opposing the issuance,
development, or use thereof or contesting the validity thereof
UNLESS such Company has entered into an agreement with the
seller of such Authorization protecting such Company from such
adverse limitations, proceedings, or claims, which agreement
shall be on terms and conditions satisfactory to
Administrative Agent;
(vii) as of the closing of any Acquisition or
Permitted Asset Swap, after giving effect to such Acquisition
or Permitted Asset Swap, the acquiring party must be Solvent
and the Companies, on a consolidated basis, must be Solvent;
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(viii) as of the closing of any Acquisition or
Permitted Asset Swap, no Default or Potential Default shall
exist or occur as a result of, and after giving effect to,
such Acquisition or Permitted Asset Swap;
(ix) as of the closing of any Acquisition or
Permitted Asset Swap, (A) if such Acquisition is structured as
a merger, Borrower, (or if such merger is with any Restricted
Subsidiary of Borrower, then a domestic company that is or
becomes a Restricted Subsidiary) must be the surviving entity
after giving effect to such merger; and (B) if such
Acquisition or Permitted Asset Swap is structured as a
stock/equity acquisition, the acquiring Company shall own not
less than a 75% interest in the entity being acquired and such
acquired entity will be a domestic company that is or becomes
a Restricted Subsidiary; or
(c) Any other Acquisition for which the prior written consent
of Required Lenders has been obtained.
PERMITTED ASSET SWAP means an exchange (for reasonably equivalent
value, a portion of which may include cash) of Cellular Assets owned by a
non-affiliated Person for Cellular Assets owned by any Company; SO LONG AS (a)
no Default or Potential Default exists or arises as a result thereof; (b)
Borrower shall be in pro forma compliance with the terms and conditions of the
Loan Documents, after giving effect to the Permitted Asset Swap and shall
deliver to Administrative Agent a Compliance Certificate demonstrating
compliance with the financial covenants in SECTION 9.29; (c) the fair market
value of the Cellular Assets of the Companies exchanged in all Permitted Asset
Swaps shall not exceed $200,000,000 in the aggregate from the Closing Date to
any date of determination; (d) at the time of any such Permitted Asset Swap,
such Company shall have entered into one or more binding agreement or agreements
with non-affiliated Persons to acquire Cellular Assets having an aggregate fair
market value reasonably equivalent to the Cellular Assets to be exchanged by
such Company; (e) within 6 months of the execution of the binding agreements
referred to in CLAUSE (d), Borrower shall have delivered a certificate to
Administrative Agent stating that the Permitted Asset Swap has been consummated;
and (f) the acquisition of Cellular Assets pursuant to any Permitted Asset Swap
satisfies the requirements for a Permitted Acquisition.
PERMITTED ACQUISITION COMPLIANCE CERTIFICATE means a certificate signed
by a Responsible Officer of Borrower, substantially in the form of EXHIBIT E-2.
PERMITTED ACQUISITION LOAN CLOSING CERTIFICATE means a certificate
signed by a Responsible Officer of Borrower, substantially in the form of
EXHIBIT E-3.
PERMITTED DEBT means, (a) with respect to the Loan Parties (other than
Communications), Debt permitted under SECTION 9.12 as described in such Section;
and (b) with respect to Communications, Debt permitted under SECTION 9.30(a) as
described in such Section.
PERMITTED LIENS means, (a) with respect to the Loan Parties (other than
Communications), Liens permitted under SECTION 9.13 as described in such
Section; and (b) with respect to Communications, Liens permitted under SECTION
9.30(d) as described in such Section.
PERSON means any individual, entity, or Governmental Authority.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance which, with the giving of notice or lapse of time or both, would
become a Default.
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PREFERRED STOCK means, collectively, (i) the 175,000 shares of the
Senior Exchangeable Preferred Stock (valued at $1,000 liquidation value)
issued by Communications which is mandatorily redeemable in 2008, TOGETHER
WITH additional Preferred Stock issued in lieu of dividends on the Preferred
Stock described in this CLAUSE (i), all as more particularly described in
that certain Certificate of Designation filed with the Secretary of State of
Oklahoma on January 21, 1998; (ii) the 64,646 shares of additional Senior
Exchangeable Preferred Stock (valued at $1,000 liquidation value) issued by
Communications which is mandatorily redeemable in 2008, TOGETHER WITH
additional Preferred Stock issued in lieu of dividends on the Preferred Stock
described in this CLAUSE (ii), all as more particularly described in that
certain Certificate of Designation filed with the Secretary of State of
Oklahoma on December 23, 1998; (iii) the 170,000 shares of additional Senior
Exchangeable Preferred Stock (valued at $1,000 liquidation value) issued by
Communications which is mandatorily redeemable in 2009, TOGETHER WITH
additional Preferred Stock issued in lieu of dividends on the Preferred Stock
described in this CLAUSE (iii), all as more particularly described in that
certain Certificate of Designation filed with the Secretary of State of
Oklahoma on May 5, 1999, and the documents and agreements evidencing and
establishing the Preferred Stock, as the same may be amended from time to
time in accordance with the terms thereof and hereof; and (iv) all renewals,
extensions, amendments, modifications, and refinancings of the Preferred
Stock described in CLAUSES (i) through (iii) hereof, SO LONG AS (w) the
principal amount of any refinanced Preferred Stock shall not exceed the
principal amount of the Preferred Stock being refinanced immediately prior to
giving effect to any such refinancing; (x) the terms of the refinancing are
no less favorable to Lenders or any Loan Party than the terms of the
Preferred Stock being refinanced; (y) the maturity date of the refinancing is
the same as or later than the maturity date of the Preferred Stock being
refinanced; and (z) all terms and conditions of the refinancing are
acceptable to Administrative Agent (in its sole discretion).
PRIME RATE means the per annum rate of interest established from
time to time by Bank of America, N.A., as its prime rate, which rate may not
be the lowest rate of interest charged by Bank of America, N.A. to its
customers.
PRINCIPAL DEBT means, at the time of any determination thereof, the
SUM of the Revolver Principal Debt, the Term Loan A Principal Debt, the Term
Loan B Principal Debt, and the Discretionary Principal Debt.
PRO FORMA DEBT SERVICE means, on any date of determination,
calculated for the Companies on a consolidated basis, the SUM of (a) Pro
Forma Interest Expense determined as of such date of determination, PLUS (b)
principal payments scheduled to be made on Total Debt for the twelve months
following the date of determination.
PRO FORMA INTEREST EXPENSE means, on any date of determination with
respect to the most recently ended Rolling Period (the "SUBJECT PERIOD"),
calculated for the Companies on a consolidated basis, the SUM of the results
of the following calculation made separately with respect to each Borrowing
and each other loan or other evidence of Total Debt of any Company (each a
"SUBJECT LOAN") for the purposes hereof):
{[A + B] /2} x C
where:
A = The aggregate outstanding principal Debt under the
Subject Loan at the beginning of the Subject Period.
B = The aggregate outstanding principal Debt under the
Subject Loan, at the end of the Subject Period,
taking into account all scheduled principal
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payments and any required commitment reductions
within such Subject Period.
C = With respect to the Subject Loan, the applicable
interest rate thereon determined as the rate in
effect on the date of determination.
PRO RATA or PRO RATA PART, for each Lender, means on any date of
determination (a) for purposes of sharing any amount or fee payable to any
Lender in respect of a Facility, Subfacility, or Discretionary Loan (as the
case may be) the proportion which the portion of the Principal Debt for the
applicable Facility, Subfacility, or Discretionary Loan owed to such Lender
(whether held directly or through a participation in respect of the LC
Subfacility or Swing Line Subfacility and determined after giving effect
thereto) bears to the Principal Debt under the applicable Facility,
Subfacility, or Discretionary Loan (as the case may be) owed to all Lenders
at the time in question, and (b) for all other purposes, the proportion which
the portion of the Principal Debt owed to such Lender bears to the Principal
Debt owed to all Lenders at the time in question, or if no Principal Debt is
outstanding, then the proportion that the aggregate of such Lender's
Committed Sums then in effect under the Facilities, Subfacilities, and
Discretionary Loans bears to the Total Commitment then in effect.
PUC means any state or local regulatory agency or governmental
authority that exercises jurisdiction over the rates or services or the
ownership, construction, or operation of network facilities or
telecommunications systems or over Persons who own, construct, or operate
network facilities or telecommunications systems.
PURCHASE PRICE means, with respect to any Acquisition or Permitted
Asset Swap, all direct, indirect, and deferred cash and non-cash payments
made to or for the benefit of the Person being acquired (or whose assets are
being acquired), its shareholders, officers, directors, employees, or
Affiliates in connection with such Acquisition or Permitted Asset Swap,
including, without limitation, the amount of any Debt being assumed in
connection with such Acquisition or Permitted Asset Swap (and subject to the
limitations on Permitted Debt hereunder), seller financing, payments under
non-competition or consulting agreements entered into in connection with such
Acquisition or Permitted Asset Swap and similar agreements, all non-cash
consideration and the value of any stock, options, or warrants or other
Rights to acquire stock issued as part of the consideration in such
transaction; PROVIDED THAT, for the purposes hereof, (i) non-competition
agreements and consulting agreements shall be valued at their present value
discounted over the term of such agreement at the Base Rate in effect at the
time of the Acquisition; and (ii) solely with respect to any Permitted Asset
Swap, the fair market value of the assets of the Companies exchanged in
connection with such Permitted Asset Swap shall be excluded from the Purchase
Price.
REGISTER is defined in SECTION 13.13(c).
REGULATION D means Regulation D of the Board of Governors of the
Federal Reserve System, as amended.
REGULATION U means Regulation U of the Board of Governors of the
Federal Reserve System, as amended.
RELEASE means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposal,
deposit, dispersal, migrating, or other movement into the air, ground, or
surface water, or soil.
REORGANIZATION is defined in the recitals to this Agreement.
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REPRESENTATIVES means representatives, officers, directors,
employees, attorneys, and agents.
REQUIRED LENDERS means (a) on any date of determination on and after
the Closing Date and prior to the date of the initial Borrowing Date under
the Loan Documents, those Lenders holding 50.1% or more of the Total
Commitment, (b) on any date of determination on and after the Closing Date
and prior to the initial Borrowing Date under Term Loan A Facility and prior
to the Termination Date for the Revolver Facility, those Lenders holding
50.1% or more of the SUM of the Revolver Commitment PLUS the Term Loan A
Commitment PLUS the Term Loan B Principal Debt, (c) on any date of
determination on and after the date of the initial Borrowing Date under Term
Loan A Facility and prior to the Termination Date for the Revolver Facility
and the Discretionary Revolver Subfacility, those Lenders holding 50.1% or
more of (i) the SUM of the Revolver Commitment PLUS the Discretionary
Revolver Commitment for all Discretionary Revolver Loans PLUS (ii) the SUM of
the Total Term A Principal Debt, the Term Loan B Principal Debt, and the
Discretionary Term B Loan Principal Debt under all Discretionary Term B
Loans; and (d) on any date of determination on or after the Termination Date
for the Revolver Facility and the Discretionary Revolver Subfacility, those
Lenders holding 50.1% or more of the Principal Debt.
RESERVE REQUIREMENT means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental,
or emergency reserves) are required to be maintained under regulations issued
from time to time by the Board of Governors of the Federal Reserve System (or
any successor) by member banks of the Federal Reserve System against, in the
case of Eurodollar Rate Borrowings, "EUROCURRENCY LIABILITIES" (as such term
is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to (a) any category of
liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined, or (b) any category of extensions of
credit or other assets which include Eurodollar Rate Borrowings. The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective
date of any change in the Reserve Requirement.
RESPONSIBLE OFFICER means any "OFFICER" appointed pursuant to the
Operating Agreement of Borrower, including, without limitation, the General
Manager, any Assistant General Manager, or the Treasurer of Borrower, or, for
all purposes under the Loan Documents, any other officer designated from time
to time by the Board of Managers of Borrower, which designated officer is
acceptable to Administrative Agent.
RESTRICTED PAYMENTS means: (a) redemptions, repurchases, dividends,
and Distributions of any kind in respect of Borrower's or Communications'
capital stock (including without limitation any class of common or preferred
shares); (b) Partnership Distributions of any kind in respect of partnership
interests of any Loan Party that is a Cellular Partnership; and (c) payments
of principal and interest on, and any redemptions or repurchases of,
Subordinated Debt.
RESTRICTED SUBSIDIARY means, at any time of determination, (a) with
respect to Borrower, all Subsidiaries of Borrower, OTHER THAN Unrestricted
Subsidiaries of Borrower; and (b) with respect to Communications, all
Subsidiaries of Communications, OTHER THAN Unrestricted Subsidiaries of
Communications.
REVOLVER COMMITMENT means an amount (subject to reduction or
cancellation as herein provided) equal to $300,000,000.
REVOLVER COMMITMENT USAGE means, at the time of any determination
thereof, the SUM of (a) the aggregate Revolver Principal Debt (including the
Swing Line Principal Debt) PLUS, WITHOUT DUPLICATION, (b) the LC Exposure.
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REVOLVER FACILITY means the credit facility as described in and
subject to the limitations set forth in SECTION 2.1 hereof, including the LC
Subfacility and the Swing Line Subfacility.
REVOLVER LENDERS means, on any date of determination, any Lender
that has a Committed Sum under the Revolver Facility.
REVOLVER NOTE means a promissory note in substantially the form of
EXHIBIT A-1, and all renewals and extensions of all or any part thereof.
REVOLVER PRINCIPAL DEBT means, on any date of determination, the
aggregate unpaid principal balance of all Borrowings under the Revolver
Facility (including, without limitation, Swing Line Principal Debt), TOGETHER
WITH the aggregate unpaid reimbursement obligations of Borrower in respect of
drawings under any LC.
RIGHTS means rights, remedies, powers, privileges, and benefits.
ROLLING PERIOD means, on any date of determination, the most recent
four fiscal quarters ended on March 31, June 30, September 30, or December 31
(as the case may be).
SANTA CRUZ MINORITY INTEREST means, on any date of determination,
that portion (expressed as a percentage) of the total ownership interest in
Santa Cruz Cellular Telephone, Inc. that is not owned by a Company; PROVIDED
THAT for purposes of calculating Operating Cash Flow of the Companies, the
amount of such minority interest shall not exceed 16% of Santa Cruz Cellular
Telephone, Inc. on any date of determination.
SCHEDULE means, unless specified otherwise, a schedule attached to
this Agreement, as the same may be supplemented and modified from time to
time in accordance with the terms of the Loan Documents.
SECURITY AGREEMENT means (a) a Pledge, Assignment, and Security
Agreement in substantially the form and upon the terms of EXHIBITS D-1 or D-2
(as applicable), executed by any Person pursuant to the requirements of the
Loan Documents; and (b) any amendments, modifications, supplements,
restatements, ratifications, or reaffirmations of any Pledge Agreement made
in accordance with the Loan Documents.
SIGNIFICANT SALE means any sale, lease, transfer, or other
disposition of any property or assets (tangible or intangible, including,
without limitation, stock or equity interests in Subsidiaries or other
Cellular Partnership Obligors) by any Company or Cellular Partnership Obligor
to any other Person (OTHER THAN any sale, lease, transfer, or other
disposition contemplated by SECTIONS 9.22(a) through (g) or permitted by
SECTION 9.23) with respect to which the Net Cash Proceeds realized by any
Company or Cellular Partnership Obligor for such asset disposition (or when
aggregated with the Net Cash Proceeds from all such other asset dispositions
occurring in the same calendar year) equals or exceeds $10,000,000.
SINGLE-EMPLOYER PLAN means an employee pension benefit plan covered
by TITLE IV of ERISA or subject to the minimum funding standards under
SECTION 412 of the Code and established or maintained by any Loan Party,
Restricted Subsidiary thereof, or ERISA Affiliate of any Loan Party, but not
including any Multiemployer Plan.
SOLVENT means, as to a Person, that (a) the aggregate fair market
value of such Person's assets exceeds its liabilities (whether contingent,
subordinated, unmatured, unliquidated, or otherwise), (b) such Person has
sufficient cash flow to enable it to pay its Debts as they mature, and (c)
such Person does not have unreasonably small capital to conduct such Person's
businesses.
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SUBFACILITIES means, collectively, the LC Subfacility, the Swing
Line Subfacility, and the Discretionary Loan Subfacilities; SUBFACILITY
means, any of the LC Subfacility, the Swing Line Subfacility, or any
Discretionary Loan Subfacility.
SUBORDINATED DEBT means any Debt of any Company subordinated to the
Obligation on terms (including, without limitation, subordination terms)
acceptable to Administrative Agent and its counsel.
SUBSIDIARY of any Person means (a) any entity of which an aggregate
of more than 50% (in number of votes) of the stock is owned of record or
beneficially, directly or indirectly, by such Person, or (b) any partnership
(limited or general) of which such Person shall at any time be the
controlling general partner determined in accordance with GAAP or own more
than fifty percent (50%) of the issued and outstanding partnership interests.
SUPPLEMENTAL CREDIT DOCUMENTS is defined in SECTION 2.6(f).
SWING LINE BORROWING means any Borrowing under the Swing Line
Subfacility.
SWING LINE COMMITMENT means an amount (subject to availability,
reduction, or cancellation as herein provided) equal to $15,000,000.
SWING LINE LENDER means Bank of America, N.A. and its successors and
assigns.
SWING LINE MATURITY DATE for any Swing Line Borrowing means the
earlier of (a) the last Business Day of the month in which such Swing Line
Borrowing was made and (b) the Termination Date for the Revolver Facility.
SWING LINE NOTE means a promissory note in substantially the form of
EXHIBIT A-4, and all renewals and extensions of all or any part thereof.
SWING LINE PRINCIPAL DEBT means, on any date of determination, that
portion of the Revolver Principal Debt outstanding under the Swing Line
Subfacility.
SWING LINE SUBFACILITY means the subfacility under the Revolver
Facility described in, and subject to the limitations of, SECTION 2.5.
SYSTEM means individually, and SYSTEMS means collectively, the
Cellular Systems and PCS Systems, now or hereafter owned, operated, or
managed by the Companies.
TAX SHARING AGREEMENT means that certain consolidated income tax
payment agreement dated February 28, 1997, entered into between
Communications and its Subsidiaries (as amended from time to time with the
consent of Administrative Agent).
TAXES means, for any Person, taxes, assessments, or other
governmental charges or levies imposed upon such Person, its income, or any
of its properties, franchises, or assets.
TERMINATION DATE means (a) for purposes of the Revolver Facility and
the Discretionary Revolver Subfacility, the EARLIER of (i) April 30, 2007,
and (ii) the effective date of any other termination, cancellation, or
acceleration of all commitments to lend under the Revolver Facility or the
Discretionary Revolver Subfacility; (b) for purposes of the Term Loan A
Facility and the Discretionary Term A Loan Subfacility, the EARLIER of (x)
April 30, 2007, and (y) the effective date of any other termination,
cancellation, or
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acceleration of the Term Loan A Facility or the Discretionary Term A Loan
Subfacility; (c) for purposes of the Term Loan B Facility, the EARLIER of (x)
December 31, 2007, and (y) the effective date of any other termination,
cancellation, or acceleration of the Term Loan B Facility; and (d) for
purposes of each Discretionary Term B Loan, the EARLIER of (x) the date
agreed upon by the Discretionary Lenders for such Discretionary Term B Loan
in the related Supplemental Credit Documents (which shall be no earlier than
the Termination Date for the Term Loan B Facility), and (y) the effective
date of any other termination, cancellation, or acceleration of such
Discretionary Term B Loan.
TERM LOAN A COMMITMENT means an amount (subject to reduction or
cancellation as herein provided) equal to $350,000,000.
TERM LOAN A FACILITY means the credit facility as described in and
subject to the limitations set forth in SECTION 2.2 hereof.
TERM LOAN A LENDERS means, on any date of determination, any Lender
that has a Committed Sum under the Term Loan A Facility or that is owed any
Term Loan A Principal Debt.
TERM LOAN A NOTE means a promissory note substantially in the form
of EXHIBIT A-2, and all renewals and extensions of all or any part thereof.
TERM LOAN A PRINCIPAL DEBT means, on any date of determination, the
aggregate unpaid principal balance of all Borrowings under the Term Loan A
Facility.
TERM LOAN B COMMITMENT means an amount (subject to reduction or
cancellation as herein provided) equal to $150,000,000.
TERM LOAN B FACILITY means the credit facility as described in and
subject to the limitations set forth in SECTION 2.3 hereof.
TERM LOAN B LENDERS means, on any date of determination, any Lender
that has a Committed Sum under the Term Loan B Facility or that is owed any
Term Loan B Principal Debt.
TERM LOAN B NOTE means a promissory note substantially in the form
of EXHIBIT A-3, and all renewals and extensions of all or any part thereof.
TERM LOAN B PRINCIPAL DEBT means, on any date of determination, the
aggregate unpaid principal balance of all Borrowings under the Term Loan B
Facility.
TOTAL COMMITMENT means, on any date of determination, the SUM of all
Committed Sums then in effect for all Lenders in respect of the Revolver
Facility, the Discretionary Revolver Subfacility, the Term Loan A Facility,
the Discretionary Term A Loan Subfacility, the Term Loan B Facility, and the
Discretionary Term B Loan Subfacility.
TOTAL DEBT means (without duplication), as of any date of
determination, for the Companies determined on a consolidated basis, the SUM
of all obligations for borrowed money, all payments required under
non-compete agreements, capital lease obligations, amounts required under
installment sales purchases, all debt or other financial obligations of
others guaranteed by such Person, and any amounts for which such Person is
contingently liable to provide, as equity or debt, advances to other Persons,
any class or series of capital stock that by its terms is required to be
redeemed prior to its stated final redemption date or otherwise requires cash
dividend payments to be made prior to the final redemption of such stock.
With
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respect to the Companies, TOTAL DEBT shall exclude any Subordinated Debt owed
by any Company to Communications.
TOTAL REVOLVER COMMITMENT means, on any date of determination, the
SUM of the Revolver Commitment and the Discretionary Revolver Commitment for
all Discretionary Revolver Loans.
TOTAL REVOLVER PRINCIPAL DEBT means, on any date of determination,
the SUM of the Revolver Principal Debt and the Discretionary Revolver
Principal Debt under all Discretionary Revolver Loans.
TOTAL TERM A PRINCIPAL DEBT means, on any date of determination, the
SUM of the Term Loan A Principal Debt and the Discretionary Term A Loan
Principal Debt under all Discretionary Term A Loans.
TRIGGERING EVENT means the occurrence of any Default, other than a
Default resulting from the breach of any representation or warranty set forth
in SECTION 8; PROVIDED, HOWEVER, that any Default which results from
Borrower's failure to comply with the financial covenants in SECTION 9.29,
and which restricts dividends or distributions from Borrower to
Communications, shall only constitute a TRIGGERING EVENT (a) with respect to
the Preferred Stock described in CLAUSE (i) of the definition of "PREFERRED
STOCK," to the extent of pro forma non-compliance with the financial
covenants on the terms as set forth in the Existing DOC Credit Agreement and
Existing DCOC Credit Agreements established pursuant to the Commitment
Letters and Summary of Terms and Conditions for the Existing DOC Credit
Agreement and Existing DCOC Credit Agreements each dated as of January 7,
1998, notwithstanding any future amendments or modifications of such
provisions, (b) with respect to the Preferred Stock described in CLAUSE (ii)
of the definition of "PREFERRED STOCK," to the extent of pro forma
non-compliance with the financial covenants on the terms as set forth in the
Existing DOC Credit Agreement and Existing DCOC Credit Agreements,
notwithstanding any future amendments or modifications of such provisions,
and (c) with respect to the Preferred Stock described in CLAUSE (iii) of the
definition of "PREFERRED STOCK," to the extent of pro forma non-compliance
with the financial covenants on the terms as set forth in the Existing DOC
Credit Agreement and the Existing DCOC Credit Agreements, notwithstanding any
future amendments or modifications of such provisions.
TYPE means any type of Borrowing determined with respect to the
interest option applicable thereto.
UNRESTRICTED SUBSIDIARY means, at any time of determination thereof,
(a) with respect to Borrower, (i) Logix Communications Enterprises, Inc. and
its Subsidiaries, (ii) Dobson/Sygnet Communications Corporation and its
Subsidiaries, (iii) any Foreign Subsidiary of Borrower or any other Company,
(iv) any Subsidiary of Borrower that is a Cellular Partnership that is not
either (A) Wholly-owned directly or indirectly by Borrower or (B) a Cellular
Partnership Obligor, (v) any other Subsidiary of Borrower designated from
time to time as an "UNRESTRICTED SUBSIDIARY" by Borrower's Board of
Directors, SO LONG AS such designation is approved by Required Lenders, and
(vi) any Subsidiary of an Unrestricted Subsidiary of Borrower; and (b) with
respect to Communications, (i) Dobson JV Company and its Subsidiaries, (ii)
any Subsidiary of Communications designated from time to time as an
"UNRESTRICTED SUBSIDIARY" by Communications' Board of Directors, and (iii)
any Subsidiary of an Unrestricted Subsidiary of Communications; PROVIDED
THAT, the Boards of Directors of Borrower and Communications may make such
designation of an "UNRESTRICTED SUBSIDIARY" only if (A) immediately before
and after giving pro forma effect to such designation, no Default or
Potential Default then exists or arises as a result thereof; (B) such
designated Unrestricted Subsidiary does not own any capital stock of
Borrower, Communications, or any Restricted Subsidiary of Borrower or
Communications; PROVIDED THAT, determinations to be made "IMMEDIATELY BEFORE"
such designation shall be made (and all calculations with respect to
financial covenant compliance shall be calculated) as of the Business Day
immediately preceding the proposed date of designation of the Unrestricted
Subsidiary; (C) such designated Unrestricted Subsidiary does not hold a Lien
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on any assets of Borrower, Communications, or any Restricted Subsidiary of
Borrower or Communications; (D) after giving pro forma effect to such
designation, any investment of Borrower or any Restricted Subsidiary of
Borrower in such Unrestricted Subsidiary would constitute an investment
permitted under SECTION 9.20; (E) neither Borrower, Communications, nor any
Restricted Subsidiary of Borrower or Communications shall have issued any
guaranty or credit support or be subject to any recourse with respect to the
obligations of the designated Unrestricted Subsidiary; (F) on and after the
date any such Subsidiary is designated as an Unrestricted Subsidiary of
Borrower, any Debt owed to such designated Unrestricted Subsidiary by
Borrower or any Restricted Subsidiary of Borrower shall be included in the
calculation of "TOTAL DEBT" and shall be incurred or maintained in compliance
with SECTIONS 9.12 and 3.3(b)(i); and (G) Required Lenders shall have
consented to such designation in writing.
VOTING STOCK means securities (as such term is defined in SECTION
2(1) of the Securities Act of 1933, as amended) of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
WHOLLY-OWNED when used in connection with any Subsidiary shall mean
a Subsidiary of which all of the issued and outstanding shares of stock
(EXCEPT shares required as directors' qualifying shares) shall be owned by
Borrower or one or more of its Wholly-owned Subsidiaries.
WORKING CAPITAL means the SUM of all current assets other than cash,
LESS the SUM of all current liabilities other than the current portion of
long term Debt, all as determined in accordance with GAAP.
1.2 NUMBER AND GENDER OF WORDS; OTHER REFERENCES. Unless otherwise
specified in the Loan Documents, (a) where appropriate, the singular includes
the plural and VICE VERSA, and words of any gender include each other gender,
(b) heading and caption references may not be construed in interpreting
provisions, (c) monetary references are to currency of the United States of
America, (d) section, paragraph, annex, schedule, exhibit, and similar
references are to the particular Loan Document in which they are used, (e)
references to "TELECOPY," "FACSIMILE," "FAX," or similar terms are to
facsimile or telecopy transmissions, (f) references to "INCLUDING" mean
including without limiting the generality of any description preceding that
word, (g) the rule of construction that references to general items that
follow references to specific items are limited to the same type or character
of those specific items is not applicable in the Loan Documents, (h)
references to any Person include that Person's heirs, personal
representatives, successors, trustees, receivers, and permitted assigns, (i)
references to any Law include every amendment or supplement to it, rule and
regulation adopted under it, and successor or replacement for it, and (j)
references to any Loan Document or other document include every renewal and
extension of it, amendment and supplement to it, and replacement or
substitution for it.
1.3 ACCOUNTING PRINCIPLES. All accounting and financial terms used
in the Loan Documents and the compliance with each financial covenant therein
shall be determined in accordance with GAAP, and, all accounting principles
shall be applied on a consistent basis so that the accounting principles in a
current period are comparable in all material respects to those applied
during the preceding comparable period. If Borrower or any Lender determines
that a change in GAAP from that in effect on the date hereof has altered the
treatment of certain financial data to its detriment under this Agreement,
such party may, by written notice to the others and Administrative Agent not
later than ten (10) days after the effective date of such change in GAAP,
request renegotiation of the financial covenants affected by such change. If
the Borrower and Required Lenders have not agreed on revised covenants within
thirty (30) days after delivery of such notice, then, for purposes of this
Agreement, GAAP will mean generally accepted accounting principles on the
date just prior to the date on which the change that gave rise to the
renegotiation occurred.
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SECTION 2 BORROWING PROVISIONS.
2.1 REVOLVER FACILITY. Each Revolver Lender severally, but not
jointly, agrees to lend to Borrower such Revolver Lender's Commitment
Percentage of one or more Borrowings under the Revolver Facility not to
exceed such Revolver Lender's Committed Sum under the Revolver Facility,
which Borrowings may be repaid and reborrowed from time to time in accordance
with the terms and provisions of the Loan Documents; PROVIDED THAT, (a) each
such Borrowing must occur on a Business Day and no later than the Business
Day immediately preceding the Termination Date for the Revolver Facility; (b)
each such Borrowing shall be in an amount not less than $7,000,000 or a
greater integral multiple of $1,000,000 if a Eurodollar Rate Borrowing,
$3,000,000 or a greater integral multiple of $100,000 if a Base Rate
Borrowing, or $1,000,000 or a greater integral multiple of $100,000 if a
Swing Line Borrowing; and (c) on any date of determination, the Revolver
Commitment Usage shall never exceed the Revolver Commitment.
2.2 TERM LOAN A FACILITY. Each Term Loan A Lender severally, but not
jointly, agrees to lend to Borrower in a single Borrowing on the Closing Date
such Term Loan A Lender's Commitment Percentage of the Term Loan A
Commitment. If all or any portion of the Term Loan A Principal Debt is paid
or prepaid, then the amount so repaid may not be reborrowed.
2.3 TERM LOAN B FACILITY. Each Term Loan B Lender severally, but not
jointly, agrees to lend to Borrower in a single Borrowing on the Closing Date
such Term Loan B Lender's Commitment Percentage of the Term Loan B
Commitment. If all or any portion of the Term Loan B Principal Debt is paid
or prepaid, then the amount so repaid may not be reborrowed.
2.4 LC SUBFACILITY.
(a) CONDITIONS. Subject to the terms and conditions of this
Agreement and applicable Law, Administrative Agent agrees to issue
LCs upon Borrower's application therefor (denominated in Dollars) by
delivering to Administrative Agent a properly completed LC Request
and an LC Agreement with respect thereto no later than 10:00 a.m.
Dallas, Texas time three Business Days before such LC is to be
issued; PROVIDED THAT, (i) on any date of determination and after
giving effect to any LC to be issued on such date, the Revolver
Commitment Usage shall never exceed the Revolver Commitment then in
effect, (ii) on any date of determination and after giving effect to
any LC to be issued on such date, the LC Exposure shall never exceed
$20,000,000 (as such commitment under the LC Subfacility may be
reduced or canceled as herein provided), (iii) at the time of
issuance of such LC, no Default or Potential Default shall have
occurred and be continuing, and (iv) each LC must expire NO LATER
than the EARLIER of the 30th day prior to the Termination Date for
the Revolver Facility or one year from its issuance; PROVIDED THAT,
any LC may provide for automatic renewal for successive periods of
up to one year (but no renewal period may extend beyond the 30th day
prior to the Termination Date for the Revolver Facility) unless
Administrative Agent has given prior notice to the applicable
beneficiary of its election not to extend such LC.
(b) PARTICIPATIONS. Immediately upon the issuance by
Administrative Agent of any LC, Administrative Agent shall be deemed
to have sold and transferred to each other Revolver Lender, and each
other such Revolver Lender shall be deemed irrevocably and
unconditionally to have purchased and received from Administrative
Agent, without recourse or warranty, an undivided interest and
participation, to the extent of such Revolver Lender's Commitment
Percentage (based upon the Revolver Facility), in such LC, the LC
Agreement related thereto, and all Rights of Administrative Agent in
respect thereof (OTHER THAN Rights to receive certain fees provided
for in SECTION 5.5(b)).
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(c) REIMBURSEMENT OBLIGATION. To induce Administrative Agent to
issue and maintain LCs and to induce Revolver Lenders to participate
in issued LCs, Borrower agrees to pay or reimburse Administrative
Agent (i) on the date on which any draft is presented under any LC,
the amount of any draft paid or to be paid by Administrative Agent
and (ii) promptly, upon demand, the amount of any fees (in addition
to the fees described in SECTION 5) which Administrative Agent
customarily charges to a Person similarly situated in the ordinary
course of its business for amending LC Agreements, for honoring
drafts under letters of credit, and taking similar action in
connection with letters of credit. If Borrower has not reimbursed
Administrative Agent for any drafts paid or to be paid within 24
hours of demand therefor by Administrative Agent, Administrative
Agent is hereby irrevocably authorized to fund such reimbursement
obligations as a Base Rate Borrowing under the Revolver Facility to
the extent of availability under the Revolver Facility and if the
conditions precedent in this Agreement for such a Borrowing (other
than any notice requirements or minimum funding amounts) have, to
Administrative Agent's knowledge, been satisfied. The proceeds of
such Borrowing under the Revolver Facility shall be advanced
directly to Administrative Agent in payment of Borrower's unpaid
reimbursement obligation. If for any reason, funds cannot be
advanced under the Revolver Facility, then Borrower's reimbursement
obligation shall continue to be due and payable. Borrower's
obligations under this SECTION 2.4(c) shall be absolute and
unconditional under any and all circumstances and irrespective of
any setoff, counterclaim, or defense to payment which Borrower may
have at any time against Administrative Agent or any other Person.
From the date that Administrative Agent pays a draft under an LC
until the related reimbursement obligation of Borrower is paid or
funded by proceeds of a Borrowing, unpaid reimbursement obligations
shall accrue interest at the Default Rate, which accrued interest
shall be payable on demand.
(d) GENERAL. Administrative Agent shall promptly notify
Borrower of the date and amount of any draft presented for honor under
any LC (but failure to give any such notice shall not affect Borrower's
obligations under this Agreement). Administrative Agent shall pay the
requested amount upon presentment of a draft for honor unless such
presentment on its face does not comply with the terms of the
applicable LC. When making payment, Administrative Agent may disregard
(i) any default or potential default that exists under any other
agreement and (ii) the obligations under any other agreement that have
or have not been performed by the beneficiary or any other Person (and
Administrative Agent shall not be liable for any obligation of any
Person thereunder). Borrower's reimbursement obligations to
Administrative Agent and Revolver Lenders, and each Revolver Lender's
obligations to Administrative Agent, under this SECTION 2.4 are
absolute and unconditional irrespective of, and Administrative Agent is
not responsible for, (i) the validity, enforceability, sufficiency,
accuracy, or genuineness of documents or endorsements which appear
appropriate on their face (even if they are in any respect invalid,
unenforceable, insufficient, inaccurate, fraudulent, or forged), (ii)
any dispute by any Loan Party with or any Loan Party's claims, setoffs,
defenses, counterclaims, or other Rights against Administrative Lender,
any Revolver Lender, or any other Person, or (iii) the occurrence of
any Potential Default or Default. However, nothing in this SECTION 2.4
constitutes a waiver of the Rights of Borrower or any Revolver Lender
to assert any claim or defense based upon the gross negligence or
willful misconduct of Administrative Agent. To the extent any Revolver
Lender has funded its ratable share of any draft under an LC, then
Administrative Agent shall promptly distribute reimbursement payments
received from Borrower to such Revolver Lender according to its ratable
share. In the event any payment by Borrower received by Administrative
Agent with respect to an LC and distributed to Revolver Lenders on
account of their participations therein is thereafter set aside,
avoided, or recovered from Administrative Agent in connection with any
receivership, liquidation, or bankruptcy proceeding, each Revolver
Lender which received such distribution shall, upon demand by
Administrative Agent, contribute such Revolver Lender's ratable portion
of the amount set aside, avoided, or recovered,
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TOGETHER WITH interest at the rate required to be paid by
Administrative Agent upon the amount required to be repaid by it.
(e) OBLIGATION OF LENDERS. If Borrower fails to reimburse
Administrative Agent as provided in SECTION 2.4(c) within 24 hours of
the demand therefor by Administrative Agent and funds cannot be
advanced under the Revolver Facility to satisfy the reimbursement
obligations, then Administrative Agent shall promptly notify each
Revolver Lender of Borrower's failure, of the date and amount of the
draft paid, and of such Revolver Lender's Commitment Percentage (based
upon the Revolver Facility) thereof. Each Revolver Lender shall
promptly and unconditionally fund its participation interest in such
unreimbursed draft by making available to Administrative Agent in
immediately available funds such Revolver Lender's Commitment
Percentage (based upon the Revolver Facility) of the unreimbursed
draft. Funds are due and payable to Administrative Agent on or before
the close of business on the Business Day when Administrative Agent
gives notice to each Revolver Lender of Borrower's reimbursement
failure (if given prior to 1:00 p.m., Dallas, Texas time) or on the
next succeeding Business Day (if notice was given after 1:00 p.m.,
Dallas, Texas time). All amounts payable by any Revolver Lender shall
accrue interest at the Federal Funds Rate from the day the applicable
draft is paid by Administrative Agent to (but not including) the date
the amount is paid by the Revolver Lender to Administrative Agent.
(f) DUTIES OF ADMINISTRATIVE AGENT AS ISSUING LENDER.
Administrative Agent agrees with each Revolver Lender that it will
exercise and give the same care and attention to each LC as it gives to
its other letters of credit. Administrative Agent's sole liability to
each Revolver Lender with respect to such LCs (OTHER THAN liability
arising from the gross negligence or willful misconduct of
Administrative Agent) shall be to distribute promptly to each Revolver
Lender who has acquired a participating interest therein such Revolver
Lender's ratable portion of any payments made to Administrative Agent
by Borrower pursuant to SECTION 2.4(c). Each Revolver Lender and
Borrower agree that, in paying any draw under any LC, Administrative
Agent shall not have any responsibility to obtain any document (OTHER
THAN any documents required by the respective LC) or to ascertain or
inquire as to any document's validity, enforceability, sufficiency,
accuracy, or genuineness or the authority of any Person delivering any
such document. Administrative Agent, Revolver Lenders, and their
respective Representatives shall not be liable to any other Lender or
any Loan Party for any LCs use or for any beneficiary's acts or
omissions. Any action, inaction, error, delay, or omission taken or
suffered by Administrative Agent or any of its Representatives under or
in connection with any LC, applicable drafts or documents, or the
transmission, dispatch, or delivery of any related message or advice,
if in good faith and in conformity with such Laws as Administrative
Agent or any of its Representatives may deem applicable and in
accordance with the standards of care specified in the UNIFORM CUSTOMS
AND PRACTICE FOR DOCUMENTARY CREDITS issued by the International
Chamber of Commerce, as in effect on the date of issue of such LC,
shall be binding upon the Loan Parties and Lenders and shall not place
Administrative Agent or any of its Representatives under any resulting
liability to any Loan Party or any Lender.
(g) CASH COLLATERAL. On the Termination Date for the Revolver
Facility, or on any date that the LC Exposure exceeds the
then-effective commitment under the LC Subfacility, or upon any demand
by Administrative Agent upon the occurrence and during the continuance
of a Default, Borrower shall provide to Administrative Agent, for the
benefit of Revolver Lenders, (i) cash collateral in Dollars in an
amount equal to 110% of the LC Exposure existing on such date, such
cash and all interest thereon shall constitute cash collateral for all
LCs, and (ii) such additional cash collateral as Administrative Agent
may from time to time require, so that the cash collateral amount shall
at all times equal or exceed 110% the LC Exposure. Any cash collateral
deposited under this CLAUSE (G), and all interest earned thereon, shall
be held by Administrative Agent and invested and
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reinvested at the expense and the written direction of Borrower, in
U.S. Treasury Bills with maturities of no more than ninety (90) days
from the date of investment.
(h) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY, PAY,
AND SAVE ADMINISTRATIVE AGENT AND EACH LENDER HARMLESS FROM AND AGAINST
ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, OR LOSSES OF, OR
OWED TO THIRD PARTIES (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
NEGLIGENCE OF ADMINISTRATIVE AGENT, LENDERS, OR THEIR RESPECTIVE
REPRESENTATIVES), AND ANY AND ALL RELATED COSTS, CHARGES, AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES), WHICH ADMINISTRATIVE AGENT, OR
ANY LENDER MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE, DIRECT OR
INDIRECT, OF (A) THE ISSUANCE OF ANY LC, (B) ANY DISPUTE ABOUT AN LC,
OR (C) THE FAILURE OF ADMINISTRATIVE AGENT TO HONOR A DRAFT UNDER SUCH
LC AS A RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY
PRESENT OR FUTURE GOVERNMENTAL AUTHORITY. HOWEVER, NO PERSON IS
ENTITLED TO INDEMNITY HEREUNDER FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. THE FOREGOING INDEMNITY PROVISIONS SHALL SURVIVE THE
SATISFACTION AND PAYMENT OF THE OBLIGATION AND TERMINATION OF THIS
AGREEMENT.
(i) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this Agreement in any manner. The fees and other
amounts payable with respect to each LC are as provided in this
Agreement, Borrower's reimbursement obligation with respect to drafts
under any LC shall be deemed part of the Obligation, and in the event
of any conflict between the terms of this Agreement and any LC
Agreement, the terms of this Agreement shall be controlling.
2.5 SWING LINE SUBFACILITY.
(a) For the convenience of the parties and as an integral part
of the transactions contemplated by the Loan Documents, Swing Line
Lender, solely for its own account, agrees to make any requested
Borrowing of $1,000,000 or a greater integral multiple of $100,000,
subject to those terms and conditions applicable to Borrowings set
forth in SECTION 7.3(c), (d), (e), (f), (g), and (h), directly to
Borrower as a Swing Line Borrowing without requiring any other Lender
to fund its Pro Rata Part thereof unless and until SECTION 2.5(b) is
applicable; PROVIDED THAT: (i) each Swing Line Borrowing must occur on
a Business Day and no later than the Business Day immediately preceding
the Termination Date for the Revolver Facility; (ii) the aggregate
Swing Line Principal Debt outstanding on any date of determination
shall not exceed the Swing Line Commitment; (iii) on any date of
determination, the Revolver Commitment Usage shall never exceed the
Revolver Commitment; (iv) the Revolver Principal Debt outstanding on
any date of determination shall not exceed the Revolver Commitment then
in effect; (v) at the time of such Swing Line Borrowing, no Default or
Potential Default shall have occurred and be continuing; (vi) each
Swing Line Borrowing shall bear interest at a rate per annum equal to
the Base Rate PLUS the Applicable Margin for Base Rate Borrowings under
the Revolver Facility; PROVIDED THAT at any time after Revolver Lenders
are deemed to have purchased, pursuant to SECTION 2.5(b), a
participation in any Swing Line Borrowing, such Borrowing shall bear
interest at the Default Rate; and (vii) no additional Swing Line
Borrowing shall be made at any time after any Revolver Lender has
refused, notwithstanding the requirements of SECTION 2.5(b), to
purchase a participation in any Swing Line Borrowing as provided in
such Section, until such purchase shall occur or until the Swing Line
Borrowing has been repaid. Each Borrowing under the Swing Line
Subfacility shall be available and may be prepaid on same day
telephonic notice from Borrower to Swing Line Lender, SO LONG AS such
notice is received by Swing Line Lender prior to 1:00 p.m., Dallas,
Texas time. Accrued interest on Swing Line Borrowings
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shall be due and payable on each March 31, June 30, September 30, and
December 31, and on the Termination Date for the Revolver Facility. On
each Swing Line Maturity Date, all Swing Line Principal Debt then
outstanding shall be repaid in full.
(b) If Borrower fails to repay any Swing Line Borrowing as
provided herein, and funds cannot be or are not advanced under the
Revolver Facility to satisfy the obligations under the Swing Line
Subfacility, Administrative Agent shall timely notify each Revolver
Lender of such failure and of the date and amount not paid. No later
than the close of business on the date such notice is given (if such
notice was given prior to 12:00 noon, Dallas, Texas time on any
Business Day, or, if made at any other time, on the next Business Day
following the date of such notice), each Revolver Lender shall be
deemed to have irrevocably and unconditionally purchased and received
from Swing Line Lender an undivided interest and participation in such
Swing Line Borrowing to the extent of such Revolver Lender's Pro Rata
Part (with respect to the Revolver Facility) thereof, and each Revolver
Lender shall make available to Swing Line Lender in immediately
available funds such Revolver Lender's Pro Rata Part (with respect to
the Revolver Facility) of the unpaid amount of such Swing Line
Borrowing. All such amounts payable by any Revolver Lender shall
include interest thereon from the date on which such payment is payable
by such Revolver Lender to, but not including, the date such amount is
paid by such Revolver Lender to Administrative Agent, at the Federal
Funds Rate. If such Revolver Lender does not promptly pay such amount
upon Administrative Agent's demand therefor, and until such time as
such Revolver Lender makes the required payment, Swing Line Lender
shall be deemed to continue to have outstanding a Swing Line Borrowing
in the amount of such unpaid obligation. Each payment by Borrower of
all or any part of any Swing Line Borrowing shall be paid to
Administrative Agent for the ratable benefit of Swing Line Lender and
those Revolver Lenders who have funded their participations in such
Swing Line Principal Debt under this SECTION 2.5(b); PROVIDED THAT,
with respect to any such participation, all interest accruing on the
Swing Line Principal Debt to which such participation relates prior to
the date of funding such participation shall be payable solely to Swing
Line Lender for its own account. In the event that any payment received
by the Swing Line Lender is required to be returned, each Revolver
Lender will return to the Swing Line Lender any portion thereof
previously distributed by the Swing Line Lender to it.
(c) Notwithstanding anything to the contrary in this
Agreement, each Revolver Lender's obligation to fund the Borrowings and
to purchase and fund participating interests pursuant to SECTION 2.5(b)
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense, or other Right which such Revolver
Lender or Borrower may have against the Swing Line Lender, Borrower, or
any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Potential Default or a Default or the failure to
satisfy any of the conditions specified in SECTION 7; (iii) any adverse
change in the condition (financial or otherwise) of any Loan Party;
(iv) any breach of this Agreement by Borrower, any Guarantor, or any
Lender; or (v) any other circumstance, happening, or event whatsoever,
whether or not similar to any of the foregoing.
2.6 DISCRETIONARY FACILITY.
(a) DISCRETIONARY FACILITY AND DISCRETIONARY LOAN
SUBFACILITIES. SO LONG AS no Default or Potential Default under the
Loan Documents and no "DEFAULT," "EVENT OF DEFAULT," or "VOTING RIGHTS
TRIGGERING EVENT" under any Preferred Stock or Communications Bond Debt
then exists or arises as a result of any Discretionary Loan (or
commitment therefor or Borrowing thereunder), then subject to the terms
and conditions of this SECTION 2.6, on and after the Closing Date but
on or prior to December 31, 2001 (for Discretionary Revolver Loans and
Discretionary
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Term B Loans), or April 30, 2001 (for Discretionary Term A Loans),
Borrower may request the consent of Required Lenders and Administrative
Agent to Borrower's obtaining a Discretionary Loan (in an amount of not
less than $50,000,000 or a greater integral multiple of $5,000,000 or
such lesser amount as may be available under the Maximum Discretionary
Commitment) under one or more of the following Discretionary Loan
Subfacilities; PROVIDED THAT, the consent of Required Lenders shall not
be required for the first $125,000,000 of usage under the Discretionary
Facility, SO LONG AS such usage is in the form of a Discretionary Term
B Loan:
(i) DISCRETIONARY REVOLVER SUBFACILITY pursuant to
which one or more Discretionary Revolver Loans (and Borrowings
thereunder) may be made by one or more Discretionary Lenders
committing to such Discretionary Revolver Loan, SO LONG AS (A)
one or more Discretionary Lenders commit to each such
Discretionary Revolver Loan in accordance with the procedures
set forth in SECTIONS 2.6(c) and 2.6(d) hereof; (B) on the
date commitments for each such Discretionary Revolver Loan are
effective and on each Borrowing Date thereunder, (x) the SUM
of the aggregate Committed Sums of all Discretionary Lenders
for all other Discretionary Revolver Loans, the aggregate
Discretionary Term A Loan Principal Debt (or unfunded
Committed Sums for any Discretionary Term A Loan) under all
Discretionary Term A Loans, and the aggregate Discretionary
Term B Loan Principal Debt (or unfunded committed Sums for any
discretionary Term B Loan) under all Discretionary Term B
Loans DOES NOT EXCEED (y) the Maximum Discretionary
Commitment; (C) each Discretionary Revolver Loan shall
terminate on the Termination Date for the Revolver Facility;
(D) the interest rates for Borrowings under each Discretionary
Revolver Loan shall be identical to the applicable interest
rates for Borrowings under the Revolver Facility; and (E)
Borrowings under each Discretionary Revolver Loan shall be
made, prepaid, and repaid on identical terms as Borrowings
under the Revolver Facility.
(ii) DISCRETIONARY TERM A LOAN SUBFACILITY pursuant
to which one or more Discretionary Term A Loans (and
Borrowings thereunder) may be made by one or more
Discretionary Lenders committing to such Discretionary Term A
Loan, SO LONG AS (A) one or more Discretionary Lenders commit
to each such Discretionary Term A Loan in accordance with the
procedures set forth in SECTIONS 2.6(c) and 2.6(d) hereof; (B)
on the date commitments for each such Discretionary Term A
Loan are effective and on each Borrowing Date thereunder, (x)
the SUM of the aggregate Committed Sums of all Discretionary
Lenders for all Discretionary Revolver Loans, the aggregate
Discretionary Term A Loan Principal Debt (or unfunded
Committed Sums for any Discretionary Term A Loan) under all
Discretionary Term A Loans, and the aggregate Discretionary
Term B Loan Principal Debt (or unfunded Committed Sums for any
Discretionary Term B Loan) under all Discretionary Term B
Loans DOES NOT EXCEED (y) the Maximum Discretionary
Commitment; (C) each Discretionary Term A Loan shall terminate
on the Termination Date for the Term Loan A Facility; (D) the
interest rates for Borrowings under each Discretionary Term A
Loan shall be identical to the applicable interest rates for
Borrowings under the Term Loan A Facility; and (E) Borrowings
under each Discretionary Term A Loan shall be made, prepaid,
and repaid on identical terms as Borrowings under the Term
Loan A Facility.
(iii) DISCRETIONARY TERM B LOAN SUBFACILITY pursuant
to which one or more Discretionary Term B Loans (and
Borrowings thereunder) may be made by one or more
Discretionary Lenders committing to such Discretionary Term B
Loan, SO LONG AS (A) one or more Discretionary Lenders commit
to each such Discretionary Term B Loan in accordance with the
procedures set forth in SECTIONS 2.6(c) and 2.6(d) hereof; (B)
on the date commitments for each such Discretionary Term B
Loan are effective and on each Borrowing Date thereunder, (x)
the SUM of the aggregate Committed Sums of all
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Discretionary Lenders for all Discretionary Revolver Loans,
the aggregate Discretionary Term A Loan Principal Debt (or
unfunded Committed Sums for any Discretionary Term A Loan)
under all Discretionary Term A Loans, and the aggregate
Discretionary Term B Loan Principal Debt (or unfunded
Committed Sums for any Discretionary Term B Loan) under all
Discretionary Term B Loans DOES NOT EXCEED (y) the Maximum
Discretionary Commitment; (C) such Discretionary Term B Loan
shall not terminate on a date earlier than the Termination
Date for the Term Loan B Facility and shall terminate on the
date specified in the applicable Supplemental Credit
Documents; (D) the interest rates for Borrowings under each
Discretionary Term B Loan shall be Eurodollar Rate Borrowings
or Base Rate Borrowings with an Applicable Margin not to
exceed the Applicable Margin for Borrowings under the Term B
Loan Facility by more than .25% (after giving effect to any
adjustments in the interest rates for the Term Loan B Facility
contemplated by SECTION 3.4); (E) Borrowings under each
Discretionary Term B Loan shall be made and prepaid on
identical terms as Borrowings under the Term Loan B Facility,
subject to the "OPT-OUT" provisions of SECTION 3.3(f); and (F)
Borrowings under each Discretionary Term B Loan shall be
amortized in accordance with the amortization schedule
specified in the applicable Supplemental Credit Documents;
PROVIDED THAT the scheduled amortization of any Discretionary
Term B Loan Principal Debt under any Discretionary Term B Loan
must provide for a weighted average life to maturity for such
Discretionary Term B Loan that is equal to or longer than the
weighted average life to maturity for the Term Loan B Facility
(determined as of the date such Discretionary Term B Loan is
advanced).
No Lender shall be obligated to consent, to commit, or to agree to
commit, to any request for Discretionary Loans, and the consent by any
Lender to such request shall not be deemed to be a commitment to lend
under the Discretionary Facility, which commitment shall only be made
and evidenced in accordance with the procedures set forth in SECTION
2.6(d).
(b) PURPOSE OF BORROWINGS UNDER DISCRETIONARY FACILITY. The
proceeds of each Borrowing under the Discretionary Facility may only be
used by Borrower for the purposes of: (i) financing in whole or in part
a Permitted Acquisition, (ii) financing Capital Expenditures for the
cost of telecommunications network assets and equipment (including the
cost of design, development, construction, installation, or integration
thereof) by the Companies, and (iii) to the extent permitted by the
terms of the Communications Bond Debt and the Preferred Stock,
financing working capital or general corporate purposes of the
Companies.
(c) DISCRETIONARY LOAN REQUESTS. After Required Lenders and
Administrative Agent have consented in writing to the Discretionary
Loan (but not their respective commitments thereunder) in accordance
with SECTION 2.6(a) and SO LONG AS no Default or Potential Default
under the Loan Documents and no "DEFAULT," "EVENT OF DEFAULT," or
"VOTING RIGHTS TRIGGERING EVENT" under any Preferred Stock or
Communications Bond Debt then exists or arises as a result of any
Discretionary Loan (or commitment therefor or Borrowing thereunder),
Borrower may request from time to time on or prior to December 31, 2001
(for Discretionary Revolver Loans and Discretionary Term B Loans), or
April 30, 2001 (for Discretionary Term A Loans), subject to the other
terms and conditions hereof, that Lenders commit to make Borrowings to
Borrower under one or more discretionary loans (each, a "DISCRETIONARY
LOAN"), by giving written notice thereof to Administrative Agent (a
"DISCRETIONARY LOAN REQUEST"), (i) specifying the Discretionary Loan
Subfacility under which such Discretionary Loan is requested; (ii)
specifying the amount of the requested Discretionary Loan under the
Discretionary Facility (which amount shall be no less than $50,000,000
or a greater integral multiple of $5,000,000 or such lesser amount as
may be available under the Maximum Discretionary Commitment); (iii)
designating the date on which the proposed Discretionary Loan is to be
effective; and (iv) specifying the purpose for which such Discretionary
Loan proceeds will be used. Upon receipt of any such Discretionary Loan
Request and such other
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information as the Administrative Agent shall reasonably request in
connection therewith, and after the determination by the Administrative
Agent that any proposed Acquisition (if any) satisfies the criteria for
a Permitted Acquisition, the Administrative Agent shall promptly notify
the Lenders of such Discretionary Loan Request and shall request
commitments from Lenders with respect thereto (a "COMMITMENT REQUEST"),
which Commitment Request shall be made within 10 Business Days after
receipt of all such information by the Administrative Agent. No Lender
shall be obligated to commit pursuant to any Commitment Request.
(d) DISCRETIONARY LOAN COMMITMENTS. Together with each
Discretionary Loan Request, Borrower shall deliver to Administrative
Agent, with sufficient copies for each Lender, (i) evidence
satisfactory to Administrative Agent that, after giving effect to the
requested Discretionary Loan (and any contemplated Borrowings under the
related Discretionary Loan), no "DEFAULT," "EVENT OF DEFAULT," or
"VOTING RIGHTS TRIGGERING EVENT" exists or arises under any Preferred
Stock or the Communications Bond Debt and the Debt to be incurred under
the proposed Discretionary Loan and any increase in the Principal Debt
and Total Commitment may be incurred in compliance with the provisions
of the Preferred Stock and the Communications Bond Debt, and (ii) such
additional information as Administrative Agent or any Lender shall
request. Within thirty (30) calendar days after receipt of a Commitment
Request (or such lesser period of time as set forth in such Commitment
Request, but in no event less than 5 calendar days), each Lender
interested in making a commitment to lend with respect to the
Commitment Request shall notify the Administrative Agent and Borrower
of its intent to so commit and the maximum amount of its proposed
commitment to lend (such notice being a "COMMITMENT NOTICE").
Thereafter, after consultation with Borrower, the Administrative Agent
shall advise each Lender submitting a Commitment Notice of the
allocated amount of such Lender's Discretionary Commitment for the
related Discretionary Loan and designate the date upon which such
Discretionary Loan shall be effective (the "DISCRETIONARY LOAN
EFFECTIVE DATE"); PROVIDED, HOWEVER, that the Discretionary Loan
Effective Date shall be on or prior to December 31, 2001 (for
Discretionary Revolver Loans and Discretionary Term B Loans), or April
30, 2001 (for Discretionary Term A Loans).
(e) ADDITIONAL DISCRETIONARY LENDERS. If the aggregate amount
of the Discretionary Commitments for any requested Discretionary Loan
received from the Lenders does not equal or exceed the amount requested
in the Commitment Request for such Discretionary Loan, then Borrower
shall have the Right to add one or more financial institutions (so long
as such financial institutions qualify as Eligible Assignees) as
Lenders (as used in this SECTION 2.6, a "NEW LENDER"). Any addition of
a New Lender must be effected by an amendment that is executed in
accordance with SECTION 13.11 by Borrower, Administrative Agent, and
such New Lender who has committed to a Discretionary Commitment for the
requested Discretionary Loan. Upon the execution of such amendment,
SCHEDULE 2.1 shall be revised to reflect the addition of each New
Lender. Each New Lender providing a Discretionary Commitment for any
requested Discretionary Loan shall be a "DISCRETIONARY LENDER" and a
"LENDER" hereunder, entitled to the Rights and benefits, and subject to
the duties, of an Discretionary Lender and a Lender under the Loan
Documents.
(f) SUPPLEMENTAL CREDIT DOCUMENTS. Each Discretionary Loan (i)
will be subject to the terms and conditions of this Agreement and (ii)
will be secured and guaranteed by the Collateral Documents and the
Guaranties. The Discretionary Commitment of each Discretionary Lender
with respect to each Discretionary Loan will be subject, among other
things, to (A) obtaining agreement with Borrower as to the fronting
fees or other applicable fees payable in respect of such Discretionary
Loan, (B) to the extent any New Lenders are party to such Discretionary
Loan, execution and delivery of all necessary amendments referred to in
SECTION 2.6(e), and (C) the execution and delivery by the Loan Parties
and each Discretionary Lender party to the respective Discretionary
Loan, as appropriate, of all documents reasonably requested by the
applicable Discretionary Lenders to evidence and effect the applicable
Discretionary Loan, including, without
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limitation, a supplement to this Agreement memorializing, among other
things, the amount of the Discretionary Loan, the Discretionary
Lenders, the respective Discretionary Commitments of such Discretionary
Lenders, the Discretionary Loan Effective Date for such Discretionary
Loan, and solely with respect to each Discretionary Term B Loan, the
scheduled principal amortization, the applicable interest rates, and
the applicable Termination Date for such Discretionary Term B Loan
(collectively, the "SUPPLEMENTAL CREDIT DOCUMENTS"), which Supplemental
Credit Documents shall be accepted and acknowledged by Administrative
Agent.
(g) DISCRETIONARY LOANS AND BORROWINGS. With respect to each
Discretionary Loan and subject to the terms and conditions of the Loan
Documents and the applicable Supplemental Credit Documents for such
Discretionary Loan, each Discretionary Lender holding a Discretionary
Commitment for the applicable Discretionary Loan, severally, but not
jointly, agrees to lend to Borrower such Discretionary Lender's
Commitment Percentage of one or more Borrowings under such
Discretionary Loan not to exceed such Discretionary Lender's Committed
Sum for the applicable Discretionary Loan; PROVIDED THAT, (a) each such
Borrowing must occur on a Business Day and no later than the Business
Day immediately preceding the Termination Date for the applicable
Discretionary Loan; and (b) on any date of determination, the aggregate
Borrowings advanced by any Discretionary Lender under the applicable
Discretionary Loan shall never exceed such Discretionary Lender's
Discretionary Commitment for such Discretionary Loan. Borrowings under
each Discretionary Loan shall be made in accordance with the procedures
set forth in SECTION 2.8 and shall be subject to all terms and
conditions of the Loan Documents including, without limitation,
SECTIONS 7.2 and 7.3, as applicable.
2.7 TERMINATIONS OR REDUCTIONS OF COMMITMENTS.
(a) VOLUNTARY COMMITMENT REDUCTION. Without premium or
penalty, and upon giving not less than ten Business Days prior written
and irrevocable notice to Administrative Agent, Borrower may terminate
in whole or in part the unused portion of the Total Revolver
Commitment, the Swing Line Commitment, or the commitment under the LC
Subfacility; PROVIDED THAT: (i) each partial termination of the Total
Revolver Commitment shall be in an amount of not less than $5,000,000
or a greater integral multiple of $1,000,000; each partial termination
of the Swing Line Commitment or the commitment under the LC Subfacility
shall be in an amount of not less than $1,000,000 or a greater integral
multiple of $250,000; (ii) on any date of determination, the amount of
the Revolver Commitment may not be reduced below the Revolver
Commitment Usage; the amount of any Discretionary Revolver Commitment
for any Discretionary Revolver Loan may not be reduced below the
Discretionary Revolver Principal Debt for such Discretionary Revolver
Loan; the Swing Line Commitment may not be reduced below the Swing Line
Principal Debt, and the commitment under the LC Subfacility shall not
be reduced below the LC Exposure; and (iii) each reduction of the Total
Revolver Commitment shall be allocated ratably among the Revolver
Commitment and the Discretionary Revolver Commitment under all
Discretionary Revolver Loans (for purposes hereof, "RATABLY" shall mean
the proportion that the Revolver Commitment or the Discretionary
Revolver Commitment under each Discretionary Revolver Loan bears to the
Total Revolver Commitment). Concurrently with any reduction in any
Discretionary Revolver Commitment for any Discretionary Revolver Loan,
the Maximum Discretionary Commitment shall be reduced by a like amount.
At the time of any commitment termination under this SECTION 2.7,
Borrower shall pay to Administrative Agent, for the account of each
Revolver Lender or each Discretionary Revolver Lender, as applicable,
any amounts that may then be due under SECTION 3.3(d), all accrued and
unpaid fees then due and payable under this Agreement, the interest
attributable to the amount of that reduction, and any related
Consequential Loss. Any part of the Revolver Commitment, the
Discretionary Revolver Commitment for any Discretionary Revolver Loan,
the Maximum Discretionary Commitment, the Swing Line Commitment, or the
commitment under the LC Subfacility that is terminated may not be
reinstated.
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(b) MANDATORY COMMITMENT REDUCTIONS. To the extent of any
payment or reduction of the Total Revolver Principal Debt pursuant to
SECTION 3.12(b) or any prepayment resulting in a mandatory reduction of
the Revolver Commitment or any Discretionary Revolver Commitment for
any Discretionary Revolver Loan as required by SECTION 3.3(b), then the
Revolver Commitment or such Discretionary Revolver Commitment for the
applicable Discretionary Revolver Loan (as the case may be) shall be
reduced by the amount of such payment, and each Revolver Lender's
Committed Sum under the Revolver Facility or each Discretionary
Revolver Lender's Committed Sum under the applicable Discretionary
Revolver Loan (as the case may be) shall be ratably reduced by such
amount.
(c) ADDITIONAL REDUCTIONS. The Swing Line Commitment and the
commitment under the LC Subfacility shall each be reduced from time to
time on the date of any mandatory or voluntary reduction of the
Revolver Commitment by the amount, if any, by which either such
Subfacility exceeds the Revolver Commitment after giving effect to such
reduction of the Revolver Commitment.
(d) RATABLE ALLOCATION OF REVOLVER COMMITMENT REDUCTIONS. Each
reduction of the Revolver Commitment or the Discretionary Revolver
Commitment for any Discretionary Revolver Loan under this SECTION 2.7
shall be allocated among the Revolver Lenders and the Discretionary
Revolver Lenders for the applicable Discretionary Revolver Loan(as
applicable) in accordance with their respective Commitment Percentages
under the Revolver Facility or the applicable Discretionary Revolver
Loan (as applicable).
2.8 BORROWING PROCEDURE. The following procedures apply to all
Borrowings (OTHER THAN Swing Line Borrowings and Borrowings pursuant to SECTION
2.4(c)):
(a) BORROWING REQUEST. Borrower may request a Borrowing by
making or delivering a Borrowing Notice to Administrative Agent
requesting that Lenders fund a Borrowing on a certain date (the
"BORROWING DATE"), which Borrowing Notice (i) shall be irrevocable and
binding on Borrower, (ii) shall specify the Facility or Facilities (or
in the case of Discretionary Loans, the Discretionary Loan or Loans
under which such Borrowing is being made), (iii) shall specify the
Borrowing Date, amount, Type, and (for a Borrowing comprised of
Eurodollar Rate Borrowings) Interest Period, (iv) must be received by
Administrative Agent no later than 10:00 a.m. Dallas, Texas time on the
third Business Day preceding the Borrowing Date for any Eurodollar Rate
Borrowing or on the Business Day immediately preceding the Borrowing
Date for any Base Rate Borrowing; and (v) and shall state the purpose
or purposes for which such Borrowing is being requested. Administrative
Agent shall timely notify each Lender with respect to each Borrowing
Notice.
(b) FUNDING. Each Lender shall remit its Commitment Percentage
for the relevant Facility or Discretionary Loan of each requested
Borrowing to Administrative Agent's principal office in Dallas, Texas,
in funds which are or will be available for immediate use by
Administrative Agent by 1:00 p.m. Dallas, Texas time on the applicable
Borrowing Date. Subject to receipt of such funds, Administrative Agent
shall (unless to its actual knowledge any of the conditions precedent
therefor have not been satisfied by Borrower or waived by the requisite
Lenders under SECTION 13.11) make such funds available to Borrower by
causing such funds to be deposited to Borrower's account as designated
to Administrative Agent by Borrower.
(c) FUNDING ASSUMED. Absent contrary written notice from a
Lender, Administrative Agent may assume that each Lender has made its
Commitment Percentage of the requested Borrowing available to
Administrative Agent on the applicable Borrowing Date, and
Administrative Agent may, in reliance upon such assumption (but shall
not be required to), make available to Borrower a corresponding amount.
If a Lender fails to make its Commitment Percentage of any
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<PAGE>
requested Borrowing available to Administrative Agent on the applicable
Borrowing Date, Administrative Agent may recover the applicable amount
on demand, (i) from that Lender together with interest, commencing on
the Borrowing Date and ending on (but excluding) the date
Administrative Agent recovers the amount from that Lender, at an annual
interest rate equal to the Federal Funds Rate, or (ii) if that Lender
fails to pay its amount upon demand, then from Borrower. No Lender is
responsible for the failure of any other Lender to make its Commitment
Percentage of any Borrowing available as required by SECTION 2.8(b);
however, failure of any Lender to make its Commitment Percentage of any
Borrowing so available does not excuse any other Lender from making its
Commitment Percentage of any Borrowing so available.
SECTION 3 TERMS OF PAYMENT.
3.1 LOAN ACCOUNTS, NOTES, AND PAYMENTS.
(a) LOAN ACCOUNTS; NOTELESS TRANSACTION. The Principal Debt
owed to each Lender shall be evidenced by one or more loan accounts or
records maintained by such Lender in the ordinary course of business.
The loan accounts or records maintained by Administrative Agent
(including, without limitation, the Register) and each Lender shall be
prima facie evidence absent manifest error of the amount of the
Borrowings made by Borrower from each Lender under this Agreement (and
the Facilities, Subfacilities, and Discretionary Loans thereunder) and
the interest and principal payments thereon. Any failure to so record
or any error in doing so shall not, however, limit or otherwise affect
the obligation of Borrower under the Loan Documents to pay any amount
owing with respect to the Obligation.
(b) NOTES. Upon the request of any Lender, made through
Administrative Agent, the Principal Debt owed to such Lender may be
evidenced by one or more of the following Notes (as the case may be):
(i) a Revolver Note (with respect to Revolver Principal Debt OTHER THAN
under the Swing Line Subfacility); (ii) a Swing Line Note (with respect
to the Swing Line Principal Debt); (iii) a Term Loan A Note (with
respect to Term Loan A Principal Debt); (iv) a Term Loan B Note (with
respect to Term Loan B Principal Debt); (v) for each Discretionary
Revolver Loan, a Discretionary Revolver Note; (vi) for each
Discretionary Term A Loan, a Discretionary Term A Note, and (vii) for
each Discretionary Term B Loan, a Discretionary Term B Note. In such
event, Borrower shall promptly prepare, execute, and deliver to such
Lender such Note payable to the order of such Lender.
(c) PAYMENT. All payments of principal, interest, and other
amounts to be made by Borrower under this Agreement and the other Loan
Documents shall be made to Administrative Agent at its principal office
in Dallas, Texas in Dollars and in funds which are or will be available
for immediate use by Administrative Agent by 12:00 noon Dallas, Texas
time on the day due, without setoff, deduction, or counterclaim.
Payments made after 12:00 noon, Dallas, Texas, time shall be deemed
made on the Business Day next following. Administrative Agent shall pay
to each Lender any payment of principal, interest, or other amount to
which such Lender is entitled hereunder on the same day Administrative
Agent shall have received the same from Borrower; PROVIDED such payment
is received by Administrative Agent prior to 12:00 noon, Dallas, Texas
time, and otherwise before 12:00 noon Dallas, Texas time on the
Business Day next following.
(d) PAYMENT ASSUMED. Unless Administrative Agent has received
notice from Borrower prior to the date on which any payment is due
under this Agreement that Borrower will not make that payment in full,
Administrative Agent may assume that Borrower has made the full payment
due and Administrative Agent may, in reliance upon that assumption,
cause to be distributed to the appropriate Lender on that date the
amount then due to such Lenders. If and to the extent Borrower does not
make the full payment due to Administrative Agent, each Lender shall
repay to
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Administrative Agent on demand the amount distributed to that Lender by
Administrative Agent together with interest for each day from the date
that Lender received payment from Administrative Agent until the date
that Lender repays Administrative Agent (unless such repayment is made
on the same day as such distribution), at an annual interest rate equal
to the Federal Funds Rate.
3.2 INTEREST AND PRINCIPAL PAYMENTS.
(a) INTEREST. Accrued interest on each Eurodollar Rate
Borrowing is due and payable on the last day of its respective Interest
Period and on the Termination Date for the applicable Facility or
Discretionary Loan, as applicable; PROVIDED THAT, if any Interest
Period is greater than three months, then accrued interest is also due
and payable on the three month anniversary of the date on which such
Interest Period commences and on each three month anniversary
thereafter, as well as on the last day of such Interest Period. Accrued
interest on each Base Rate Borrowing shall be due and payable on each
March 31, June 30, September 30, and December 31, and on the
Termination Date for the applicable Facility or Discretionary Loan, as
applicable.
(b) REVOLVER PRINCIPAL DEBT AND THE DISCRETIONARY REVOLVER
PRINCIPAL DEBT. The Revolver Principal Debt and the Discretionary
Revolver Principal Debt for any Discretionary Revolver Loan is due and
payable on the Termination Date for the Revolver Facility.
(c) TERM LOAN A PRINCIPAL DEBT. The Term Loan A Principal Debt
is due and payable in quarterly installments in the principal amounts
indicated in the table below, commencing on June 30, 2001, and
continuing thereafter on the last Business Day of each March, June,
September, and December, with the final payment due on the Termination
Date for the Term Loan A Facility, in accordance with the following
amortization schedule:
<TABLE>
<CAPTION>
============================================== ======================================
PAYMENT DATES PRINCIPAL INSTALLMENTS
============================================== ======================================
<S> <C>
June 30, 2001, September 30, 2001, $5,000,000/each
December 31, 2001, and March 31, 2002
- ---------------------------------------------- --------------------------------------
June 30, 2002, September 30, 2002, $7,500,000/each
December 31, 2002, and March 31, 2003
- ---------------------------------------------- --------------------------------------
June 30, 2003, September 30, 2003, $12,500,000/each
December 31, 2003, and March 31, 2004
- ---------------------------------------------- --------------------------------------
June 30, 2004, September 30, 2004, $18,750,000/each
December 31, 2004, and March 31, 2005
- ---------------------------------------------- --------------------------------------
June 30, 2005, September 30, 2005, $18,750,000/each
December 31, 2005, and March 31, 2006
- ---------------------------------------------- --------------------------------------
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<PAGE>
============================================== ======================================
PAYMENT DATES PRINCIPAL INSTALLMENTS
============================================== ======================================
June 30, 2006, September 30, 2006, $25,000,000/each
December 31, 2006, and April 30, 2007
============================================== ======================================
</TABLE>
The Discretionary Term A Principal Debt under each Discretionary Term A
Loan shall be due and payable in quarterly installments; each such
installment shall be in an amount which bears the same proportion to
the amount of the Discretionary Term A Commitment existing on the
initial Borrowing Date for such Discretionary Loan, as each Term Loan A
Principal Debt reduction bears to the Term Loan A Commitment existing
on the initial Borrowing Date for the Term Loan A Facility.
(d) TERM LOAN B PRINCIPAL DEBT. The Term Loan B Principal Debt
is due and payable in quarterly installments in the principal amounts
indicated in the table below, commencing on March 31, 2000, and
continuing thereafter on the last Business Day of each March, June,
September, and December, with the final payment due on the Termination
Date for the Term Loan B Facility, in accordance with the following
amortization schedule:
<TABLE>
<CAPTION>
============================================== ====================================
PAYMENT DATES PRINCIPAL INSTALLMENTS
============================================== ====================================
<S> <C>
Each March 31, June 30, September 30, $375,000/each
and December 31 of fiscal years 2000,
2001, 2002, 2003, 2004, 2005, and 2006
- ---------------------------------------------- ------------------------------------
March 31, 2007, June 30, 2007, $34,875,000/each
September 30, 2007, and December 31, 2007
============================================== ====================================
</TABLE>
The Discretionary Term B Principal Debt under each Discretionary Term B
Loan shall be due and payable in such amounts and on such dates as are
set forth in the Supplemental Credit Documents applicable to such
Discretionary Term B Loan.
3.3 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Except as set forth herein, after
giving Administrative Agent advance written notice of the intent to
prepay, Borrower may voluntarily prepay all or any part of the Total
Revolver Principal Debt, the Swing Line Principal Debt, the Total Term
A Principal Debt, the Term Loan B Principal Debt, or the Discretionary
Term B Principal Debt outstanding under any Discretionary Term B Loan,
from time to time and at any time, in whole or in part, without premium
or penalty; PROVIDED THAT: (i) such notice must be received by
Administrative Agent by 12:00 noon, Dallas, Texas time, one Business
Day preceding the date of prepayment of any Borrowing; (ii) each such
partial prepayment must be in a minimum amount of at least $5,000,000
or a greater integral multiple of $1,000,000 thereof or such lesser
amount as may be outstanding under the applicable Facility or
Discretionary Loan (or with respect to prepayments of the Swing Line
Principal Debt, $1,000,000 or a greater integral multiple of $250,000
thereof or such lesser amount as may be outstanding under the Swing
Line Subfacility); (iii) any Eurodollar Rate Borrowing may only be
prepaid at the end of an applicable Interest Period (unless Borrower
pays the amount of any
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<PAGE>
Consequential Loss); and (iv) Borrower shall pay any related
Consequential Loss within ten (10) days after demand therefor.
CONVERSIONS UNDER SECTION 3.11 are not prepayments. Each notice of
prepayment shall specify the prepayment date, the applicable loan
hereunder of Principal Debt being prepaid, and the Type of Borrowing(s)
and amount(s) of such Borrowing(s) to be prepaid and shall constitute a
binding obligation of Borrower to make a prepayment on the date stated
therein, TOGETHER WITH (unless such prepayment is made with respect to
a Base Rate Borrowing or Swing Line Borrowing) accrued and unpaid
interest to the date of such payment on the aggregate principal amount
prepaid.
(i) TOTAL REVOLVER PRINCIPAL DEBT. Any voluntary
prepayment of the Total Revolver Principal Debt shall be
applied ratably to the Revolver Principal Debt and the
Discretionary Revolver Principal Debt under each Discretionary
Revolver Loan and shall be allocated Pro Rata to each Revolver
Lender and Discretionary Revolver Lender (for purposes hereof,
"RATABLY" shall mean the proportion that the Revolver
Principal Debt or Discretionary Revolver Principal Debt under
all Discretionary Revolver Loans bears to the Total Revolver
Principal Debt). Unless a Default or Potential Default has
occurred and is continuing (or would arise as a result
thereof), any payment or prepayment of the Total Revolver
Principal Debt may be reborrowed by Borrower, subject to the
terms and conditions of the Loan Documents.
(ii) TOTAL TERM A PRINCIPAL DEBT. Any voluntary
prepayment of the Total Term A Principal Debt, shall be
applied ratably to the Term Loan A Principal Debt and the
Discretionary Term A Loan Principal Debt under all
Discretionary Term A Loans (for purposes hereof, "RATABLY"
shall mean the proportion that the Term Loan A Principal Debt
or the Discretionary Term A Loan Principal Debt under each
Discretionary Term A Loan bears to the Total Term A Principal
Debt), and shall be applied in accordance with CLAUSE (iv)
hereof.
(iii) TERM LOAN B PRINCIPAL DEBT OR DISCRETIONARY
TERM B LOAN PRINCIPAL DEBT. Any voluntary prepayment of the
Term Loan B Principal Debt or the Discretionary Term B Loan
Principal Debt under any Discretionary Term B Loan shall be
applied to the applicable loan as specified by Borrower and
shall be repaid in accordance with CLAUSE (iv).
(iv) APPLICATION. If no Default or Potential Default
then exists or arises as a result therefrom (whereupon the
provisions of SECTION 3.12(b) shall apply), any voluntary
prepayments of the Total Term A Principal Debt, the Term Loan
B Principal Debt, or the Discretionary Term B Loan Principal
Debt under any Discretionary Term B Loan shall be applied in
direct order of maturity to satisfy up to one year's
regularly-scheduled principal installments under the Term Loan
A Facility, the Term Loan B Facility, each Discretionary Term
A Loan, and the applicable Discretionary Term B Loan as set
forth in SECTIONS 3.2(c) and 3.2(d), and thereafter applied
proportionately to the regularly-scheduled principal
installments under the Term Loan A Facility, the Term Loan B
Facility, each Discretionary Term A Loan, and the applicable
Discretionary Term B Loan, as set forth in SECTIONS 3.2(c) and
3.2(d), and shall be allocated Pro Rata to each Term Loan A
Lender, Term Loan B Lender, each Discretionary Term A Loan
Lender under all Discretionary Term A Loans, and each
Discretionary Term B Loan Lender under the applicable
Discretionary Term B Loan.
(b) MANDATORY PREPAYMENTS FROM NET CASH PROCEEDS. Until such
time as the Principal Debt has been repaid in full and the Revolver
Commitment and Discretionary Revolver Commitment under all
Discretionary Revolver Loans terminated in full, the Principal Debt
shall be permanently prepaid (or the Revolver Commitment and
Discretionary Revolver Commitment under all
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Discretionary Revolver Loans reduced to the extent required in this
SECTION 3.3(b)) in the amounts and upon the occurrence of any of the
following events:
(i) Concurrently with any Debt Issuance by any
Company, the Principal Debt shall be permanently prepaid (and
the Revolver Commitment and Discretionary Revolver Commitment
under all Discretionary Revolver Loans reduced to the extent
required in this SECTION 3.3(b)), in the order and manner
specified herein, by an amount equal to 100% of the Net Cash
Proceeds realized by any Company from such Debt Issuance.
(ii) If any portion of the Net Cash Proceeds realized
by any Company or Cellular Partnership Obligor from any
Significant Sale or Permitted Asset Swap (including any
deferred purchase price therefor and any Net Cash Proceeds of
any asset disposition which constitutes a Significant Sale as
a result of aggregation with other asset dispositions in the
same calendar year) has not been reinvested in Cellular Assets
of such Company or Cellular Partnership Obligor within 10
months from the receipt by any Company or Cellular Partnership
Obligor of such Net Cash Proceeds (including receipt of any
deferred payments for any such Significant Sale or Permitted
Asset Swap or portion thereof, if and when received) and if no
Default or Potential Default exists or arises as a result of
any such Significant Sale or Permitted Asset Swap, then on the
day following the 10th month after receipt of such Net Cash
Proceeds, the Principal Debt shall be permanently prepaid (and
the Revolver Commitment and Discretionary Revolver Commitment
under all Discretionary Revolver Loans reduced to the extent
required in this SECTION 3.3(b)), in the order and manner
specified herein, by an amount equal to 100% of all such Net
Cash Proceeds not reinvested in Cellular Assets of such
Company or Cellular Partnership Obligor.
(iii) Concurrently with any Equity Issuance by any
Loan Party (OTHER THAN Cellular Partnership Obligors), the
Principal Debt shall be permanently prepaid (and the Revolver
Commitment and Discretionary Revolver Commitment under all
Discretionary Revolver Loans reduced to the extent required in
this SECTION 3.3(b)) in the order and manner specified herein,
by an amount equal to 75% of the Net Cash Proceeds realized by
any Loan Party (OTHER THAN Cellular Partnership Obligors) from
such Equity Issuance; PROVIDED, HOWEVER, that the following
Net Cash Proceeds may be excluded from such mandatory
prepayment or reduction: (A) the Net Cash Proceeds from the
issuance of up to $100,000,000 of the common stock of
Communications issued after the initial public offering of
Communications, SO LONG AS such Net Cash Proceeds are
contributed or loaned to Dobson JV Company, which in turn
invests or loans such Net Cash Proceeds in or to American
Cellular L.L.C. for the acquisition of Cellular Assets and
Borrower certifies to such use, (B) the Net Cash Proceeds from
the issuance of up to $100,000,000 of common stock of
Communications issued after the initial public offering of
Communications, (C) up to $100,000,000 of Net Cash Proceeds
from the issuance of Class A common stock of Communications to
AT&T Wireless substantially concurrent with the initial public
offering of Communications, and (D) the Net Cash Proceeds from
the issuance of the common stock of Communications issued
after the initial public offering of Communications, SO LONG
AS, such Net Cash Proceeds are distributed to Borrower and
used by Borrower to make one or more Permitted Acquisitions
within 30 days of the receipt of such Net Cash Proceeds.
(iv) At any time a Default or Potential Default
exists or arises after giving effect to any Equity Issuance,
any Significant Sale, or Permitted Asset Swap, then,
concurrently with such Equity Issuance, Significant Sale
(including any asset disposition which constitutes a
Significant Sale as a result of aggregation with other asset
dispositions in the same calendar year), or Permitted Asset
Swap, the Principal Debt shall be permanently prepaid and the
Revolver Commitment and Discretionary Revolver Commitment
under all
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<PAGE>
Discretionary Revolver Loans reduced, in the order and manner
specified in SECTION 3.12(b), by an amount equal to 100% of
the Net Cash Proceeds realized by such Company from any such
Equity Issuance, Significant Sale, or Permitted Asset Swap.
(v) If any Company or Cellular Partnership Obligor is
required to apply (or offer to apply) any Net Cash Proceeds
from any sale of assets (even if such sale is not a
Significant Sale) to repayment of any Debt (OTHER THAN the
Obligation) or to any mandatory redemption of the Preferred
Stock or other equity interests, UNLESS such Company or
Cellular Partnership Obligor pays or commits to pay all or a
part of such Net Cash Proceeds to payment of the Principal
Debt on or prior to a particular date, then at least fifteen
(15) days prior to the date such repayment or offer of
repayment is required to be made on such other Debt, such
Company or Cellular Partnership Obligor shall permanently
prepay the Principal Debt in the order and manner specified
herein by an amount equal to the amount that will excuse the
Company from making such repayment or offer of repayment under
such other Debt.
Each commitment reduction or prepayment under this SECTION 3.3(b) shall
be applied as follows unless a Default or Potential Default then exists
or arises as a result therefrom (whereupon the provisions of SECTION
3.12(b) shall apply): (i) FIRST, subject to the provisions of SECTION
3.3(f), ratably as a prepayment of the obligation arising under the
Term Loan A Facility, the Term Loan B Facility, the Discretionary Term
A Loan Subfacility, and the Discretionary Term B Loan Subfacility until
paid in full (for purposes hereof, "RATABLY" for each Facility or
Discretionary Loan, on any date of determination, shall mean the
proportion that either the Term Loan A Principal Debt, the Term Loan B
Principal Debt, the Discretionary Term A Loan Principal Debt under each
Discretionary Term A Loan, and the Discretionary Term B Loan Principal
Debt under each Discretionary Term B Loan, as the case may be, bears to
the SUM of the Total Term A Principal Debt, the Term Loan B Principal
Debt, and the Discretionary Term B Loan Principal Debt under all
Discretionary Term B Loans); and (ii) SECOND, ratably as a mandatory
prepayment of the Total Revolver Principal Debt, or if the prepayment
arises under SECTION 3.3(b)(ii) or if a Default then exists or arises,
as a ratable mandatory reduction of the Total Revolver Commitment (for
purposes hereof, "RATABLY" for each mandatory prepayment under the
Revolver Facility or any Discretionary Revolver Loan, on any date of
determination, shall mean the proportion that the Revolver Principal
Debt or Discretionary Revolver Principal Debt under each Discretionary
Revolver Loan bears to the Total Revolver Principal Debt; and "RATABLY"
for each mandatory commitment reduction under the Revolver Facility or
any Discretionary Revolver Loan, on any date of determination, shall
mean the proportion that the Revolver Commitment or the Discretionary
Revolver Commitment under each Discretionary Revolver Loan bears to the
Total Revolver Commitment). All mandatory prepayments of the Term Loan
A Principal Debt shall be applied ratably to each unpaid installment of
Term Loan A Principal Debt and shall be allocated Pro Rata to each Term
Loan A Lender. All mandatory prepayments of the Term Loan B Principal
Debt shall be applied ratably to each unpaid installment of Term Loan B
Principal Debt and shall be allocated Pro Rata to each Term Loan B
Lender (OTHER THAN Declining B Lenders). All mandatory prepayments of
the Revolver Facility shall be allocated Pro Rata to each Revolver
Lender. All mandatory prepayments of the Discretionary Term A Loan
Principal Debt under any Discretionary Term A Loan shall be applied
ratably to each unpaid installment of Discretionary Term A Loan
Principal Debt under such Discretionary Term A Loan and shall be
allocated Pro Rata to each Discretionary Term A Loan Lender under such
Discretionary Term A Loan. All mandatory prepayments of the
Discretionary Term B Loan Principal Debt under any Discretionary Term B
Loan shall be applied ratably to each unpaid installment of Term Loan B
Principal Debt under such Discretionary Term B Loan and shall be
allocated Pro Rata to each Discretionary Term B Loan Lender under such
Discretionary Term B Loan (OTHER THAN Declining B Lenders). All
mandatory prepayments of the Discretionary Revolver Facility shall be
allocated Pro Rata to each Discretionary Revolver Lender.
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<PAGE>
(c) MANDATORY PREPAYMENTS FROM EXCESS CASH FLOW. No later than
the 30th day following the date on which Borrower delivers the
Financial Statements required under SECTION 9.3(a) for fiscal year 2000
and each fiscal year thereafter (but in any event within 120 days after
the end of each fiscal year of Borrower), the Principal Debt shall be
permanently prepaid (and the Revolver Commitment and Discretionary
Revolver Commitment under all Discretionary Revolver Loans reduced to
the extent required in this SECTION 3.3(c)) by an amount equal to 50%
of Excess Cash Flow for the fiscal year covered by such Financial
Statements, if the Leverage Ratio of the Companies as of the end of
such fiscal year is greater than 4.0:1.0. Unless a Default or Potential
Default then exists or arises as a result therefrom (whereupon the
provisions of SECTION 3.12(b) shall apply), each reduction or
prepayment under this SECTION 3.3(c) from payments from excess cash
Flow made in fiscal years 2001 and 2002 respectively (based on the
Excess Cash Flow for fiscal years 2000 and 2001 respectively) shall be
applied ratably to the Total Revolver Principal Debt, the Term Loan A
Principal Debt, the Term Loan B Principal Debt, the Discretionary Term
A Loan Principal Debt under all Discretionary Term A Loans, and the
Discretionary Term B Loan Principal Debt under all Discretionary Term B
Loans (for purposes hereof, "RATABLY," for each Facility or
Discretionary Loan, on any date of determination, shall mean the
proportion that either the Revolver Principal Debt, the Discretionary
Revolver Principal Debt under each Discretionary Revolver Loan, the
Term Loan A Principal Debt, the Term Loan B Principal Debt, the
Discretionary Term A Loan Principal Debt under each Discretionary Term
A Loan, and the Discretionary Term B Loan Principal Debt under each
Discretionary Term B Loan, as the case may be, bears to the SUM of the
Total Revolver Principal Debt, the Total Term A Principal Debt, the
Term Loan B Principal Debt, and the Discretionary Term B Loan Principal
Debt under all Discretionary Term B Loans. Unless a Default or
Potential Default then exists or arises as a result therefrom
(whereupon the provisions of SECTION 3.12(b) shall apply), each
reduction or prepayment under this SECTION 3.3(c) from payments from
Excess Cash Flow made in fiscal year 2003 and thereafter shall be
applied (i) FIRST, subject to the provisions of SECTION 3.3(f), ratably
as a prepayment of the Obligation arising under the Term Loan A
Facility, the Term Loan B Facility, the Discretionary Term A Loan
Subfacility, and the Discretionary Term B Loan Subfacility until paid
in full (for purposes hereof, "RATABLY" for each Facility or
Discretionary Loan, on any date of determination, shall mean the
proportion that either the Term Loan A Principal Debt, the Term Loan B
Principal Debt, the Discretionary Term A Loan Principal Debt under each
Discretionary Term A Loan, and the Discretionary Term B Loan Principal
Debt under each Discretionary Term B Loan, as the case may be, bears to
the SUM of the Total Term A Principal Debt, the Term Loan B Principal
Debt, and the Discretionary Term B Loan Principal Debt under all
Discretionary Term B Loans); and (ii) SECOND, ratably as a mandatory
prepayment of the Total Revolver Principal Debt, or if a Default then
exists or arises, as a ratable mandatory reduction of the Total
Revolver Commitment (for purposes hereof, "RATABLY" for each mandatory
prepayment under the Revolver Facility or any Discretionary Revolver
Loan, on any date of determination, shall mean the proportion that the
Revolver Principal Debt or Discretionary Revolver Principal Debt under
all Discretionary Revolver Loans bears to the Total Revolver Principal
Debt; and "RATABLY" for each mandatory commitment reduction under the
Revolver Facility or any Discretionary Revolver Loan, on any date of
determination, shall mean the proportion that the Revolver Commitment
or the Discretionary Revolver Commitment under all Discretionary
Revolver Loans bears to the Total Revolver Commitment). All mandatory
prepayments of the Term Loan A Principal Debt shall be applied ratably
to each unpaid installment of Term Loan A Principal Debt and shall be
allocated Pro Rata to each Term Loan A Lender. All mandatory
prepayments of the Term Loan B Principal Debt shall be applied ratably
to each unpaid installment of Term Loan B Principal Debt and shall be
allocated Pro Rata to each Term Loan B Lender (OTHER THAN Declining B
Lenders). All mandatory prepayments of the Revolver Facility shall be
allocated Pro Rata to each Revolver Lender. All mandatory prepayments
of the Discretionary Term A Loan Principal Debt under any Discretionary
Term A Loan shall be applied ratably to each unpaid installment of
Discretionary Term A Loan Principal Debt under such Discretionary Term
A
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Loan and shall be allocated Pro Rata to each Discretionary Term A Loan
Lender under such Discretionary Term A Loan. All mandatory prepayments
of the Discretionary Term B Loan Principal Debt under any Discretionary
Term B Loan shall be applied ratably to each unpaid installment of Term
Loan B Principal Debt under such Discretionary Term B Loan and shall be
allocated Pro Rata to each Discretionary Term B Loan Lender under such
Discretionary Term B Loan (OTHER THAN Declining B Lenders). All
mandatory prepayments of the Discretionary Revolver Facility shall be
allocated Pro Rata to each Discretionary Revolver Lender. Amounts of
Total Revolver Principal Debt prepaid pursuant to this SECTION 3.3(c),
shall not reduce the Total Revolver Commitment unless (i) a Default or
Potential Default then exists or arises, or (ii) no Total Term A
Principal Debt, Term Loan B Principal Debt, or the Discretionary Term B
Loan Principal Debt under the Discretionary Term B Loan Subfacility is
then outstanding.
(d) REVOLVER FACILITIES MANDATORY PAYMENTS/REDUCTIONS. On any
date of determination if the Revolver Commitment Usage exceeds the
Revolver Commitment then in effect, any Discretionary Revolver
Principal Debt for any Discretionary Revolver Loan exceeds the
Discretionary Revolver Commitment for such Discretionary Revolver Loan
(including as a result of any Revolver Commitment or Discretionary
Revolver Commitment reduction pursuant to SECTION 3.3(b) or (c)), or
the Swing Line Principal Debt exceeds the Swing Line Commitment then in
effect, then Borrower shall make a mandatory prepayment of the Revolver
Principal Debt, the Discretionary Revolver Principal Debt for the
applicable Discretionary Loan, or the Swing Line Principal Debt, as the
case may be, in at least the amount of such excess, TOGETHER WITH (x)
all accrued and unpaid interest on the principal amount so prepaid and
(y) any Consequential Loss arising as a result thereof; PROVIDED THAT,
on any such reduction date, if no Swing Line Principal Debt or Revolver
Principal Debt is then outstanding, but the LC Exposure exceeds the
Revolver Commitment, then Borrower shall provide to Administrative
Agent, for the benefit of Lenders, cash collateral in Dollars in an
amount AT LEAST equal to 110% of such excess. All mandatory prepayments
or commitment reductions under the Revolver Facility or any
Discretionary Revolver Loan hereunder shall be allocated among the
Revolver Lenders or Discretionary Lenders party to such Discretionary
Revolver Loan (as applicable) in accordance with their respective
Commitment Percentages under the Revolver Facility or Discretionary
Revolver Loan (as applicable).
(e) MANDATORY PREPAYMENTS OF INTEREST/CONSEQUENTIAL LOSS. All
prepayments under SECTION 3.3 shall be made, together with accrued
interest to the date of such prepayment on the principal amount
prepaid, together with any Consequential Loss arising as a result
thereof.
(f) OPT-OUT PROVISIONS UNDER TERM LOAN B FACILITY AND
DISCRETIONARY TERM B LOAN SUBFACILITY. To the extent there is any Term
Loan A Principal Debt or Discretionary Term A Loan Principal Debt
outstanding, any Term Loan B Lender or Discretionary Term B Loan
Lender, at its option, may elect not to accept such partial prepayment
under this SECTION 3.3 (such Lender being a "DECLINING B LENDER"), in
which event the provisions of the next sentence shall apply. On the
prepayment date, an amount equal to that portion of the prepayment
amount available to prepay Term Loan B Lenders and Discretionary Term B
Loan Lenders (less any amounts that would otherwise be payable to
Declining B Lenders) shall be applied ratably to prepay Term Loan B
Principal Debt and Discretionary Term B Loan Principal Debt under all
Discretionary Term B Loans owed to Term Loan B Lenders or Discretionary
Term B Loan Lenders other than Declining B Lenders, and any amounts
that would otherwise have been applied to prepay Term Loan B Principal
Debt or Discretionary Term B Loan Principal Debt shall instead be
applied to prepay the remaining Term Loan A Principal Debt and
Discretionary Term A Loan Principal Debt under all Discretionary Term A
Loans then-outstanding; PROVIDED FURTHER, that upon prepayment in full
of the Term Loan B Principal Debt or the Discretionary Term B Loan
Principal Debt under all Discretionary Term B Loans then-outstanding
owing to Term Loan B Lenders or Discretionary Term B Loan Lenders,
OTHER THAN Declining B Lenders, the remainder of any prepayment amount
that is to be applied to
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Term Loan B Principal Debt or Discretionary Term B Loan Principal Debt
under all Discretionary Term B Loans then-outstanding shall be applied
ratably to prepay Term Loan B Principal Debt and the Discretionary Term
B Loan Principal Debt under each Discretionary Term B Loan owing to
Declining B Lenders (for purposes hereof, "RATABLY" shall mean the
proportion which the Term Loan B Principal Debt or Discretionary Term B
Loan Principal Debt under each Discretionary Term B Loan owed to any
Declining B Lender bears to the SUM of the Term Loan B Principal Debt
and Discretionary Term B Loan Principal Debt under all Discretionary
Term B Loans owed to Declining B Lenders). Any Term Loan B Lender or
Discretionary Term B Lender may elect not to accept its ratable share
of a partial prepayment by giving written notice to Administrative
Agent not later than 11:00 a.m. Dallas, Texas time on the Business Day
immediately preceding the scheduled prepayment date.
3.4 INTEREST OPTIONS. Except that the Eurodollar Rate may not be
selected when a Default or Potential Default exists and except as otherwise
provided in this Agreement, or in the related Supplemental Credit Documents
as it relates to Discretionary Term B Loans, Borrowings bear interest at a
rate per annum equal to the LESSER OF (a) as to the respective Type of
Borrowing (as designated by Borrower in accordance with this Agreement), the
Base Rate PLUS the Applicable Margin for Base Rate Borrowings for the
applicable Facility, or the Adjusted Eurodollar Rate PLUS the Applicable
Margin for Eurodollar Rate Borrowings for the applicable Facility, AND (b)
the Maximum Rate. Borrowings under any Discretionary Term B Loan shall bear
interest at the rate or rates specified in the applicable Supplemental Credit
Documents; PROVIDED THAT, notwithstanding anything in this SECTION 3.4 to the
contrary, if the interest rate at any time under any Discretionary Term B
Loan or Borrowing thereunder would be greater than .25% above the applicable
interest rate for the Term Loan B Facility or Borrowings thereunder (taking
into account the Type of Borrowing, where appropriate) (the "AFFECTED TERM B
BORROWINGS"), then the interest rate for the Affected Term B Loans shall be
increased so that the interest rate differential between such Borrowing under
the Term Loan B Facility and any Discretionary Term B Loan is not greater
than .25% (not to exceed, in any case, the Maximum Rate). Each change in the
Base Rate or the Maximum Rate, subject to the terms of this Agreement, will
become effective, without notice to Borrower or any other Person, upon the
effective date of such change.
3.5 QUOTATION OF RATES. It is hereby acknowledged that a Responsible
Officer or other appropriately designated officer of Borrower may call
Administrative Agent on or before the date on which a Borrowing Notice is to
be delivered by Borrower in order to receive an indication of the rates then
in effect, but such indicated rates shall neither be binding upon
Administrative Agent or Lenders nor affect the rate of interest which
thereafter is actually in effect when the Borrowing Notice is given or on the
Borrowing Date.
3.6 DEFAULT RATE. After the occurrence and during the continuance of
a Default, at the option of Required Lenders and to the extent permitted by
Law, the Obligation shall bear interest at the Default Rate; PROVIDED THAT,
the Default Rate shall automatically apply in the case of SECTIONS 2.4(c),
2.5(a), and 11.3 where the Default Rate is specified.
3.7 INTEREST RECAPTURE. If the designated rate applicable to any
Borrowing exceeds the Maximum Rate, the rate of interest on such Borrowing
shall be limited to the Maximum Rate, but any subsequent reductions in such
designated rate shall not reduce the rate of interest thereon below the
Maximum Rate until the total amount of interest accrued thereon equals the
amount of interest which would have accrued thereon if such designated rate
had at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of the Principal Debt, the total amount of
interest paid or accrued is less than the amount of interest which would have
accrued if such designated rates had at all times been in effect, then, at
such time and to the extent permitted by Law, Borrower shall pay an amount
equal to the difference between (a) the LESSER OF the amount of interest
which would have accrued if such designated rates had at all times been in
effect AND the amount of interest which would have accrued if the
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Maximum Rate had at all times been in effect, and (b) the amount of interest
actually paid or accrued on the Principal Debt.
3.8 INTEREST CALCULATIONS. Interest will be calculated on the basis
of actual number of days (including the first day but excluding the last day)
elapsed but computed as if each calendar year consisted of 360 days in the
case of an Eurodollar Rate Borrowing (unless the calculation would result in
an interest rate greater than the Maximum Rate, in which event interest will
be calculated on the basis of a year of 365 or 366 days, as the case may be)
and 365 or 366 days, as the case may be, in the case of a Base Rate
Borrowing. All interest rate determinations and calculations by
Administrative Agent are conclusive and binding absent manifest error.
3.9 MAXIMUM RATE. Regardless of any provision contained in any Loan
Document, neither Administrative Agent nor any Lender shall ever be entitled
to contract for, charge, take, reserve, receive, or apply, as interest on all
or any part of the Obligation, any amount in excess of the Maximum Rate, and,
if Lenders ever do so, then such excess shall be deemed a partial prepayment
of principal and treated hereunder as such and any remaining excess shall be
refunded to Borrower. In determining if the interest paid or payable exceeds
the Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted
under applicable Law, (a) treat all Borrowings as but a single extension of
credit (and Lenders and Borrower agree that such is the case and that
provision herein for multiple Borrowings is for convenience only), (b)
characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (c) exclude voluntary prepayments and the effects thereof,
and (d) amortize, prorate, allocate, and spread the total amount of interest
throughout the entire contemplated term of the Obligation. However, if the
Obligation is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds the Maximum Amount, Lenders shall refund such
excess, and, in such event, Lenders shall not, to the extent permitted by
Law, be subject to any penalties provided by any Laws for contracting for,
charging, taking, reserving, or receiving interest in excess of the Maximum
Amount. If the Laws of the State of Texas are applicable for purposes of
determining the "MAXIMUM RATE" or the "MAXIMUM AMOUNT," then those terms mean
the "WEEKLY CEILING" from time to time in effect under TEXAS FINANCE Code
Section 303.305, as amended. Borrower agrees that CHAPTER 346 of the TEXAS
FINANCE CODE, as amended (which regulates certain revolving credit loan
accounts and revolving tri-party accounts), does not apply to the Obligation.
3.10 INTEREST PERIODS. When Borrower requests any Eurodollar Rate
Borrowing, Borrower may elect the interest period (each an "INTEREST PERIOD")
applicable thereto, which shall be, at Borrower's option and subject to
availability, one, two, three, or six months; PROVIDED, HOWEVER, that: (a)
the initial Interest Period for a Eurodollar Rate Borrowing shall commence on
the date of such Borrowing (including the date of any conversion thereto),
and each Interest Period occurring thereafter in respect of such Borrowing
shall commence on the day on which the next preceding Interest Period
applicable thereto expires; (b) if any Interest Period for a Eurodollar Rate
Borrowing begins on a day for which there is no numerically corresponding
Business Day in the calendar month at the end of such Interest Period, then
such Interest Period shall end on the last Business Day in the calendar month
at the end of such Interest Period); (c) no Interest Period may be chosen
with respect to any portion of the Principal Debt which would extend beyond
the scheduled repayment date (including any dates on which mandatory
prepayments are required to be made) for such portion of the Principal Debt;
and (d) no more than an aggregate of eight (8) Interest Periods (PLUS four
(4) additional Interest Periods on and after the date the first Discretionary
Loan is made) shall be in effect at one time.
3.11 CONVERSIONS. Borrower may (a) convert a Eurodollar Rate
Borrowing on the last day of the applicable Interest Period to a Base Rate
Borrowing, (b) convert a Base Rate Borrowing at any time to a Eurodollar Rate
Borrowing, and (c) elect a new Interest Period (in the case of a Eurodollar
Rate Borrowing), by giving a Conversion Notice of such intent to
Administrative Agent no later than 10:00 a.m. Dallas, Texas time on the third
Business Day prior to the date of conversion or the last day of the Interest
Period, as the
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case may be (in the case of a conversion to a Eurodollar Rate Borrowing or an
election of a new Interest Period), and no later than 10:00 a.m. Dallas,
Texas time one Business Day prior to the last day of the Interest Period (in
the case of a conversion to a Base Rate Borrowing); PROVIDED THAT, the
principal amount converted to, or continued as, a Eurodollar Rate Borrowing
shall be in an amount not less than $5,000,000 or a greater integral multiple
of $1,000,000 (or such lesser amount as may be outstanding under any
Facility). Administrative Agent shall timely notify each Lender with respect
to each Conversion Notice. Absent Borrower's Conversion Notice or election of
a new Interest Period, a Eurodollar Rate Borrowing shall be deemed converted
to a Base Rate Borrowing effective as of the expiration of the Interest
Period applicable thereto. No Eurodollar Rate Borrowing may be either made or
continued as a Eurodollar Rate Borrowing, and no Base Rate Borrowing may be
converted to a Eurodollar Rate Borrowing, if the interest rate for such
Eurodollar Rate Borrowing would exceed the Maximum Rate. The right to convert
from a Base Rate Borrowing to a Eurodollar Rate Borrowing, or to continue as
a Eurodollar Rate Borrowing shall not be available during the occurrence of a
Default or Potential Default.
3.12 ORDER OF APPLICATION.
(a) NO DEFAULT. If no Default or Potential Default exists and
if no order of application is otherwise specified in SECTION 3.3 or
otherwise in the Loan Documents, payments and prepayments of the
Obligation shall be applied first to fees, second to accrued interest
then due and payable on the Principal Debt, and then to the remaining
Obligation in the order and manner as Borrower may direct.
(b) DEFAULT. If a Default or Potential Default exists (or if
Borrower fails to give directions as permitted under SECTION 3.12(a)),
any payment or prepayment (including proceeds from the exercise of any
Rights) shall be applied to the Obligation in the following order: (i)
to the ratable payment of all fees, expenses, and indemnities for which
Agents or Lenders have not been paid or reimbursed in accordance with
the Loan Documents (as used in this SECTION 3.12(b)(i), a "RATABLE
PAYMENT" for any Lender or any Agent shall be, on any date of
determination, that proportion which the portion of the total fees,
expenses, and indemnities owed to such Lender or such Agent bears to
the total aggregate fees and indemnities owed to all Lenders and Agents
on such date of determination); (ii) to the ratable payment of accrued
and unpaid interest on the Principal Debt (as used in this SECTION
3.12(b)(ii), "RATABLE PAYMENT" means, for any Lender, on any date of
determination, that proportion which the accrued and unpaid interest on
the Principal Debt owed to such Lender bears to the total accrued and
unpaid interest on the Principal Debt owed to all Lenders); (iii) to
the ratable payment of the Swing Line Principal Debt which is due and
payable and which remains unfunded by any Borrowing under the Revolver
Facility; PROVIDED THAT, such payments shall be allocated ratably among
the Swing Line Lender and the Revolver Lenders which have funded their
participations in the Swing Line Principal Debt; (iv) to the ratable
payment of any reimbursement obligation with respect to any LC issued
pursuant to the Agreement which is due and payable and which remains
unfunded by any Borrowing under the Revolver Facility; PROVIDED THAT,
such payments shall be allocated ratably among the issuer of the LC and
the Lenders which have funded their participations in such LC; (v) to
the ratable payment of the Principal Debt (as used in this SECTION
3.12(b)(v), "RATABLE PAYMENT" means for any Lender, on any date of
determination, that proportion which the Principal Debt owed to such
Lender bears to the Principal Debt owed to all Lenders); (vi) to
provide cash collateral in an amount EQUAL TO 110% of the LC Exposure
then existing in accordance with SECTION 2.4(g); and (vii) to the
payment of the remaining Obligation in the order and manner Required
Lenders deem appropriate.
Subject to the provisions of SECTION 12 and provided that Administrative
Agent shall not in any event be bound to inquire into or to determine the
validity, scope, or priority of any interest or entitlement of any Lender and
may suspend all payments or seek appropriate relief (including, without
limitation, instructions from Required Lenders or an action in the nature of
interpleader) in the event of any doubt or dispute as to
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any apportionment or distribution contemplated hereby, Administrative Agent
shall promptly distribute such amounts to each Lender in accordance with the
Agreement and the related Loan Documents.
3.13 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment or prepayment with respect to the Obligation (whether voluntary,
involuntary, or otherwise, including, without limitation, as a result of
exercising its Rights under SECTION 3.14) which is in excess of its share of
any such payment in accordance with the relevant Rights of the Lenders under
the Loan Documents (except as provided with respect to the Term Loan B
Facility and the Discretionary Term B Loan, the opt-out Rights in SECTION
3.3(f)), then such Lender shall purchase from the other Lenders such
participations as shall be necessary to cause such purchasing Lender to share
the excess payment with each other Lender in accordance with the relevant
Rights under the Loan Documents. If all or any portion of such excess payment
is subsequently recovered from such purchasing Lender, then the purchase
shall be rescinded and the purchase price restored to the extent of such
recovery. Borrower agrees that any Lender purchasing a participation from
another Lender pursuant to this SECTION may, to the fullest extent permitted
by Law, exercise all of its Rights of payment (including the Right of offset)
with respect to such participation as fully as if such Lender were the direct
creditor of Borrower in the amount of such participation.
3.14 OFFSET. If a Default exists, each Lender shall be entitled to
exercise (for the benefit of all Lenders in accordance with SECTION 3.13) the
Rights of offset and/or banker's Lien against each and every account and
other property, or any interest therein, which any Loan Party may now or
hereafter have with, or which is now or hereafter in the possession of, such
Lender to the extent of the full amount of the Obligation.
3.15 BOOKING BORROWINGS. To the extent permitted by Law, any Lender
may make, carry, or transfer its Borrowings at, to, or for the account of any
of its branch offices or the office of any of its Affiliates; PROVIDED THAT,
no Affiliate shall be entitled to receive any greater payment under SECTION 4
than the transferor Lender would have been entitled to receive with respect
to such Borrowings.
SECTION 4 CHANGE IN CIRCUMSTANCES.
4.1 INCREASED COST AND REDUCED RETURN.
(a) CHANGES IN LAW. If, after the date hereof, the adoption of
any applicable Law or any change in any applicable Law or any change in
the interpretation or administration thereof by any Governmental
Authority, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force
of law) of any such Governmental Authority:
(i) shall subject such Lender (or its Applicable
Lending Office) to any Tax or other charge with respect to any
Eurodollar Rate Borrowing, its Notes, or its obligation to
loan Eurodollar Rate Borrowings, or change the basis of
taxation of any amounts payable to such Lender (or its
Applicable Lending Office) under the Loan Documents in respect
of any Eurodollar Rate Borrowings (other than Taxes imposed on
the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable
Lending Office);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement
(other than the Reserve Requirement utilized in the
determination of the Adjusted Eurodollar Rate) relating to any
extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Lender (or its
Applicable Lending Office), including the commitment of such
Lender hereunder; or
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(iii) shall impose on such Lender (or its Applicable
Lending Office) or the London interbank market any other
condition affecting the Loan Documents or any of such
extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making, converting into,
continuing, or maintaining any Eurodollar Rate Borrowings or to reduce
any sum received or receivable by such Lender (or its Applicable
Lending Office) under the Loan Documents with respect to any Eurodollar
Rate Borrowing, then Borrower shall pay to such Lender on demand such
amount or amounts as will compensate such Lender for such increased
cost or reduction. If any Lender requests compensation by Borrower
under this SECTION 4.1(a), Borrower may, by notice to such Lender (with
a copy to Administrative Agent), suspend the obligation of such Lender
to loan or continue Borrowings of the Type with respect to which such
compensation is requested, or to convert Borrowings of any other Type
into Borrowings of such Type, until the event or condition giving rise
to such request ceases to be in effect (in which case the provisions of
SECTION 4.4 shall be applicable); PROVIDED, THAT such suspension shall
not affect the Right of such Lender to receive the compensation so
requested.
(b) CAPITAL ADEQUACY. If, after the date hereof, any Lender
shall have determined that the adoption of any applicable Law regarding
capital adequacy or any change therein or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority has or would have the effect of
reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request,
or directive (taking into consideration its policies with respect to
capital adequacy), then from time to time upon demand Borrower shall
pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction.
(c) CHANGES IN APPLICABLE LENDING OFFICE. COMPENSATION
STATEMENT. Each Lender shall promptly notify Borrower and
Administrative Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Lender to compensation
pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section shall furnish to Borrower and
Administrative Agent a statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be conclusive in the
absence of manifest error. In determining such amount, such Lender may
use any reasonable averaging and attribution methods.
4.2 LIMITATION ON TYPES OF LOANS. If on or prior to the first
day of any Interest Period for any Eurodollar Rate Borrowing:
(a) INABILITY TO DETERMINE EURODOLLAR RATE. Administrative
Agent determines (which determination shall be conclusive) that by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period; or
(b) COST OF FUNDS. Required Lenders determine (which
determination shall be conclusive) and notify Administrative Agent that
the Adjusted Eurodollar Rate will not adequately and fairly reflect the
cost to the Lenders of funding Eurodollar Rate Borrowings for such
Interest Period;
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then Administrative Agent shall give Borrower prompt notice thereof
specifying the relevant amounts or periods, and so long as such condition
remains in effect, the Lenders shall be under no obligation to fund
additional Eurodollar Rate Borrowings, continue Eurodollar Rate Borrowings,
or to convert Base Rate Borrowings into Eurodollar Rate Borrowings, and
Borrower shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Rate Borrowings, either prepay such Borrowings or
convert such Borrowings into Base Rate Borrowings in accordance with the
terms of this Agreement.
4.3 ILLEGALITY. Notwithstanding any other provision of the Loan
Documents, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund Eurodollar Rate
Borrowings hereunder, then such Lender shall promptly notify Borrower thereof
and such Lender's obligation to make or continue Eurodollar Rate Borrowings
and to convert other Base Rate Borrowings into Eurodollar Rate Borrowings
shall be suspended until such time as such Lender may again make, maintain,
and fund Eurodollar Rate Borrowings (in which case the provisions of SECTION
4.4 shall be applicable).
4.4 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to
fund Eurodollar Rate Borrowings or to continue, or to convert Base Rate
Borrowings into Eurodollar Rate Borrowings, shall be suspended pursuant to
SECTIONS 4.1, 4.2, or 4.3 hereof, such Lender's Eurodollar Rate Borrowings
shall be automatically converted into Base Rate Borrowings on the last day(s)
of the then current Interest Period(s) for Eurodollar Rate Borrowings (or, in
the case of a conversion required by SECTION 4.3 hereof, on such earlier date
as such Lender may specify to Borrower with a copy to Administrative Agent)
and, unless and until such Lender gives notice as provided below that the
circumstances specified in SECTIONS 4.1, 4.2, or 4.3 hereof that gave rise to
such conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Rate
Borrowings have been so converted, all payments and prepayments of
principal that would otherwise be applied to such Lender's Eurodollar
Rate Borrowings shall be applied instead to its Base Rate Borrowings;
and
(b) all Borrowings that would otherwise be made or continued
by such Lender as Eurodollar Rate Borrowings shall be made or continued
instead as Base Rate Borrowings, and all Borrowings of such Lender that
would otherwise be converted into Eurodollar Rate Borrowings shall be
converted instead into (or shall remain as) Base Rate Borrowings.
If such Lender gives notice to Borrower (with a copy to Administrative Agent)
that the circumstances specified in SECTIONS 4.1, 4.2, or 4.3 hereof that
gave rise to the conversion of such Lender's Eurodollar Rate Borrowings
pursuant to this SECTION 4.4 no longer exist (which such Lender agrees to do
promptly upon such circumstances ceasing to exist) at a time when Eurodollar
Rate Borrowings made by other Lenders are outstanding, such Lender's Base
Rate Borrowings shall be automatically converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding Eurodollar Rate
Borrowings, to the extent necessary so that, after giving effect thereto, all
Eurodollar Rate Borrowings held by the Lenders and by such Lender are held
pro rata (as to principal amounts, Types, and Interest Periods) in accordance
with their respective Commitments.
4.5 COMPENSATION. Upon the request of any Lender, Borrower shall pay
to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost, or
expense (including loss of anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or conversion of a Eurodollar
Rate Borrowing for any reason (including, without limitation, the
acceleration of the loan pursuant to SECTION 11.1 or as a result of the
syndication of any Facility by Administrative Agent during the 180-day
period immediately following the Closing Date) on a date other than the
last day of the Interest Period for such Borrowing; or
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(b) any failure by Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in SECTION
7.3 to be satisfied) to borrow, convert, continue, or prepay a
Eurodollar Rate Borrowing on the date for such borrowing, conversion,
continuation, or prepayment specified in the relevant Borrowing Notice,
or notice of prepayment, continuation, or conversion under this
Agreement.
4.6 TAXES.
(a) GENERAL. Any and all payments by Borrower to or for the
account of any Lender or Administrative Agent hereunder or under any
other Loan Document shall be made free and clear of and without
deduction for any and all present or future Taxes, EXCLUDING, in the
case of each Lender and Administrative Agent, Taxes imposed on its
income and franchise Taxes imposed on it by the jurisdiction under the
laws of which such Lender (or its Applicable Lending Office) or
Administrative Agent (as the case may be) is organized, or any
political subdivision thereof. If Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable under any Loan
Document to any Lender or Administrative Agent, (i) the sum payable
shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable
under this SECTION 4.6) such Lender or Administrative Agent receives an
amount equal to the sum it would have received had no such deductions
been made, (ii) Borrower shall make such deductions, (iii) Borrower
shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law, and (iv) Borrower
shall furnish to Administrative Agent, at its address listed in
SCHEDULE 2.1, the original or a certified copy of a receipt evidencing
payment thereof.
(b) STAMP AND DOCUMENTARY TAXES. In addition, Borrower agrees
to pay any and all present or future stamp or documentary taxes and any
other excise or property taxes or charges or similar levies which arise
from any payment made under any Loan Document or from the execution or
delivery of, or otherwise with respect to, any Loan Document
(hereinafter referred to as "OTHER TAXES").
(c) INDEMNIFICATION FOR TAXES. Borrower agrees to indemnify
each Lender and Administrative Agent for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this
SECTION 4.6) paid by such Lender or Administrative Agent (as the case
may be) and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto.
(d) WITHHOLDING TAX FORMS. Each Lender organized under the
Laws of a jurisdiction outside the United States, on or prior to the
Closing Date in the case of each Lender listed on the signature pages
hereof and on or prior to the date on which it becomes a Lender in the
case of each other Lender, and from time to time thereafter if
requested in writing by Borrower or Administrative Agent (but only so
long as such Lender remains lawfully able to do so), shall provide
Borrower and Administrative Agent with (i) if such Lender is a "BANK"
within the meaning of Section 881(c)(3)(A) of the Code, Internal
Revenue Service Form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such
Lender is entitled to benefits under an income tax treaty to which the
United States is a party which reduces the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant
to the Loan Documents is effectively connected with the conduct of a
trade or business in the United States, or (ii) if such Lender is not a
"BANK" within the meaning of Section 881(c)(3)(A) of the Code and
intends to claim an exemption from United States withholding tax under
Section 871(h) or 881(c) of the Code with respect to payments of
"PORTFOLIO INTEREST," a Form W-8, or any successor form prescribed by
the Internal Revenue Service, and a certificate representing that such
Lender is not a bank for purposes of Section 881(c) of the Code, is not
a 10- percent shareholder (within the meaning of
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Section 871(h)(3)(B) of the Code) of Borrower, and is not a controlled
foreign corporation related to Borrower (within the meaning of Section
864(d)(4) of the Code). Each Lender which so delivers a W-8, Form 1001,
or 4224 further undertakes to deliver to Borrower and Administrative
Agent additional forms (or a successor form) on or before the date such
form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, in each
case certifying that such Lender is entitled to receive payments from
Borrower under any Loan Document without deduction or withholding (or
at a reduced rate of deduction or withholding) of any United States
federal income taxes, unless an event (including without limitation any
change in treaty, law, or regulation) has occurred prior to the date on
which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it, and such
Lender advises Borrower and Administrative Agent that it is not capable
of receiving such payments without any deduction or withholding of
United States federal income tax.
(e) FAILURE TO PROVIDE WITHHOLDING FORMS; CHANGES IN TAX LAWS.
For any period with respect to which a Lender has failed to provide
Borrower and Administrative Agent with the appropriate form pursuant to
SECTION 4.6(d) (unless such failure is due to a change in Law occurring
subsequent to the date on which a form originally was required to be
provided), such Lender shall not be entitled to indemnification under
SECTION 4.6(a) or 4.6(b) with respect to Taxes imposed by the United
States; PROVIDED, HOWEVER, that should a Lender, which is otherwise
exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required
hereunder, Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(f) CHANGES IN APPLICABLE LENDING OFFICE. If Borrower is
required to pay or will be required to pay additional amounts to or for
the account of any Lender pursuant to this SECTION 4.6, then such
Lender will agree to use reasonable efforts to change the jurisdiction
of its Applicable Lending Office so as to eliminate or reduce any such
additional payment which may thereafter accrue if such change, in the
judgment of such Lender, is not otherwise disadvantageous to such
Lender.
(g) TAX PAYMENT RECEIPT. Within thirty (30) days after the
date of any payment of Taxes, Borrower shall furnish to Administrative
Agent the original or a certified copy of a receipt evidencing such
payment.
(h) SURVIVAL. Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this SECTION 4.6 shall survive the termination of
the Total Commitment and the payment in full of the Obligation.
SECTION 5 FEES.
5.1 TREATMENT OF FEES. Except as otherwise provided by Law, the fees
described in this SECTION 5: (a) do not constitute compensation for the use,
detention, or forbearance of money, (b) are in addition to, and not in lieu
of, interest and expenses otherwise described in the Loan Documents, (c)
shall be payable in accordance with SECTION 3.1(c), (d) shall be
non-refundable, (e) shall, to the fullest extent permitted by Law, bear
interest, if not paid when due, at the Default Rate, and (f) shall be
calculated on the basis of actual number of days (including the first day but
excluding the last day) elapsed, but computed as if each calendar year
consisted of 360 days, unless such computation would result in interest being
computed in excess of the Maximum Rate in which event such computation shall
be made on the basis of a year of 365 or 366 days, as the case may be.
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5.2 FEES OF ADMINISTRATIVE AGENT AND ARRANGER. Borrower shall pay to
Administrative Agent and Arranger, as the case may be, solely for their
respective accounts, the fees described in that certain separate letter
agreement dated as of November 1, 1999, between Borrower, Administrative
Agent, and Arranger.
5.3 REVOLVER FACILITY COMMITMENT FEES. Following the Closing Date,
Borrower shall pay to Administrative Agent, for the ratable account of
Revolver Lenders, a commitment fee, calculated daily from the Closing Date
but payable in installments in arrears each March 31, June 30, September 30,
and December 31 and on the Termination Date for the Revolver Facility,
commencing March 31, 2000. On any day of determination, the commitment fee
under this SECTION 5.3 shall be an amount equal to the Applicable Margin for
Commitment Fees MULTIPLIED BY the amount by which (a) the Revolver Commitment
on such day exceeds (b) the Revolver Commitment Usage on such day. Each such
installment shall be calculated in accordance with SECTION 5.1(f). Solely for
the purposes of this SECTION 5.3, (i) determinations of the average daily
Revolver Commitment Usage shall exclude the Swing Line Principal Debt; and
(ii) "RATABLE" shall mean, for any period of determination, with respect to
any Revolver Lender, that proportion which (x) the average daily unused
Revolver Committed Sum of such Revolver Lender during such period bears to
(y) the amount of the average daily unused Revolver Commitment during such
period.
5.4 TERM LOAN A FACILITY COMMITMENT FEES. On the initial Borrowing
Date for the Term Loan A Facility, Borrower shall pay to Administrative
Agent, for the ratable account of the Term Loan A Lenders, a commitment fee,
calculated for the period from the Closing Date through but not including the
initial Borrowing Date for the Term Loan A Facility in an amount equal to the
Applicable Margin for Commitment Fees MULTIPLIED BY the Term Loan A
Commitment. Such commitment fee shall be calculated in accordance with
SECTION 5.1(f). Solely for the purposes of this SECTION 5.4, "RATABLE" shall
mean, for any period of determination, with respect to any Term Loan A
Lender, that proportion which (x) the average daily Committed Sum of such
Term Loan A Lender during such period bears to (y) the amount of the average
daily Term Loan A Commitment during such period.
5.5 LC FEES. As an inducement for the issuance (including, without
limitation, any extension) of each LC, Borrower agrees to pay to
Administrative Agent:
(a) For the account of each Revolver Lender, according to each
Revolver Lender's Commitment Percentage under the Revolver Facility on
the day the fee is payable, an issuance fee payable quarterly in
arrears for so long as each such LC is outstanding, on the last
Business Day of each March, June, September, and December and on the
expiry date of the LC. The issuance fee for each LC or any extension
thereof shall be in an amount equal to the product of (a) the
Applicable Margin for Eurodollar Rate Borrowings under the Revolver
Facility in effect on the date of payment of such fee (calculated on a
per annum basis) MULTIPLIED BY (b) the stated amount of such LC.
(b) For the account of Administrative Agent, as the issuer of
LCs, payable on the date of issuance of any LC (or any extension
thereof) a fronting fee of 0.125% of the face amount of such LC (or
extensions thereof). In addition, Borrower shall pay to Administrative
Agent, for its individual account, standard administrative charges for
LC amendments.
5.6 DISCRETIONARY REVOLVER LOAN COMMITMENT FEES. With respect to
each Discretionary Revolver Loan, Borrower shall pay Administrative Agent,
for the ratable benefit of the Discretionary Revolver Lenders which have
committed to make such Discretionary Revolver Loan, a Discretionary Revolver
Loan commitment fee, payable in installments in arrears on each March 31,
June 30, September 30, and December 31, and on such Termination Date for the
Discretionary Revolver Loan, commencing on the Discretionary Loan Effective
Date for such Discretionary Revolver Loan. Each installment shall be an
amount equal to the Applicable Margin for Commitment Fees for the Revolver
Facility MULTIPLIED BY the amount by which (a) the average daily
Discretionary Commitment for such Discretionary Revolver Loan
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exceeds (b) the average daily Discretionary Revolver Principal Debt
outstanding under such Discretionary Revolver Loan, in each case during the
period from and including the last payment date to and excluding the payment
date for such installment; PROVIDED THAT, each such installment shall be
calculated in accordance with SECTION 5.1(f).
5.7 DISCRETIONARY FACILITY FRONTING FEES. With respect to each
Discretionary Loan (to the extent applicable), Borrower shall pay to the
Administrative Agent for the account of the appropriate Discretionary
Lenders, the fees in such amounts and on such dates agreed to in writing by
Borrower, Administrative Agent, and such Discretionary Lenders in the
applicable Supplemental Credit Documents for such Discretionary Loan.
SECTION 6 SECURITY; GUARANTIES.
6.1 GUARANTIES. As an inducement to Agents and Lenders to enter into
this Agreement, Borrower shall cause Communications, each Company that is a
Domestic Subsidiary of Borrower, and each Cellular Partnership Obligor to
execute and deliver to Administrative Agent a Guaranty substantially in the
form and upon the terms of EXHIBIT C, providing for the guaranty of payment
and performance of the Obligation. In addition, promptly after the
designation, formation, or Acquisition of any new Company that is (or
becomes) a Domestic Subsidiary of Borrower or upon any Cellular Partnership
becoming a Cellular Partnership Obligor, Borrower shall cause such new
Company or Cellular Partnership Obligor to execute and deliver to
Administrative Agent a Guaranty substantially in the form and upon the terms
of EXHIBIT C, providing for the guaranty of payment and performance of the
Obligation.
6.2 COLLATERAL.
(a) COMMUNICATIONS COLLATERAL. To secure the full and complete
payment and performance of the Obligation, Borrower shall cause
Communications and each Subsidiary of Communications which owns any
equity interest in Borrower (if any), to enter into Collateral
Documents pursuant to which, among other things, each such entity
grants, pledges, assigns, and creates first priority Liens in favor of
Administrative Agent (for the ratable benefit of Lenders) in 100% of
the issued and outstanding stock, equity, or other investment
securities of Borrower owned by such entity.
(b) COMPANIES AND CELLULAR PARTNERSHIP OBLIGOR COLLATERAL. To
secure the full and complete payment and performance of the Obligation,
Borrower shall (and shall cause each Restricted Subsidiary of Borrower
and each Cellular Partnership Obligor to) enter into Collateral
Documents (in form and substance acceptable to Administrative Agent)
pursuant to which, among other things, each such entity shall, to the
extent permitted by applicable Law, grant, pledge, assign, and create
first priority Liens (except to the extent Permitted Liens affect such
priority) in favor of Administrative Agent (for the ratable benefit of
Lenders) in and to: (i) 100% of each such entity's Rights, titles, and
interests in the issued and outstanding stock, equity, or other
investment securities of each Domestic Subsidiary of such entity
(excluding any stock, equity, or other investment securities issued by
any Unrestricted Subsidiary of any Company to the extent not covered in
CLAUSES (ii) and (iii) below); (ii) 65% of each such entity's Rights,
titles, and interests in the issued and outstanding stock, equity, or
other investment securities of each directly-owned Foreign Subsidiary
of any Company or Cellular Partnership Obligor; and (iii) all other
assets (tangible, intangible, real, or personal) of such entity,
including without limitation, 100% of each such entity's Rights,
titles, and interests in Cellular Partnerships.
6.3 EXISTING COLLATERAL DOCUMENTS. With respect to the Collateral
Documents executed and delivered pursuant to the Existing Credit Agreements
(as amended through the date hereof, the "EXISTING COLLATERAL DOCUMENTS"),
Borrower, each Guarantor, and each partner of a Cellular Partnership executing
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any such Existing Collateral Document (by execution of Guaranties or other
Collateral Documents required under this Agreement) (i) agree that the
execution and delivery of the Loan Documents shall in no way release,
diminish, impair, reduce, or otherwise affect the liens and security
interests created by the Existing Collateral Documents, (ii) acknowledges and
confirms the continuing existence and effectiveness of the Existing
Collateral Document (except with respect to the release of Liens contemplated
by SECTION 6.5(a)), and (iii) agrees that the "OBLIGATION" and "GUARANTEED
DEBT" secured or assured by the Existing Collateral Documents shall include
the Obligation under the Loan Documents.
6.4 FUTURE LIENS. Other than as permitted in SECTION 6.6, promptly
after (a) the acquisition of any material assets (real, personal, tangible,
or intangible) by Borrower, any Company that is a Domestic Subsidiary of
Borrower, or any Cellular Partnership Obligor, (b) the removal, termination,
or expiration of any prohibitions upon the granting of a Lien in any asset
(real, personal, tangible, or intangible) of Borrower, any Company that is a
Domestic Subsidiary of Borrower, or any Cellular Partnership Obligor, or (c)
upon the designation, formation, or Acquisition of any new Subsidiary of any
Company or any Cellular Partnership Obligor (the assets described in CLAUSES
(a) through (c) hereof are referred to herein as the "ADDITIONAL ASSETS"),
Borrower shall (or shall cause the appropriate Company or Cellular
Partnership Obligor to) execute and deliver to Administrative Agent all
further instruments and documents (including, without limitation, Collateral
Documents and all certificates and instruments representing shares of stock
or evidencing Debt and any realty appraisals as Administrative Agent may
require with respect to any such Additional Assets), and shall take all
further action that may be necessary or desirable, or that Administrative
Agent may reasonably request, to grant, perfect, and protect Liens in favor
of Administrative Agent for the benefit of Lenders in such Additional Assets,
as security for the Obligation to the extent Liens are required in such
assets pursuant to SECTION 6.2; IT BEING EXPRESSLY UNDERSTOOD that the
granting of such additional security for the Obligation is a material
inducement to the execution and delivery of this Agreement by each Lender.
Upon satisfying the terms and conditions hereof, such Additional Assets shall
be included in the "COLLATERAL" for all purposes under the Loan Documents,
and all references to the "COLLATERAL" in the Loan Documents shall include
the Additional Assets.
6.5 RELEASE OF COLLATERAL.
(a) CELLULAR TRANSMISSION TOWERS. On the Closing Date,
Administrative Agent shall (and is hereby irrevocably authorized by the
Lenders to) execute such documents as may be necessary to evidence the
release of Liens granted pursuant to the Existing Collateral Documents
in the cellular transmission towers owned by the Companies, which
towers will thereafter be subject to the negative pledge provisions of
SECTION 6.6.
(b) NON-LOAN PARTIES. On the Closing Date, Administrative
Agent shall (and is hereby irrevocably authorized by the Lenders to)
execute such documents as may be necessary to evidence the release of
guaranties executed, and Liens granted, pursuant to the Existing
Collateral Documents by any entities that are no longer required to
guaranty or secure the Obligation pursuant to the Loan Documents.
(c) UPON SALE OR DISPOSITION OF COLLATERAL. Upon any sale,
transfer, or disposition of Collateral which is expressly permitted
pursuant to the Loan Documents (or is otherwise authorized by Required
Lenders or Lenders, as the case may be), including, without limitation,
the Distribution of the Class A Preferred Stock pursuant to SECTION
9.20(t), and upon ten (10) Business Days' (or such lesser time period
agreed to by Administrative Agent in its sole discretion) prior written
request by Borrower (which request must be accompanied by true and
correct copies of (i) all documents of transfer or disposition,
including any contract of sale, (ii) a preliminary closing statement
and instructions to the title company, if any, and (iii) all requested
release instruments), Administrative Agent shall (and is hereby
irrevocably authorized by the Lenders to) execute such documents as may
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be necessary to evidence the release of Liens granted to Administrative
Agent for the benefit of Lenders pursuant hereto in such Collateral.
(d) CELLULAR PARTNERSHIP OBLIGOR GUARANTIES AND COLLATERAL.
With respect to Guaranties executed by, and Liens on the assets of, any
Cellular Partnership Obligor, such Guaranties and Liens (as well as any
Guaranties of, or Liens on partnership interests therein pledged by,
Persons other than any Company) shall be released in the event all
intercompany Debt owed by such Cellular Partnership Obligors to the
Companies has been paid in full and all commitments to lend have
terminated; PROVIDED, FURTHER HOWEVER, that from the date of such
repayment until the Obligation has been paid in full and the Total
Commitment has been terminated, no Company may, directly or through a
Subsidiary, advance funds to any such Cellular Partnership. In regard
to repayment of such intercompany Debt, Administrative Agent is hereby
authorized by Lenders to execute and deliver such releases of Cellular
Partnership Obligors upon ten (10) Business Days prior written request
by Borrower supported by evidence that such intercompany Debt has been
terminated and repaid in full and accompanied by appropriate release
instruments, which must be in form and substance satisfactory to
Administrative Agent.
(e) VENDOR FINANCING. To the extent any Company incurs Debt
permitted by SECTION 9.12(i) that is secured by Liens permitted by
SECTION 9.13(b)(vii), Administrative Agent is hereby authorized by
Lenders to execute and deliver such releases or subordination of Liens
on the Collateral so financed upon ten (10) Business Days prior written
request by Borrower supported by evidence that such Debt and Liens are
permitted by the terms of this Agreement and accompanied by appropriate
release or subordination instruments, which must be in form and
substance satisfactory to Administrative Agent.
(f) GENERAL PROVISIONS. The actions of Administrative Agent
under this SECTION 6.5 are subject to the following: (i) no such
release of Liens or Guaranties shall be granted if any Default or
Potential Default has occurred and is continuing, including, without
limitation, the failure to make certain mandatory prepayments in
accordance with SECTION 3.3(b) in conjunction with the sale or transfer
of such Collateral; (ii) Administrative Agent shall not be required to
execute any such document on terms which, in Administrative Agent's
opinion, would expose Administrative Agent to liability or create any
obligation or entail any consequence OTHER THAN the release of such
Liens without recourse or warranty; and (iii) such release shall not in
any manner discharge, affect, or impair the Obligation or Liens upon
(or obligations of any Company or any Cellular Partnership Obligor in
respect of) all interests retained by the Companies or the Cellular
Partnership Obligors, including, without limitation, the proceeds of
any sale, all of which shall continue to constitute Collateral.
6.6 NEGATIVE PLEDGE. Notwithstanding the provisions of SECTIONS 6.2
or 6.4 hereof, until such time as Administrative Agent or Required Lenders
otherwise require, the Companies and the Cellular Partnership Obligors shall
not be required to (i) perfect Liens on certain assets constituting interests
in third party leases for retail stores, vehicles, fixtures, cellular
transmission towers, real estate, assets located in foreign jurisdictions, or
stock or equity interests in Subsidiaries of Foreign Subsidiaries of the
Companies or Cellular Partnership Obligors (OTHER THAN Liens on such assets
arising under the Existing Collateral Documents) or (ii) grant specific
assignments of easements, licenses, permits, certificates of compliance, and
certificates of approval issued by regulatory authorities, franchises, or
like grants of authority or service agreements. To the extent contemplated by
the first sentence of this SECTION 6.6 or to the extent Administrative Agent
and Required Lenders otherwise agree to delay the perfection or attachment of
any Lien contemplated by SECTIONS 6.2 or 6.4 hereof, for whatever reason, the
Companies and the Cellular Partnership Obligors hereby covenant and agree not
to directly create, incur, grant, suffer, or permit to be created or incurred
any Lien on any such assets, OTHER THAN Permitted Liens. Furthermore, within
thirty (30) days of the request of Administrative Agent, Borrower shall (or
shall cause each Company and each Cellular
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Partnership Obligors to) execute and deliver to Administrative Agent all
instruments and documents (including, without limitation, certificates and
instruments and documents representing shares of stock or evidencing Debt)
and shall take all further action that may be necessary or desirable, or that
Administrative Agent may reasonably request, to grant, perfect, and protect
Liens in favor of Administrative Agent for the benefit of Lenders, in such
assets, as security for the Obligation; IT BEING EXPRESSLY UNDERSTOOD that
the provisions of this negative pledge are a material inducement to the
execution and delivery of this Agreement by each Lender. In addition,
Communications hereby covenants and agrees not to directly create, incur,
grant, suffer, or permit to be created or incurred any Lien on any of its
assets or any assets of its Restricted Subsidiaries, OTHER THAN Permitted
Liens.
6.7 CONTROL; LIMITATION OF RIGHTS. Notwithstanding anything herein
or in any other Loan Document to the contrary, (a) the transactions
contemplated hereby (i) do not and will not constitute, create, or have the
effect of constituting or creating, directly or indirectly, actual or
practical ownership of Borrower, its Subsidiaries, or any other Loan Party by
Agents or Lenders, or control, affirmative or negative, direct or indirect,
by Agents or Lenders over the management or any other aspect of the operation
of Borrower, its Subsidiaries, or any other Loan Party, which ownership or
control remains exclusively and at all times in the Loan Parties, and (ii) do
not and will not constitute the transfer, assignment, or disposition in any
manner, voluntary or involuntary, directly or indirectly, of any
Authorization at any time issued by the FCC or any PUC to Borrower, its
Subsidiaries, or any other Loan Party, or the transfer of control of
Borrower, its Subsidiaries, or any other Loan Party within the meaning of
SECTION 310(d) of the Communications Act of 1934, as amended; and (b)
Administrative Agent shall not, without first obtaining the approval of the
FCC or any applicable PUC, take any action pursuant to any Loan Document that
would constitute or result in any assignment of any Authorization or any
change of control of Borrower, its Subsidiaries, or any other Loan Party, if
such assignment or change of control would require, under then existing Law
(including the written rules and regulations promulgated by the FCC or any
such PUC), the prior approval of the FCC or any such PUC.
SECTION 7 CONDITIONS PRECEDENT.
7.1 CONDITIONS PRECEDENT TO CLOSING. This Agreement shall not become
effective, and Lenders shall not be obligated to advance any Borrowing or
issue any LC, unless Administrative Agent has received all of the agreements,
documents, instruments, and other items described on SCHEDULE 7.1 (OTHER THAN
each item, if any, listed on SCHEDULE 7.1A, which items are hereby permitted
to be delivered after the Closing Date but not later than the respective date
for delivery of each such item specified on SCHEDULE 7.1A).
7.2 CONDITIONS PRECEDENT TO AN ACQUISITION. On or prior to the
consummation of any Acquisition (whether or not the Purchase Price for such
Acquisition is funded by Borrowings), Borrower shall have satisfied the
conditions and delivered, or caused to be delivered, to Administrative Agent,
all documents and certificates set forth on SCHEDULE 7.2 by no later than the
dates specified for satisfaction of such conditions on SCHEDULE 7.2; PROVIDED
THAT, with respect to the Alaska 1 RSA Acquisition and the Alaska 3 RSA
Acquisition, Borrower shall not be required to deliver the Permitted
Acquisition Compliance Certificate prior to closing of such Acquisitions, SO
LONG AS Borrower shall deliver all certificates and documents required under
PART C of SCHEDULE 7.2 on or prior to the Closing Date for each such
Acquisition. Promptly upon receipt of each Permitted Acquisition Compliance
Certificate and each Permitted Acquisition Loan Closing Certificate,
Administrative Agent shall provide copies of such certificates to Lenders.
All documentation delivered and satisfaction of conditions pursuant to the
requirements of SECTION 7.2 must be satisfactory to Administrative Agent. To
the extent any Borrowing is being requested in connection with the
consummation of the Acquisition, the conditions set forth in SECTIONS 7.2 and
7.3 hereof must be satisfied prior to the making of any such Borrowing.
7.3 CONDITIONS PRECEDENT TO EACH BORROWING. In addition to the
conditions stated in SECTION 7.1 and SECTION 7.2 (as applicable), Lenders
will not be obligated to fund (as opposed to continue
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or convert) any Borrowing, and Administrative Agent will not be obligated to
issue any LC, as the case may be, UNLESS on the date of such Borrowing or
issuance (and after giving effect thereto), as the case may be: (a)
Administrative Agent shall have timely received therefor a Borrowing Notice
or a LC Request (TOGETHER WITH the applicable LC Agreement), as the case may
be; (b) Administrative Agent shall have received, as applicable, the LC fees
provided for in SECTION 5.5 hereof; (c) all of the representations and
warranties of any Loan Party set forth in the Loan Documents are true and
correct in all material respects (except to the extent that (i) the
representations and warranties speak to a specific date or (ii) the facts on
which such representations and warranties are based have been changed by
transactions permitted by the Loan Documents); (d) no change in the financial
condition or business of Communications and its Restricted Subsidiaries, any
Company, or any other Guarantor which could reasonably be expected to be a
Material Adverse Event shall have occurred; (e) no Default or Potential
Default shall have occurred and be continuing; (f) the funding of such
Borrowings and issuance of such LC, as the case may be, is permitted by Law;
(g) in the event all or any part of the proceeds of the Borrowing will be
used to finance a Distribution to the extent permitted by SECTION 9.20,
Administrative Agent shall have received all such certifications, financial
information, and projections as Administrative Agent may reasonably request;
(h) Administrative Agent shall have received, as requested, evidence that the
Debt to be incurred as a result of such Borrowing has been incurred or
entered into in compliance with the requirements of the Communications Bond
Debt, any Exchange Debenture Indenture, and the Certificates of Designation
for the Preferred Stock; and (i) all matters related to such Borrowing must
be satisfactory to Required Lenders and their respective counsel in their
reasonable determination, and upon the reasonable request of Administrative
Agent, Borrower shall deliver to Administrative Agent evidence substantiating
any of the matters in the Loan Documents which are necessary to enable
Borrower to qualify for such Borrowing. Each Borrowing Notice and LC Request
delivered to Administrative Agent shall constitute the representation and
warranty by Borrower to Administrative Agent that, as of the Borrowing Date
or the date of issuance of the LC, as the case may be, the statements above
are true and correct in all respects. Each condition precedent in this
Agreement is material to the transactions contemplated in this Agreement, and
time is of the essence in respect of each thereof. Subject to the prior
approval of Required Lenders, Lenders may fund any Borrowing, and
Administrative Agent may issue any LC, without all conditions being
satisfied, but, to the extent permitted by Law, the same shall not be deemed
to be a waiver of the requirement that each such condition precedent be
satisfied as a prerequisite for any subsequent funding or issuance, unless
Required Lenders specifically waive each such item in writing.
SECTION 8 REPRESENTATIONS AND WARRANTIES. Each Loan Party represents and
warrants to Administrative Agent and Lenders as follows:
8.1 PURPOSE OF CREDIT FACILITY. Borrower will use (or will invest in
or loan such proceeds to its Restricted Subsidiaries to so use) all proceeds
of Borrowings for one or more of the following: (a) to amend, restate, and
consolidate the Debt existing under the Existing Credit Agreements and pay
the related costs and expenses; (b) to finance the Reorganization and the
related costs and expenses, (c) to repay certain existing inter-Company Debt
owed to Communications and/or fund a Distribution to Communications to enable
Communications to finance a tender offer and consent solicitation with
respect to the Communications Bond Debt; (d) to finance Permitted
Acquisitions, including the Alaska 1 RSA Acquisition, the Alaska 3 RSA
Acquisition, the Michigan 3 RSA Acquisition, and the Michigan 10 RSA
Acquisition; (e) to finance Capital Expenditures; (f) for working capital of
Borrower and its Restricted Subsidiaries; and (g) for general corporate
purposes. No Loan Party is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying any "MARGIN STOCK" within the meaning of REGULATION U. No part of
the proceeds of any Borrowing will be used, directly or indirectly, for a
purpose which violates any Law, including, without limitation, the provisions
of REGULATIONS T, U, or X (as enacted by the Board of Governors of the
Federal Reserve System, as amended).
8.2 EXISTENCE, GOOD STANDING, AUTHORITY, AND AUTHORIZATIONS. Each
Loan Party and each Subsidiary thereof is duly organized, validly existing,
and in good standing under the Laws of its jurisdiction
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of organization (such jurisdictions being identified on SCHEDULE 8.3, as
supplemented and modified in writing from time to time to reflect any changes
to such Schedule as a result of transactions permitted by the Loan
Documents). Except where the failure to do so could not reasonably be
expected to constitute a Material Adverse Event, each Loan Party and each
Subsidiary thereof is duly qualified to transact business and is in good
standing in each jurisdiction where the nature and extent of its business and
properties require the same. Each Loan Party possesses all Authorizations,
franchises, permits, licenses, certificates of compliance, and approvals and
grants of authority necessary, including, without limitation, any
Authorization issued by the FCC, all of which are described on SCHEDULE 8.2
hereto, necessary or required in the conduct of its respective business(es),
and the same are valid, binding, enforceable, and subsisting without any
defaults thereunder or enforceable adverse limitations thereon and are not
subject to any proceedings or claims opposing the issuance, development, or
use thereof or contesting the validity thereof. No authorization, consent,
approval, waiver, license, or formal exemptions from, nor any filing,
declaration, or registration with, any Governmental Authority (federal,
state, or local), non-governmental entity, or Person under the terms of
contracts or otherwise, is required by reason of or in connection with the
execution and performance of the Loan Documents by the Loan Parties and each
Subsidiary thereof.
8.3 SUBSIDIARIES; CAPITAL STOCK. The Loan Parties have no
Subsidiaries except as disclosed on SCHEDULE 8.3 (as supplemented and
modified in writing from time to time to reflect any changes to such Schedule
as a result of transactions permitted by the Loan Documents). All of the
outstanding shares of capital stock (or similar voting interests) of each
Loan Party and each Subsidiary thereof are duly authorized, validly issued,
fully paid, and nonassessable and are owned of record and beneficially as set
forth on SCHEDULE 8.3 (as supplemented and modified in writing from time to
time to reflect any changes to such Schedule as a result of transactions
permitted by the Loan Documents), free and clear of any Liens, restrictions,
claims, or Rights of another Person, other than Permitted Liens, and none of
such shares owned by any Loan Party is subject to any restriction on transfer
thereof except for restrictions imposed by applicable securities Laws and
general corporate Laws. No Loan Party or any Subsidiary thereof has
outstanding any warrant, option, or other Right of any Person to acquire any
of its capital stock or similar equity interests. No Company has any
ownership interest in any Subsidiary of any Unrestricted Subsidiary of
Borrower or Communications. The number and percentage of shares of
partnership interests in each of the Cellular Partnerships, and the ownership
thereof, are accurately set forth on SCHEDULE 8.3 attached hereto; all such
partnership interests are validly issued under the terms of the applicable
Partnership Agreements and applicable Law; and any ownership thereof by any
Loan Party is free and clear of any Liens or security interests or other
contractual restrictions, other than the pledge thereof in favor of
Administrative Agent, on behalf of Lenders. Each Cellular Partnership that is
a Cellular Partnership Obligor is listed on SCHEDULE 8.3A (as supplemented
and modified in writing from time to time to reflect changes to such
schedules as a result of transactions permitted by the Loan Documents) and
the amount of intercompany loans and advances from any Company to each
Cellular Partnership Obligor is as set forth on SCHEDULE 8.3A attached
hereto. The amount of the outstanding balance under the GRTI Note is as set
forth on SCHEDULE 8.3A attached hereto.
8.4 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by
each Loan Party of each Loan Document to which it is a party and the
performance by such Loan Party of its obligations thereunder (a) are within
the corporate or organizational power of such Loan Party; (b) will have been
duly authorized by all necessary limited liability company, corporate, or
partnership action on the part of such Loan Party when such Loan Document is
executed and delivered, (c) require no action by or in respect of, or filing
with, any Governmental Authority, which action or filing has not been taken
or made on or prior to the Closing Date (or if later, the date of execution
and delivery of such Loan Document), (d) will not violate any provision of
the charter, bylaws, organizational documents, or Partnership Agreement of
such Loan Party, (e) will not violate any provision of Law applicable to such
Loan Party, other than such violations which individually or collectively
could not be a Material Adverse Event, (f) will not violate any material
written or oral agreements, contracts, commitments, or understandings to
which such Loan Party is a party, other than such violations which could not
be a Material Adverse Event, or (g) will not result in the creation or
imposition of any Lien on any asset of any Loan Party, OTHER THAN as
contemplated by this Agreement. Each
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Loan Party has (or will have upon consummation thereof) all necessary
consents and approvals of any Person or Governmental Authority required to be
obtained in order to effect any asset transfer, change of control, merger, or
consolidations permitted by the Loan Documents.
8.5 BINDING EFFECT. Upon execution and delivery by all parties
thereto, each Loan Document will constitute a legal, valid, and binding
obligation of each Loan Party party thereto, enforceable against each such
Loan Party in accordance with its terms, except as enforceability may be
limited by applicable Debtor Relief Laws and general principles of equity.
8.6 FINANCIAL STATEMENTS. The Current Financials were prepared in
accordance with GAAP and present fairly, in all material respects, the
consolidated financial condition, results of operations, and cash flows of
the Loan Parties and Subsidiaries thereof covered thereby ("REPORTING
ENTITIES") as of and for the portion of the fiscal year ending on the date or
dates thereof (subject only to normal year-end audit adjustments for interim
statements). There were no material liabilities, direct or indirect, fixed or
contingent, of the Reporting Entities as of the date or dates of the Current
Financials which are required under GAAP to be reflected therein or in the
notes thereto, and are not so reflected. Except for transactions directly
related to, specifically contemplated by, or expressly permitted by, the Loan
Documents, (a) there have been no changes in the consolidated financial
condition or operations of the Reporting Entities from that shown in the
Current Financials after such date which could be a Material Adverse Event,
nor has any Reporting Entity incurred any liability (including, without
limitation, any liability under any Environmental Law), direct or indirect,
fixed or contingent, after such date which could be a Material Adverse Event,
and (b) no Reporting Entity has incurred any liability (including, without
limitation, any liability under any Environmental Law), direct or indirect,
fixed or contingent, after such date which could be a Material Adverse Event.
8.7 LITIGATION, CLAIMS, INVESTIGATIONS. No Loan Party or any
Subsidiary thereof is subject to, or aware of the threat of, any Litigation
which is reasonably likely to be determined adversely to any Loan Party or
any Subsidiary thereof, and, if so adversely determined, could (individually
or collectively with other Litigation) be a Material Adverse Event. There are
no outstanding orders or judgments for the payment of money in excess of
$10,000,000 (individually or collectively) or any warrant of attachment,
sequestration, or similar proceeding against the assets of any Loan Party or
any Subsidiary thereof having a value (individually or collectively) of
$10,000,000 or more which is not either (a) stayed on appeal or (b) being
diligently contested in good faith by appropriate proceedings and adequate
reserves have been set aside on the books of such Loan Party or any
Subsidiary thereof in accordance with GAAP. There are no formal complaints,
suits, claims, investigations, or proceedings initiated at or by any
Governmental Authority pending or threatened by or against any Loan Party or
any Subsidiary thereof which could reasonably be expected to be a Material
Adverse Event, nor any judgments, decrees, or orders of any Governmental
Authority outstanding against any Loan Party or any Subsidiary thereof that
could reasonably be expected to be a Material Adverse Event.
8.8 TAXES. All Tax returns of each Loan Party and each Subsidiary
thereof required to be filed have been filed (or extensions have been
granted) prior to delinquency, except for any such returns for which the
failure to so file could not be a Material Adverse Event, and all Taxes
imposed upon each Loan Party and each of its Subsidiaries which are due and
payable have been paid prior to delinquency, OTHER THAN Taxes for which the
criteria for Permitted Liens (as specified in SECTION 9.13(b)(v)) have been
satisfied or for which nonpayment thereof could not constitute a Material
Adverse Event.
8.9 ENVIRONMENTAL MATTERS. No Loan Party or any Subsidiary thereof
(a) knows of any environmental condition or circumstance, such as the
presence or Release of any Hazardous Substance, on any property presently or
previously owned by any Loan Party or any Subsidiary thereof that could be a
Material Adverse Event, (b) knows of any violation by any Loan Party or any
Subsidiary thereof of any Environmental Law, except for such violations that
could not be a Material Adverse Event, or (c) knows that any Loan Party or
any of its Subsidiaries is under any obligation to remedy any violation of any
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Environmental Law, except for such obligations that could not be a Material
Adverse Event; PROVIDED, HOWEVER, that each Loan Party and each Subsidiary
thereof (x) to the best of its knowledge, has in full force and effect all
Environmental Permits, licenses, and approvals required to conduct its
operations and is operating in substantial compliance thereunder, and (y) has
taken prudent steps to determine that its properties and operations are not
in violation of any Environmental Law.
8.10 EMPLOYEE BENEFIT PLANS. No Loan Party, any Restricted
Subsidiary thereof, or any ERISA Affiliate of any Loan Party has maintained
or will maintain any Employee Plans. No Loan Party, any Restricted Subsidiary
thereof, or any ERISA Affiliate of any Loan Party has engaged in any
"PROHIBITED TRANSACTION" (as defined in SECTION 406 of ERISA or SECTION 4975
of the Code) which would be a Material Adverse Event.
8.11 PROPERTIES; LIENS. Each Loan Party has good and marketable
title to all its property reflected on the Current Financials, EXCEPT (a) for
(i) property that is obsolete, (ii) property that has been disposed of in the
ordinary course of business, or (iii) property with title defects or failures
in title which would not be a Material Adverse Event, or (b) as otherwise
permitted by the Loan Documents. Except for Permitted Liens, there is no Lien
on any property of any Loan Party, and the execution, delivery, performance,
or observance of the Loan Documents will not require or result in the
creation of any Lien on such property.
8.12 GOVERNMENT REGULATIONS. No Loan Party or Subsidiary thereof is
subject to regulation under the INVESTMENT COMPANY ACT OF 1940, as amended,
the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, as amended, or any other Law
(other than REGULATIONS T, U, and X of the Board of Governors of the Federal
Reserve System and the requirements of any PUC or public service commission)
which regulates the incurrence of Debt.
8.13 TRANSACTIONS WITH AFFILIATES. Except as permitted in SECTION
9.14, no Loan Party or any Subsidiary thereof is a party to a material
transaction with any of its Affiliates (excluding transactions between or
among Companies), other than transactions in the ordinary course of business
and upon fair and reasonable terms not materially less favorable than such
Loan Party could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate.
8.14 DEBT. No Loan Party or any Foreign Subsidiary thereof is an
obligor on any Debt other than Permitted Debt.
8.15 MATERIAL AGREEMENTS; MANAGEMENT AGREEMENTS. SCHEDULE 8.15
hereto sets forth a list of all contracts material to the respective business
of the Loan Parties (including with respect to the Systems), and there exists
no material default under any of such contracts. There are no failures of any
material written or oral agreements, contracts, commitments, or
understandings to which any Loan Party is a party to be in full force and
effect which could be a Material Adverse Event, and no default or potential
default exists on the part of any Loan Party thereunder which could be a
Material Adverse Event. No Loan Party is a party to any management or
consulting agreement for the provision of services to it, except as described
in SCHEDULE 8.15 hereto.
8.16 INSURANCE. Each Loan Party and each Subsidiary thereof
maintains, with financially sound, responsible, and reputable insurance
companies or associations, insurance concerning its properties and businesses
against such casualties and contingencies and of such types and in such
amounts (and with co-insurance and deductibles) as is customary in the case
of same or similar businesses.
8.17 LABOR MATTERS. There are no actual or threatened strikes, labor
disputes, slow downs, walkouts, or other concerted interruptions of
operations by the employees of any Loan Party or any Subsidiary thereof that
could be a Material Adverse Event. Hours worked by and payment made to
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employees of the Loan Parties and Subsidiaries thereof have not been in
violation of the FAIR LABOR STANDARDS ACT or any other applicable Law dealing
with such matters, OTHER THAN any such violations, individually or
collectively, which could not constitute a Material Adverse Event. All
payments due from any Loan Party or any Subsidiary thereof on account of
employee health and welfare insurance have been paid or accrued as a
liability on its books, other than any such nonpayments which could not,
individually or collectively, constitute a Material Adverse Event.
8.18 SOLVENCY. At the time of each Borrowing hereunder and on the
date of each Permitted Acquisition, each Loan Party is (and after giving
effect to the transactions contemplated by the Loan Documents, any Permitted
Acquisition, and any incurrence of additional Debt, will be) Solvent.
8.19 INTELLECTUAL PROPERTY. Each Loan Party and each Subsidiary
thereof owns or has sufficient and legally enforceable Rights to use all
material licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, and trade names necessary to continue to
conduct its businesses as heretofore conducted by it, now conducted by it,
and now proposed to be conducted by it. Each Loan Party and each Subsidiary
thereof is conducting its business without infringement or claim of
infringement of any license, patent, copyright, service mark, trademark,
trade name, trade secret, or other intellectual property right of others,
other than any such infringements or claims which, if successfully asserted
against or determined adversely to any Loan Party and any Subsidiary thereof,
could not, individually or collectively, reasonably be expected to constitute
a Material Adverse Event.
8.20 COMPLIANCE WITH LAWS. No Loan Party or any Subsidiary thereof
is in violation of any Laws (including, without limitation, the
Communications Act, Environmental Laws, and those Laws administered by the
FCC and any PUC), other than such violations which could not, individually or
collectively, be a Material Adverse Event. No Loan Party or any Subsidiary
thereof has received notice alleging any noncompliance with any Laws, except
for such noncompliance which no longer exists, or which could not constitute
a Material Adverse Event.
8.21 PERMITTED ACQUISITIONS.
(a) VALIDITY. With respect to any Permitted Acquisitions, each
Company has the power and authority under the Laws of its state of
incorporation or organization and under its articles of incorporation
and bylaws, organizational documents, or Partnership Agreement, as
applicable, to enter into and perform the related Acquisition agreement
to which it is a party and all other agreements, documents, and actions
required thereunder; and all actions (corporate or otherwise) necessary
or appropriate by the Companies for the execution and performance of
said Acquisition agreements, and all other documents, agreements, and
actions required thereunder, have been taken, and, upon their
execution, such Acquisition agreements will constitute the valid and
binding obligation of the Companies party thereto, enforceable in
accordance with their respective terms.
(b) NO VIOLATIONS. With respect to any Permitted Acquisition,
the making and performance of the related Acquisition agreements, and
all other agreements, documents, and actions required thereunder, will
not violate any provision of any Law, including, without limitation,
all state corporate Laws and judicial precedents of the states of
incorporation or formation of the Companies, and will not violate any
provisions of the articles of incorporation, bylaws, or Partnership
Agreements of the Companies, or constitute a default under any
agreement by which the Companies or their respective property may be
bound.
8.22 REGULATION U. "MARGIN STOCK" (as defined in REGULATION U)
constitutes less than 25% of those assets of any Loan Party, which are
subject to any limitation on sale, pledge, or other restrictions hereunder.
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8.23 TRADENAME. No Loan Party has used or transacted business under
any other corporate or trade name in the five-year period preceding the
Closing Date.
8.24 YEAR 2000. All of the material computer software, computer
firmware, computer hardware (whether general or special purpose), and other
similar or related items of automated, computerized, and/or software systems
that are used or relied on by the Loan Parties in the conduct of their
respective businesses have not malfunctioned, have not ceased to function,
have not generated incorrect data, and have not produced incorrect results
when processing, providing, and/or receiving (a) date-related data into,
between, and during year 1999 and year 2000 and (b) date-related data in
connection with any valid date in year 1999 or year 2000, unless such
malfunction or incorrect results could not reasonably be expected to be a
Material Adverse Event.
8.25 FULL DISCLOSURE. There is no material fact or condition
relating to the Loan Documents or the financial condition, business, or
property of any Loan Party or any Subsidiary thereof which could be a
Material Adverse Event and which has not been related, in writing, to
Administrative Agent. All information heretofore furnished by any Loan Party
to any Lender or Administrative Agent in connection with the Loan Documents
was, and all such information hereafter furnished by any Loan Party to any
Lender or Administrative Agent will be, true and accurate in all material
respects or based on reasonable estimates on the date as of which such
information is stated or certified.
8.26 NO DEFAULT. No Default or Potential Default exists or will
arise as a result of the execution, delivery, or performance of the Loan
Documents, of any Borrowing hereunder, or after giving effect to the
Reorganization.
8.27 PERFECTION OF SECURITY INTERESTS. Upon filing of the financing
statements against each Loan Party in the jurisdictions listed on each ANNEX
A of each Security Agreement and the delivery to Administrative Agent, for
the benefit of Lenders, of all the issued and outstanding shares of stock or
other evidence of equity investments owned by any Loan Party and required to
be pledged to secure the Obligation pursuant to SECTIONS 6.1 and 6.4, the
security interests in the Collateral created by the Collateral Documents will
be perfected in favor of Administrative Agent, for the benefit of Lenders. No
further action, including any filing or recording of any document, is
necessary in order to establish, perfect, and maintain Lenders' first
priority security interests in the assets and the stock created by the
Collateral Documents, except for the periodic filing of continuation
statements with respect to financing statements filed under the UCC.
8.28 REORGANIZATION AND COMMUNICATIONS BOND DEBT. On and as of the
Closing Date, the execution and delivery by the Loan Parties of the documents
related to the Reorganization, and the performance by the Loan Parties of its
obligations thereunder (a) are within the corporate or organizational power
of such Loan Party, (b) have been duly authorized by all necessary limited
liability company or corporate action on the part of such Loan Party, (c)
require no action by or in respect of, or filing with any Governmental
Authority, which action or filing has not been taken or made on or prior to
the Closing Date, (d) do not violate any provision of the charter, bylaws, or
organizational documents of such Loan Party, (e) do not violate any provision
of Law applicable to it, other than such violations which individually or
collectively could not be a Material Adverse Event, (f) do not violate any
Material Agreements to which it is a party, other than such violations which
could not be a Material Adverse Event, (g) do not result in the creation or
imposition of any Lien on any asset of any Loan Party (OTHER THAN Permitted
Liens), and (h) immediately prior to, and after giving pro forma effect
thereto, no Default or Potential Default exists or arises under the Loan
Documents. On and as of the Closing Date, the Loan Parties have obtained all
necessary consents and approvals of any Person or Governmental Authority
required to be obtained in order for such Loan Party to effectuate the
Reorganization, EXCEPT to the extent any such failure could not be a Material
Adverse Event. Concurrently with the Closing Date, the Reorganization shall
have been consummated. The Loan Parties have received all necessary consents
to effect an amendment (which amendment shall be in form and terms acceptable
to Administrative Agent) to the Indenture dated as of
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February 28, 1997, between Communications and United States Trust Company of
New York so that there are no prohibitions under the terms of the
Communications Bond Debt to the execution, delivery, and performance of the
Loan Documents, and no "DEFAULT" or event which with notice or lapse of time
could become a default exists under any documents or instruments evidencing
or relating to the Communications Bond Debt.
SECTION 9 COVENANTS. Each Loan Party covenants and agrees (and agrees to
cause its ERISA Affiliates with respect to SECTION 9.10) to perform, observe,
and comply with each of the following covenants applicable to such Person,
from the Closing Date and SO LONG THEREAFTER AS Lenders are committed to fund
Borrowings and Administrative Agent is committed to issue LCs under this
Agreement and thereafter until the payment in full of the Principal Debt (and
termination of outstanding LCs, if any) and payment in full of all other
interest, fees, and other amounts of the Obligation then due and owing,
UNLESS Borrower receives a prior written consent to the contrary by
Administrative Agent as authorized by Required Lenders:
9.1 USE OF PROCEEDS. Borrower shall use (and shall cause each other
Company to use) the proceeds of Borrowings only for the purposes represented
herein.
9.2 BOOKS AND RECORDS. The Loan Parties shall maintain books,
records, and accounts necessary to prepare financial statements in accordance
with GAAP.
9.3 ITEMS TO BE FURNISHED. Communications and Borrower shall
cause the following to be furnished to Administrative Agent for delivery to
Lenders:
(a) Promptly after preparation, and no later than 120 days
after the last day of each fiscal year of Communications and Borrower,
Financial Statements showing the consolidated financial condition and
results of operations calculated separately for each of (x)
Communications and its Subsidiaries and (y) the Companies, as of, and
for the year ended on, such day, each accompanied by:
(i) the unqualified opinion of a firm of
nationally-recognized independent certified public
accountants, based on an audit using generally accepted
auditing standards, that such Financial Statements were
prepared in accordance with GAAP and present fairly the
consolidated financial condition and results of operations of
Communications and its Subsidiaries and the Companies, as the
case may be;
(ii) a certificate from such accounting firm to
Administrative Agent indicating that during its audit it
obtained no knowledge of any Default or Potential Default or,
if it obtained such knowledge, the nature and period of
existence thereof; and
(iii) with respect to the Financial Statements of the
Companies, a Compliance Certificate in substantially the form
of EXHIBIT E-1.
(b) Promptly after preparation, and no later than 60 days
after the last day of each fiscal quarter of Communications and
Borrower, Financial Statements showing the consolidated financial
condition and results of operations calculated for Communications and
its Subsidiaries and the Companies for such fiscal quarter and for the
period from the beginning of the then-current fiscal year to, such last
day, accompanied by a Compliance Certificate with respect to the
Financial Statements of the Companies in substantially the form of
EXHIBIT E-1.
(c) Within 60 days after the end of each fiscal quarter of
Borrower, (i) a management report, showing for each System results of
operations and subscriber counts, discussing the financial results and
comparing actual performance results to the Budget for such period, and
outlining
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principal factors affecting performances of each market, and (ii) a
revised SCHEDULE 8.3A reflecting the outstanding principal amount of
intercompany loans and advances from any Company to any Cellular
Partnership Obligor, if any (all items to be delivered under this
CLAUSE (c) to be in form and substance satisfactory to Administrative
Agent).
(d) On or prior to March 31 of each fiscal year of the
Companies, the financial Budget for such fiscal year, accompanied by a
certificate executed by a Responsible Officer, certifying that such
Budget was prepared by Borrower based on assumptions which, in light of
the historical performance of the Companies and their prospects for the
future, are realistic and achievable.
(e) Promptly upon receipt thereof, copies of all auditor's
annual management letters delivered to Communications or Borrower.
(f) Notice, promptly after any Loan Party knows or has reason
to know of (i) the existence and status of any Litigation which could
be a Material Adverse Event, or of any order or judgment for the
payment of money which (individually or collectively) is in excess of
$5,000,000, or any warrant of attachment, sequestration, or similar
proceeding against the assets of any Loan Party or any Subsidiary
thereof having a value (individually or collectively) of $5,000,000,
(ii) any material change in any material fact or circumstance
represented or warranted in any Loan Document, (iii) a Default or
Potential Default specifying the nature thereof and what action any
Loan Party or any Subsidiary thereof has taken, is taking, or proposes
to take with respect thereto, (iv) the receipt by any Loan Party or any
Subsidiary thereof of any notice from any Governmental Authority of the
expiration without renewal, termination, material modification or
suspension of, or institution of any proceedings to terminate,
materially modify, or suspend, any Authorization granted by the FCC or
any applicable PUC, or any other Authorization which any Loan Party or
any Subsidiary thereof is required to hold in order to operate its
business in compliance with all applicable Laws, other than such
expirations, terminations, suspensions, or modifications which
individually or in the aggregate would not constitute a Material
Adverse Event, (v) any federal, state, or local Law limiting or
controlling the operations of any Loan Party or any Subsidiary thereof
which has been issued or adopted hereafter and which could be a
Material Adverse Event, (vi) the receipt by any Loan Party or any
Subsidiary thereof of notice of any violation or alleged violation of
any Environmental Law or Environmental Permit or any Environmental
Liability or potential Environmental Liability, which violation or
liability or alleged violation or liability could, individually or
collectively with other such violations or allegations, constitute a
Material Adverse Event, or (vii) (A) any expressed statement in writing
on the part of the PBGC of any "PROHIBITED TRANSACTION," or (B) the
creation of, maintenance of, or acquisition of any Employee Plan by any
Loan Party, any Subsidiary thereof, or any ERISA Affiliate of any Loan
Party.
(g) Promptly after any of the information or disclosures
provided on any of the Schedules delivered pursuant to this Agreement
or any Annexes to any of the Collateral Documents becomes outdated or
incorrect in any material respect, such revised or updated Schedule(s)
or Annexes as may be necessary or appropriate to update or correct such
information or disclosures; PROVIDED THAT, no deletions may be made to
any Annexes describing Collateral in any of the Collateral Documents
unless approved by Required Lenders.
(h) Promptly after preparation, true, correct, and complete
copies of all material reports or filings filed by or on behalf of any
Loan Party with any Governmental Authority (including the FCC and the
Securities and Exchange Commission).
(i) Promptly after the filing thereof, a true, correct, and
complete copy of each FORM 10-K, FORM 10-Q, and FORM 8-K filed by or on
behalf of any Loan Party or any Subsidiary thereof with the Securities
and Exchange Commission.
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(j) Promptly upon request therefor by Administrative Agent or
Required Lenders, such information (not otherwise required to be
furnished under the Loan Documents) respecting the business affairs,
assets, and liabilities of the Loan Parties or Subsidiary thereof, and
such opinions, certifications, and documents, in addition to those
mentioned in this Agreement, as reasonably requested.
(k) With respect to the post-closing requirements set forth on
SCHEDULE 7.1A, deliver, or cause to be delivered, to Administrative
Agent, all agreements, documents, instruments, or other items listed on
SCHEDULE 7.1A on or prior to the date specified for delivery thereof on
SCHEDULE 7.1A.
9.4 INSPECTIONS. Upon reasonable notice, the Loan Parties shall
allow Administrative Agent or any Lender (or their respective
Representatives) to inspect any of their properties, to review reports,
files, and other records and to make and take away copies thereof, to conduct
tests or investigations, and to discuss any of their respective affairs,
conditions, and finances with other creditors, directors, officers,
employees, other representatives, and independent accountants of the Loan
Parties, from time to time, during reasonable business hours.
9.5 TAXES. Each Loan Party (a) shall (and shall cause each of its
Subsidiaries to) promptly pay when due any and all Taxes OTHER THAN Taxes the
applicability, amount, or validity of which is being contested in good faith
by lawful proceedings diligently conducted, and against which reserve or
other provision required by GAAP has been made, and in respect of which levy
and execution of any lien securing same have been and continue to be stayed,
(b) shall not, directly or indirectly, use any portion of the proceeds of any
Borrowing to pay the wages of employees unless a timely payment to or deposit
with the appropriate Governmental Authorities of all amounts of Tax required
to be deducted and withheld with respect to such wages is also made, and (c)
shall notify Lenders immediately if the Internal Revenue Service or any other
taxing authority commences or notifies any Loan Party or Subsidiary thereof
of its intention to commence an audit or investigation with respect to any
taxes of any kind due or alleged to be due from any Loan Party or any
Subsidiary thereof.
9.6 PAYMENT OF OBLIGATIONS. Borrower shall pay the Obligation in
accordance with the terms and provisions of the Loan Documents. Each Loan
Party (a) shall promptly pay (or renew and extend) all of its material
obligations as the same become due (unless such obligations
[other than the Obligation] are being contested in good faith by appropriate
proceedings), and (b) shall not (i) make any voluntary prepayment of
principal of, or interest on, any other Debt (OTHER THAN the Obligation),
whether subordinate to the Obligation or not or (ii) use proceeds from the
Facilities or any Discretionary Loan to make any voluntary prepayment of
principal of, or interest on, or sinking fund payment in respect of any Debt
of Loan Party or Subsidiary thereof, EXCEPT as permitted in SECTIONS 9.20 and
9.21. No Loan Party shall make any payment on any Subordinated Debt when it
violates the subordination provisions thereof or results in a Default or
Potential Default hereunder.
9.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Except as
otherwise permitted by SECTION 9.24, each Loan Party shall (and shall cause
each of its Subsidiaries to) at all times: (a) maintain its existence and
good standing in the jurisdiction of its organization and its authority to
transact business in all other jurisdictions where the failure to so maintain
its authority to transact business could be a Material Adverse Event; (b)
maintain all licenses, permits, and franchises necessary for its business
where the failure to so maintain could be a Material Adverse Event; (c) keep
all of its assets which are useful in and necessary to its business in good
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs thereto and replacements thereof; and (d) do all things
necessary to obtain, renew, extend, and continue in effect all Authorizations
issued by the FCC or any applicable PUC which may at any time and from time
to time be necessary for the Loan Parties and Subsidiaries thereof to operate
their businesses in compliance with applicable Law, where the failure to so
renew, extend, or continue in effect could be a Material Adverse Event.
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9.8 INSURANCE. The Loan Parties shall, at their sole cost and
expense, keep and maintain all property and assets owned by such Loan Party
insured for its actual cash value against loss or damage by fire, theft,
explosion, flood, and all other hazards and risks ordinarily insured against
by other owners or users of such properties in similar businesses of
comparable size and notify Administrative Agent promptly of any occurrence
causing a material loss or decline in value of such property or assets and
the estimated (or actual, if available) amount of such loss or decline. All
such policies of insurance shall be in a form, with such co-insurance and
deductibles, and with insurers recognized as adequate by prudent business
Persons in the same businesses as the Loan Parties and acceptable to
Administrative Agent, and all such policies shall be in such amount as may be
satisfactory to Administrative Agent. On the Closing Date and thereafter as
each policy is renewed and extended, the Loan Parties shall deliver to
Administrative Agent a certificate of insurance for each policy of insurance
and evidence of payment of all premiums therefor. Such policies of insurance
and the certificates evidencing the same shall contain an endorsement, in
form and substance acceptable to Administrative Agent, showing loss payable
to Administrative Agent (for the ratable benefit of Lenders) as its interests
may appear under a standard mortgagee clause. Such endorsement, or an
independent instrument furnished to Administrative Agent, shall provide that
the insurance companies will give Administrative Agent at least 30 days prior
written notice before any such policy or policies of insurance shall be
altered or canceled and that no act or default of any Loan Party or any other
Person shall affect the Right of Administrative Agent to recover under such
policy or policies of insurance in case of loss or damage. Upon the payment
by the insurer of the proceeds of any such policy of insurance and if no
Default has occurred and is continuing, the Loan Party so insured may retain
such insurance if such proceeds are used to repair or replace the property
the damage or destruction of which gave rise to the payment of such insurance
proceeds or to acquire Cellular Assets of equal or greater value; PROVIDED,
HOWEVER, that any insurance proceeds not used for repair or replacement or
the acquisition of Cellular Assets in accordance herewith, UNLESS paid as
reimbursement of expenses incurred and business losses suffered in connection
with the loss or damage to the Collateral, shall be paid to or retained by
Administrative Agent for application as a mandatory prepayment on the
Obligation. Notwithstanding the foregoing, no acquisition of Cellular Assets
or mandatory prepayment shall be required unless the amount of insurance
proceeds received in any calendar year under all policies of insurance of the
Loan Parties exceeds $150,000. Any mandatory prepayment hereunder shall be
applied as follows: (i) FIRST, subject to the provisions of SECTION 3.3(f),
ratably as a prepayment of the Obligation arising under the Term Loan A
Facility, the Term Loan B Facility, the Discretionary Term A Loan
Subfacility, and the Discretionary Term B Loan Subfacility until paid in full
(for purposes hereof, "RATABLY" for each Facility or Discretionary Loan, on
any date of determination, shall mean the proportion that either the Term
Loan A Principal Debt, the Term Loan B Principal Debt, the Discretionary Term
A Loan Principal Debt under each Discretionary Term A Loan, and the
Discretionary Term B Loan Principal Debt under each Discretionary Term B
Loan, as the case may be, bears to the SUM of the Total Term A Principal
Debt, the Term Loan B Principal Debt, and the Discretionary Term B Loan
Principal Debt under all Discretionary Term B Loans); and (ii) SECOND,
ratably as a mandatory reduction of the Total Revolver Commitment (for
purposes hereof, "RATABLY" for each mandatory prepayment under the Revolver
Facility or any Discretionary Revolver Loan, on any date of determination,
shall mean the proportion that the Revolver Principal Debt or Discretionary
Revolver Principal Debt under each Discretionary Revolver Loan bears to the
Total Revolver Principal Debt; and "RATABLY" for each mandatory commitment
reduction under the Revolver Facility or any Discretionary Revolver Loan, on
any date of determination, shall mean the proportion that the Revolver
Commitment or the Discretionary Revolver Commitment under each Discretionary
Revolver Loan bears to the Total Revolver Commitment).
9.9 PRESERVATION AND PROTECTION OF RIGHTS. Each Loan Party shall
(and shall cause each Subsidiary thereof to) perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record any additional
agreements, documents, instruments, and certificates as Administrative Agent
or Required Lenders may reasonably deem necessary or appropriate in order to
preserve and protect the Rights of Administrative Agent and Lenders under any
Loan Document.
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9.10 EMPLOYEE BENEFIT PLANS. No Loan Party, Restricted Subsidiary
thereof, or ERISA Affiliate of any Loan Party shall, directly or indirectly,
engage in any "PROHIBITED TRANSACTION" (as defined in SECTION 406 of ERISA or
SECTION 4975 of the Code), or (without notice to Administrative Agent and
execution of appropriate amendments to the Loan Documents) maintain, create,
or participate in any Employee Plan.
9.11 ENVIRONMENTAL LAWS. Each Loan Party shall (and shall cause each
Subsidiary thereof to) (a) conduct its business so as to comply with all
applicable Environmental Laws and shall promptly take corrective action to
remedy any non-compliance with any Environmental Law, (b) promptly
investigate and remediate any known Release or threatened Release of any
Hazardous Substance on any property owned by any Loan Party or at any
facility operated by any Loan Party to the extent and degree necessary to
comply with Law and to assure that any Release or threatened Release does not
result in a substantial endangerment to human health or the environment, and
(c) appropriately monitor compliance with applicable Environmental Laws and
minimize financial and other risks to each Loan Party arising under
applicable Environmental Laws or as a result of environmentally-related
injuries to Persons or property.
9.12 DEBT AND GUARANTIES. No Loan Party (OTHER THAN Communications)
shall nor shall they permit any of their Foreign Subsidiaries to, directly or
indirectly, create, incur, or suffer to exist any direct, indirect, fixed, or
contingent liability for any Debt, OTHER THAN:
(a) The Obligation and Guaranties thereof;
(b) Debt incurred by the Companies under any Financial Hedge
permitted by, and purchased and maintained in compliance with, the
requirements of the Loan Documents;
(c) Debt between Companies;
(d) Debt of any Company owed to Communications, SO LONG AS
such Debt is unsecured, unguaranteed, and subordinate in right of
payment to the Obligation pursuant to an Affiliate Subordination
Agreement, and SO LONG AS such Subordinated Debt and Affiliate
Subordination Agreement are upon terms satisfactory to Administrative
Agent; PROVIDED HOWEVER, THAT, the subordination provisions shall
permit repayments of such Debt at such times, in such amounts, for the
express purposes, and subject to the conditions, as specified in
SECTION 9.20(m); and
(e) Debt of any Cellular Partnership Obligor owed to any
Company, SO LONG AS (i) such Debt is evidenced by a Cellular
Partnership Promissory Note the form and terms of which, including
amortization schedules, are acceptable to Administrative Agent and
which, among other things, provide that (x) all payments made pursuant
to the Guaranty of such Cellular Partnership Obligor or under the other
Loan Documents shall be deemed a repayment of a corresponding portion
of the amounts outstanding under such Cellular Partnership Obligor's
Cellular Partnership Note and (y) 100% of the Operating Cash Flow of
such Cellular Partnership Obligor is dedicated to payment of the Debt
arising under such Cellular Partnership Promissory Notes; (ii) such
Cellular Partnership Promissory Notes and all partnership interests of
the Companies in such Cellular Partnership Obligor are pledged or
assigned by the appropriate Companies to Administrative Agent, for the
benefit of Lenders, pursuant to appropriate Collateral Documents; (iii)
each Cellular Partnership Obligor has executed a Guaranty and has
granted Liens in and to all its assets in favor of Administrative Agent
(for the benefit of Lenders) by execution and delivery to
Administrative Agent of all Collateral Documents required by
Administrative Agent; (iv) each Cellular Partnership Obligor, by
execution of a Guaranty, agrees to be bound by certain terms,
representations, covenants, and other provisions of the Loan Documents
applicable to Cellular Partnership Obligors, including without
limitation, the restrictions on Distributions and Restricted Payments
in SECTION 9.20; and (v) such Cellular Partnership Obligor has
delivered all such searches, opinions, financing statements, and other
documents reasonably requested by Administrative Agent; PROVIDED THAT,
to the extent any "DEFAULT"
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exists with respect to any Cellular Partnership Obligor's Cellular
Partnership Note, such Cellular Partnership Obligor is not permitted to
incur any additional Debt with any Company whether under such Cellular
Partnership Obligor's Cellular Partnership Note or otherwise.
(f) Trade Debt for goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary
trade terms that are not more than 90 days past due;
(g) Debt of the Companies arising under Capital Leases not to
exceed $30,000,000 in the aggregate on any date of determination, OTHER
THAN Capital Leases entered into pursuant to SECTION 9.12(i);
(h) Endorsements of checks or drafts in the ordinary course of
business;
(i) Debt incurred or assumed by any Company for the purpose of
financing all or any part of the cost of any asset (including Capital
Leases and renewals, extensions, amendments, and modifications of such
Debt), SO LONG AS (i) the aggregate amount of such Debt (together with
any and all amendments, modifications, or refinancings thereof) does
not exceed $50,000,000, and (ii) no Default or Potential Default then
exists or arises as a result of such Debt incurrence;
(j) Unsecured Debt of any Company not otherwise permitted by
this SECTION 9.12, SO LONG AS on any date of determination such Debt
does not exceed, in the aggregate, $10,000,000; and
(k) Debt of any Foreign Subsidiary of Borrower not to exceed
$2,500,000 in the aggregate on any date of determination.
9.13 LIENS. No Loan Party (OTHER THAN Communications) will, directly
or indirectly, (a) enter into or permit to exist any arrangement or agreement
which directly or indirectly prohibits any Loan Party (OTHER THAN
Communications) from creating or incurring any Lien on any of its assets,
other than the Loan Documents, or (b) create, incur, or suffer or permit to
be created or incurred or to exist any Lien upon any of its assets, EXCEPT:
(i) Liens securing the Obligation, and SO LONG AS the
Obligation is ratably secured therewith, Liens securing Debt incurred
by any Company under any Financial Hedge with any Lender or an
Affiliate of any Lender to the extent permitted under SECTION 9.12(b);
(ii) Pledges or deposits made to secure payment of worker's
compensation, or to participate in any fund in connection with worker's
compensation, unemployment insurance, pensions, or other social
security programs, but expressly excluding any Liens in favor of the
PBGC or otherwise under ERISA;
(iii) Good-faith pledges or deposits made to secure
performance of bids, tenders, insurance or other contracts (OTHER THAN
for the repayment of borrowed money), or leases, or to secure statutory
obligations, surety or appeal bonds, or indemnity, performance, or
other similar bonds as all such Liens arise in the ordinary course of
business;
(iv) Encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property, none of
which impair in any material respect the use of such property by the
Person in question in the operation of its business, and none of which
is violated by existing or proposed structures or land use;
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(v) Liens of landlords or of mortgagees of landlords, arising
solely by operation of law, on fixtures and movable property located on
premises leased in the ordinary course of business;
(vi) The following, SO LONG AS the validity or amount thereof
is being contested in good faith and by appropriate and lawful
proceedings diligently conducted, reserve or other appropriate
provisions (if any) required by GAAP shall have been made, levy and
execution thereon have been stayed and continue to be stayed, and they
do not in the aggregate materially detract from the value of the
property of the Person in question, or materially impair the use
thereof in the operation of its business: (i) claims and Liens for
Taxes (other than Liens relating to Environmental Laws or ERISA); (ii)
claims and Liens upon, and defects of title to, real or personal
property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute of the merits;
and (iii) claims and Liens of mechanics, materialmen, warehousemen,
carriers, landlords, or other like Liens;
(vii) Liens securing Permitted Debt incurred pursuant to
SECTION 9.12(g) and (i), SO LONG AS (x) any such Lien does not extend
to any asset other than the asset purchased or financed by such Debt,
and (y) any such Lien attached to such asset concurrently with or
within 180 days of the related asset acquisition;
(viii) Liens existing on the Closing Date, SO LONG AS such
Liens are described on SCHEDULE 9.13 and the Debt secured by all Liens
set forth on SCHEDULE 9.13 does not exceed $4,000,000; and
(ix) Statutory Liens on the Participation Certificates held by
Borrower to secure Borrower's obligations to CoBank, ACB, hereunder, SO
LONG AS the proceeds of which Participation Certificates (as and when
secured) shall be shared by CoBank, ACB, among Lenders.
9.14 TRANSACTIONS WITH AFFILIATES. No Loan Party shall (a) enter
into any material transaction with any of its Affiliates (excluding
transactions among or between Loan Parties), OTHER THAN (i) transactions in
the ordinary course of business and upon fair and reasonable terms not
materially less favorable than such Loan Party could obtain or could become
entitled to in an arm's-length transaction with a Person that was not its
Affiliate, (ii) transactions between the Loan Parties and any Affiliate
(excluding any Loan Party) on terms of the kind customarily employed to
allocate charges among members of a consolidated group of entities, in each
such case, that are fair and reasonable to the Loan Parties, PROVIDED THAT,
with respect to such transactions permitted in this CLAUSE (ii), the
aggregate consideration for such transactions does not exceed $2,000,000 at
any date of determination, or (iii) the office lease between Dobson Parkway,
LLC and Communications and all amendments thereto on terms reasonably
acceptable to Administrative Agent, or (b) pay any salaries or other
compensation, consulting fees, or management fees or other like payments, or
any rental payments to any of its Affiliates.
9.15 COMPLIANCE WITH LAWS AND DOCUMENTS. No Loan Party or Subsidiary
thereof shall violate the provisions of any Laws (including, without
limitation, Environmental Laws, Environmental Permits, ERISA, and OSHA)
applicable to it, including, without limitation, all rules and regulations
promulgated by the FCC or any applicable PUC, or any material written or oral
agreement, contract, commitment, or understanding to which it is a party, if
such violation alone, or when aggregated with all other such violations,
could be a Material Adverse Event; no Loan Party shall violate the provisions
of its charter, bylaws, or partnership agreement, or modify, repeal, replace,
or amend any provision of its charter, bylaws, or partnership agreement, if
such action could adversely affect the Rights of Lenders.
9.16 PERMITTED ACQUISITIONS, SUBSIDIARY GUARANTIES, AND COLLATERAL
DOCUMENTS. In connection with each Permitted Acquisition, Borrower shall
deliver, or cause to be delivered to, Administrative Agent each of the items
described on SCHEDULE 7.2, on or before the date specified on such
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Schedule for each such item; PROVIDED THAT, with respect to the Alaska 1 RSA
Acquisition and the Alaska 3 RSA Acquisition, Borrower shall not be required
to deliver the Permitted Acquisition Compliance Certificate prior to closing
of such Acquisitions, SO LONG AS Borrower shall deliver all certificates and
documents required under PART C of SCHEDULE 7.2 on or prior to the Closing
Date for each such Acquisition. Borrower shall cause each Domestic Subsidiary
that becomes a Restricted Subsidiary of any Company or a Subsidiary of any
Cellular Partnership Obligor after the Closing Date (whether as a result of
acquisition, merger, creation, or otherwise), (a) to execute a Guaranty on
the date such entity becomes a Restricted Subsidiary of a Company or a
Subsidiary of any Cellular Partnership Obligor and promptly deliver (but in
no event later than 10 days following consummation of such creation,
acquisition, or merger) such Guaranty to Administrative Agent and (b) to
execute and deliver to Administrative Agent all required Collateral Documents
(in form and substance acceptable to Administrative Agent) creating Liens in
favor of Administrative Agent on all the assets of such Restricted Subsidiary
of any Company or Subsidiary of any Cellular Partnership Obligor.
9.17 ASSIGNMENT. No Loan Party shall assign or transfer any of its
Rights, duties, or obligations under any of the Loan Documents.
9.18 FISCAL YEAR AND ACCOUNTING METHODS. No Loan Party will change
its fiscal year for book accounting purposes or its method of accounting,
OTHER THAN (a) immaterial changes in methods or as required by GAAP, or (b)
in connection with a Permitted Acquisition, such changes to the
newly-acquired entity so as to conform its fiscal year and its method of
accounting to those of the Companies.
9.19 GOVERNMENT REGULATIONS. No Loan Party will conduct its business
in such a way that it will become subject to regulation under the INVESTMENT
COMPANY ACT OF 1940, as amended, the PUBLIC UTILITY HOLDING COMPANY ACT OF
1935, as amended, or any other Law (other than Regulations T, U, and X of the
Board of Governors of the Federal Reserve System and the requirements of any
PUC or public service commission) which regulates the incurrence of Debt.
9.20 LOANS, ADVANCES, INVESTMENTS, AND RESTRICTED PAYMENTS. No Loan
Party (OTHER THAN Communications) shall, directly or indirectly, declare,
make, or pay any Distributions or any other Restricted Payment or make any
loan, advance, extension of credit, or capital contribution to, make any
investment in, or purchase or commit to purchase any stock or other
securities or evidences of Debt of, or interests in, or any assets
constituting an ongoing business of, any other Person, OTHER THAN:
(a) Investments in Cash Equivalents;
(b) Loans, advances, extensions of credit, capital
contributions, and other investments in or between Companies;
(c) Loans or advances by any Company to any Cellular
Partnership Obligor, SO LONG AS such Debt incurrence by such Cellular
Partnership Obligor is permitted pursuant to SECTION 9.12(e) and each
of the conditions for such Debt incurrence as set forth in SECTION
9.12(e) have been satisfied;
(d) Permitted Acquisitions (OTHER THAN Acquisitions of, by, or
resulting in, Foreign Subsidiaries); PROVIDED, HOWEVER, that to the
extent that any Permitted Acquisition results in the formation or
Acquisition of one or more Foreign Subsidiaries, Borrower shall provide
to Administrative Agent such information as Administrative Agent shall
reasonably request to evidence the portion of the Purchase Price of
such Acquisition attributable to such Foreign Subsidiaries (the
"FOREIGN INVESTMENT"), which Foreign Investment must be permitted by
SECTION 9.20(g);
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(e) Trade accounts receivable which are for goods furnished or
services rendered in the ordinary course of business and are payable in
accordance with customary trade terms;
(f) Other loans or investments or commitments to make
investments (including, without limitation, any loan or investments or
commitments to make investments to any Cellular Partnership that is not
a Cellular Partnership Obligor) by any Company in cellular, local
exchange, and PCS Systems not to exceed $25,000,000 in the aggregate in
any calendar year or $50,000,000 in the aggregate from and after the
Closing Date;
(g) Investments by any Company in Foreign Subsidiaries thereof
not to exceed $10,000,000 in the aggregate from and after the Closing
Date;
(h) Investments by Borrower in participation certificates of
CoBank, ACB ("PARTICIPATION CERTIFICATE"), as required of co-op
borrowers generally pursuant to CoBank, ACB's Bylaws and Capital Plan;
PROVIDED, HOWEVER, that no additional investments in CoBank, ACB are
required as a result of the transactions contemplated by this
Agreement;
(i) Loans, advances, extensions of credit to, or capital
contributions and other investments of the Loan Parties existing on the
Closing Date and identified on SCHEDULE 9.20, including without
limitation, (A) loans, advances, extensions of credit to, or capital
contributions and other investments in any Unrestricted Subsidiary of
Borrower, and (B) the existing loan from Borrower to GRTI pursuant to
the GRTI Note in the aggregate principal amount not to exceed
$6,110,554.75 at any time outstanding;
(j) Financial Hedges purchased by Communications or any
Company to the extent permitted by, and purchased and maintained in
compliance with, the Loan Documents;
(k) Distributions declared, made, or paid by Borrower wholly
in the form of its memebership interests;
(l) Distributions or any Restricted Payment by any Loan
Party to Borrower or any other Company;
(m) If no Triggering Event has occurred or is created thereby
(as determined on a pro forma basis), Restricted Payments, loans,
advances, or investments made by Borrower to Communications in amounts
sufficient (when aggregated with the amounts of all other Restricted
Payments, loans, advances, or dividends for such purposes from all
other Subsidiaries of Communications) (i) to pay regularly-scheduled
interest payments on the Communications Bond Debt in accordance with
the Communications Bond Debt in effect on the Closing Date or (ii) to
pay regularly-scheduled required cash distributions or required cash
interest payments on each series of Preferred Stock and the related
Exchange Debentures, if any, on and as of the respective Cash-Pay Date
for such series of Preferred Stock or Exchange Debentures. If any
Triggering Event has occurred and is continuing, Borrower may only
declare and pay such Restricted Payments to Communications, or make
such loans, advances, or investments to Communications, subject to the
following terms, conditions, and limitations: (i) the amount of any
such Restricted Payments, loans, advances, and investments (when
aggregated with the amounts of all other loans, advances, investments,
and Restricted Payments for such purposes from all other Subsidiaries
of Communications) shall not exceed (A) amounts then required to make
any required cash payment of interest or dividends on the
Communications Bond Debt or the Preferred Stock or interest on the
Exchange Debentures, if issued, which required cash payments are past
due, by reason of such Triggering Event, and (B) the next regularly
scheduled required cash payment of the required interest or dividend on
the Communications Bond Debt; (ii) such Triggering Event (from the date
of notice
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of the existence of the earliest such Triggering Event if more than one
exists) has continued for 180 days and has not been cured or waived;
(iii) such Triggering Event is not a Default set forth in SECTION 10.1,
10.3, or 10.9 hereof; and (iv) Lenders have not demanded payment in
full of all obligations due and owing by Borrower under the Agreement
and the Loan Documents; PROVIDED FURTHER, that so long as any Debt is
owed from Borrower to Communications, any Restricted Payment permitted
under this SECTION 9.20(m) shall be made as a repayment of such Debt;
(n) Restricted Payments by any Company which is a Cellular
Partnership or by any Cellular Partnership Obligor made in accordance
with their respective Partnership Agreements in an amount sufficient to
pay the cash tax liabilities of their respective partners for federal
and state income taxes directly attributable to the profit of each such
Cellular Partnership attributable to the applicable partner;
(o) Distributions by Borrower and Communications of the stock
or assets of Logix Communications Enterprises, Inc., to the extent
required to consummate the Logix Spinoff;
(p) Loans by Borrower to Communications in an amount not to
exceed $40,000,000 in the aggregate on any date of determination, SO
LONG AS (i) the proceeds of any such loan are used solely (A) to pay
the tax liability of Communications or Borrower incurred in connection
with, or as a consequence of, the Logix Spinoff or (B) to redeem
existing Class E of the issued and outstanding preferred stock of
Communications; PROVIDED THAT, the amount of such loan proceeds used
under CLAUSE (b) shall not exceed $10,000,000, (ii) such loan is
evidenced by a promissory note which is pledged as Collateral for the
Obligation, and (iii) at the time of any such loan, no Default or
Potential Default then exists or arises as a result thereof;
(q) On and after January 1, 2003, Restricted Payments,
Distributions, loans, advances, or investments made by Borrower to
Communications, SO LONG AS (i) no Default or Potential Default exists
or arises as a result thereof and (ii) the ratio (calculated for the
Rolling Period most recently ended) of: (A) the Operating Cash Flow of
the Companies MINUS the amount paid for Capital Expenditures by the
Companies to (B) the SUM of (w) all regularly- scheduled principal
payments with respect to Total Debt required to be paid, (x) cash
Interest Expense, (y) cash Taxes of the Companies to the extent
allocable to the Companies pursuant to the Tax Sharing Agreement, and
(z) Distributions (including, without limitation, any Distributions
made pursuant to SECTION 9.20(m)) paid in cash by Borrower is equal to
or greater than 1.20 to 1, which shall be evidenced by Borrower's
delivery of a certificate demonstrating PRO FORMA compliance with such
ratio, giving PRO FORMA effect to the Restricted Payments, loans,
advances, or investments made pursuant to this SECTION 9.20(q);
(r) Distributions by Santa Cruz Cellular Telephone, Inc. to
the owners of the Santa Cruz Minority Interest in an amount not to
exceed $500,000 in the aggregate from and after the Closing Date to any
date of determination;
(s) Distributions by Borrower to Communications made in
accordance with the Tax Sharing Agreement in an amount sufficient to
pay the cash tax liability of Communications attributable solely to its
ownership of Borrower;
(t) The Distribution by Borrower to Communications of the
Class A Preferred Stock concurrently with the recapitalization and
initial public offering of Communications; and
(u) Distributions by Borrower to Communications on the Closing
Date in an amount sufficient for Communications to pay the holders of
the Communications Bond Debt for all amounts
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required to consummate the consent solicitation and tender offer
therefor in an aggregate amount not to exceed $189,000,000.
Notwithstanding the foregoing, Restricted Payments and Distributions are
permitted hereunder only to the extent that any such Restricted Payment or
Distribution is made in accordance with applicable Law and constitutes a
valid, non-voidable transaction.
9.21 RESTRICTIONS ON SUBSIDIARIES. No Guarantor (OTHER THAN
Communications) nor any Subsidiary of Borrower shall enter into or permit to
exist any material arrangement or agreement (OTHER THAN the Loan Documents)
which directly or indirectly prohibits any such Person from (a) declaring,
making, or paying, directly or indirectly, any Distribution or Restricted
Payment to Borrower or any other Loan Party, (b) paying any Debt owed to any
Loan Party, (c) making loans, advances, or investments to any Loan Party, or
(d) transferring any of its property or assets to any Loan Party.
9.22 SALE OF ASSETS. No Loan Party (OTHER THAN Communications) shall
sell, assign, transfer, or otherwise dispose of any of its assets, OTHER THAN
(a) sales of inventory in the ordinary course of business; (b) the sale,
discount, or transfer of delinquent accounts receivable in the ordinary
course of business for purposes of collection; (c) occasional sales of
immaterial assets for consideration not less than the fair market value
thereof; (d) dispositions of obsolete assets; (e) sale, leases, or other
disposition among Companies or from a Guarantor to a Company; (f) the sale or
transfer of the stock of Logix Communications Enterprises, Inc. pursuant to
the Logix Spinoff or otherwise on terms and conditions acceptable to
Administrative Agent; (g) the sale and leaseback of the Companies' cellular
transmission towers in form and upon terms satisfactory to Administrative
Agent; (h) disposition of assets pursuant to Permitted Asset Swaps; and (i)
if no Default or Potential Default then exists or arises as a result thereof,
sales of other assets in the ordinary course of business; PROVIDED THAT, (i)
the fair market value of all assets sold pursuant to CLAUSE (i) (x) in any
calendar year does not exceed $20,000,000 in the aggregate, and (y) on a
cumulative basis on and after the Closing Date does not exceed, in the
aggregate, more than $50,000,000, and (ii) concurrently with such
disposition, Borrower shall make the mandatory prepayments (if any) required
by SECTION 3.3(b)(ii).
9.23 SALE-LEASEBACK FINANCINGS. OTHER THAN a sale-leaseback
transaction regarding the Companies' cellular transmission towers on terms
and in form satisfactory to Administrative Agent, no Loan Party will enter
into any sale-leaseback arrangement with any Person pursuant to which such
Loan Party shall lease any asset (whether now owned or hereafter acquired) if
such asset has been or is to be sold or transferred by any Loan Party to any
other Person.
9.24 MERGERS AND DISSOLUTIONS; SALE OF CAPITAL STOCK. No Loan Party
nor any Foreign Subsidiary of Borrower or Restricted Subsidiary of
Communications will, directly or indirectly, merge or consolidate with any
other Person, OTHER THAN (a) as a result of a Permitted Acquisition, or (b)
mergers among Wholly-owned Restricted Subsidiaries of Borrower; PROVIDED
THAT, in any merger involving Borrower (including a Permitted Acquisition
effected as a merger), Borrower must be the surviving entity, and, in any
merger involving any other Company (including a Permitted Acquisition
effected as a merger), a Company must be the surviving entity. No
Unrestricted Subsidiary of Borrower will, directly or indirectly, merge or
consolidate with Borrower or any Restricted Subsidiary of Borrower. No Loan
Party shall liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution), other than liquidations, wind ups, or dissolutions incident to
mergers permitted under this SECTION 9.24. No Loan Party may sell, assign,
lease, transfer, or otherwise dispose of the capital stock (or other
ownership interests) of any Subsidiary of such entity, EXCEPT for sales,
leases, transfers, or other such distributions to another Company and
pursuant to Permitted Asset Swaps or the Logix Spinoff.
9.25 NEW BUSINESS. No Loan Party (OTHER THAN Communications) will,
directly or indirectly, permit or suffer to exist any material change in the
type of businesses in which it is engaged from the businesses of the Loan
Parties (OTHER THAN Communications) as conducted on the Closing Date.
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Communications will not engage in any business or activity OTHER THAN holding
100% of the capital stock of its Subsidiaries, including Borrower.
9.26 FINANCIAL HEDGES.
(a) The Companies shall, within 120 days from the date hereof,
enter into Financial Hedges in a form and upon terms acceptable to
Administrative Agent, issued by one or more Lenders or an institution
acceptable to Administrative Agent with a duration of a period of at
least two years, which, together with the Existing Financial Hedges,
ensure that the net interest cost to Borrower is fixed, capped, or
hedged with respect to at least fifty percent (50%) of the Total Debt
of the Companies outstanding on the Closing Date; PROVIDED, HOWEVER,
that the protected rate shall be no greater than 2.5% above the all-in
rate on the Closing Date hereof.
(b) To the extent any Lender or its Affiliate issues a
Financial Hedge to Communications or any Company which is permitted by
the Loan Documents, including, without limitation, any Financial Hedges
with Lenders or their Affiliates obtained in satisfaction of the
requirements of SECTION 9.26(a), such Lender or its Affiliate are
afforded the benefits of (and Borrower [or Communications and any
Company by execution of Collateral Documents] hereby confirms a grant
of) Liens in and to the Collateral as evidenced by the Collateral
Documents to the extent of such Lender's (or Affiliate thereof's)
credit exposure under such Financial Hedge; such Lien is PARI PASSU
with that of Administrative Agent on behalf of the Lenders.
(c) Financial Hedges held by Communications or any Company
whether in satisfaction of the requirements of this SECTION 9.26 or as
otherwise permitted by the Loan Documents, shall be subject to the
following: (i) each such Lender or other institution issuing a
Financial Hedge shall calculate its credit exposure in a reasonable and
customary manner; (ii) all documentation for such Financial Hedge shall
conform to ISDA standards and must be acceptable to Administrative
Agent with respect to intercreditor issues; (iii) if issued by any
Lender or any Affiliate of a Lender to Communications or any Company,
the credit exposure under such Financial Hedge shall be secured by
Liens in and to the Collateral as evidenced by the Collateral Documents
on a PARI PASSU basis with the Liens of Administrative Agent (held for
the benefit of Lenders), and such Lender or Affiliate issuing a
Financial Hedge shall, by acceptance of the benefits of such Liens in
the Collateral agree to the provisions of SECTION 12.12; and (iv) such
Financial Hedge shall be incurred in the ordinary course of business
and consistent with prior business practices of Communications and the
Companies and not for speculative purposes.
9.27 AFFILIATE SUBORDINATION AGREEMENTS. The Loan Parties shall,
simultaneously with the incurrence of any and all future Debt of any Loan
Party owed to any one or more Affiliates, cause the appropriate Affiliate or
Affiliates to execute and deliver to Administrative Agent an Affiliate
Subordination Agreement, subordinating the payment of such Debt to the
payment of the Obligation.
9.28 AMENDMENTS TO DOCUMENTS. On and after the Closing Date, no Loan
Party shall (a) amend or permit any amendments to any Loan Party's Articles
of Incorporation, Bylaws, or other organizational documents, or any
Partnership Agreement of any Cellular Partnership Obligor or any Company that
is a Cellular Partnership without the consent of Administrative Agent (which
consent will not be unreasonably withheld or delayed); (b) amend any existing
credit arrangement or enter into any new credit arrangement (to the extent
permitted by the Loan Documents), if such amended or new credit arrangements
contain any provisions which are materially more restrictive (as reasonably
determined by Administrative Agent) than the provisions of the Loan
Documents; or (c) amend the acquisition agreements and related documents for
the Alaska 1 RSA Acquisition, the Alaska 3 RSA Acquisition, the Michigan 3
RSA Acquisition, and the Michigan 10 RSA Acquisition without the consent of
Administrative Agent, which consent will not be unreasonably withheld or
delayed.
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9.29 FINANCIAL COVENANTS. As calculated on a consolidated basis for
the Companies:
(a) LEVERAGE RATIO. Borrower shall never permit the Leverage
Ratio to be greater than the ratio shown in the table below which
corresponds to the applicable period of determination:
<TABLE>
<CAPTION>
===================================================================================
<S> <S>
PERIOD LEVERAGE RATIO
===================================================================================
On and after the Closing Date to and 7.75 to 1
including December 30, 2000
- -----------------------------------------------------------------------------------
On and after December 31, 2000, to and 7.25 to 1
including December 30, 2001
- -----------------------------------------------------------------------------------
On and after December 31, 2001, to and 6.75 to 1
including December 30, 2002
- -----------------------------------------------------------------------------------
On and after December 31, 2002, to and 6.00 to 1
including December 30, 2003
- -----------------------------------------------------------------------------------
On and after December 31, 2003, to and 5.50 to 1
including December 30, 2004
- -----------------------------------------------------------------------------------
On and after December 31, 2004 5.00 to 1
===================================================================================
</TABLE>
(b) PRO FORMA DEBT SERVICE COVERAGE. Borrower shall never
permit the ratio of the Operating Cash Flow of the Companies to the Pro
Forma Debt Service to be less than or equal to the ratio shown in the
table below which corresponds to the applicable period of
determination:
<TABLE>
<CAPTION>
===================================================================================
PERIOD PRO FORMA DEBT SERVICE RATIO
===================================================================================
<S> <C>
On and after the Closing Date to and 1.15 to 1
including December 30, 2001
- -----------------------------------------------------------------------------------
On and after December 31, 2001, to and 1.25 to 1
including December 30, 2003
- -----------------------------------------------------------------------------------
On and after December 31, 2003 1.50 to 1
===================================================================================
</TABLE>
(c) INTEREST COVERAGE RATIO. Borrower shall never permit the
Interest Coverage Ratio, to be less than the ratio shown in the table
below which corresponds to the applicable period of determination:
<TABLE>
<CAPTION>
===================================================================================
PERIOD INTEREST COVERAGE RATIO
===================================================================================
<S> <C>
On and after the Closing Date to and 1.40 to 1
including June 29, 2000
- -----------------------------------------------------------------------------------
On and after June 30, 2000, to and 1.50 to 1
including December 30, 2000
- -----------------------------------------------------------------------------------
On and after December 31, 2000, to and 1.60 to 1
including December 30, 2001
- -----------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
===================================================================================
PERIOD INTEREST COVERAGE RATIO
===================================================================================
<S> <C>
On and after December 31, 2001, to and 2.00 to 1
including December 30, 2003
- -----------------------------------------------------------------------------------
On and after December 31, 2003 2.25 to 1
===================================================================================
</TABLE>
(d) FIXED CHARGE COVERAGE RATIO. On and after December 31,
2001, Borrower shall never permit the Fixed Charge Coverage Ratio, to
be less than the ratio shown in the table below which corresponds to
the applicable period of determination:
<TABLE>
<CAPTION>
===================================================================================
PERIOD FIXED CHARGE COVERAGE RATIO
===================================================================================
<S> <C>
On and after December 31, 2001, to and 1.05 to 1
including December 30, 2002
- -----------------------------------------------------------------------------------
On and after December 31, 2002, to and 1.15 to 1
including December 30, 2005
- -----------------------------------------------------------------------------------
On and after December 31, 2005 1.25 to 1
===================================================================================
</TABLE>
; PROVIDED, HOWEVER, that if Communications refinances or redeems any
portion of the Preferred Stock described in CLAUSES (i), (ii), or (iii)
of the definition of "PREFERRED STOCK" at any time, then the Fixed
Charge Coverage Ratio shall never be less than 1.25 to 1.0 on any date
of determination after such refinancing or redemption.
(e) CAPITAL EXPENDITURES. Borrower shall not permit Capital
Expenditures for any period of determination to exceed the amount shown
in the table below which corresponds to such period of determination:
<TABLE>
<CAPTION>
===================================================================================
PERIOD PERMITTED CAPITAL EXPENDITURES
===================================================================================
<S> <C>
Calendar year 2000 $75,000,000
- -----------------------------------------------------------------------------------
Calendar year 2001 $70,000,000
===================================================================================
</TABLE>
; PROVIDED, HOWEVER, that an amount equal to the LESSER of (i)
$20,000,000 and (ii) the difference between $69,000,000 and the amount
of Capital Expenditures of the Companies during calendar year 1999 may
be carried forward to fiscal year 2000, such that such amount may be
used in fiscal year 2000 only after all permitted Capital Expenditures
for fiscal year 2000 (as set forth above) have been expended.
9.30 COVENANTS OF COMMUNICATIONS. So long as the Total Commitment
has not been terminated or the Obligation has not been paid in full,
Communications further covenants and agrees (and agrees to cause each
Subsidiary of Communications other than the Loan Parties governed by SECTIONS
9.1 through 9.29, when applicable) to perform, observe, and comply with each
of the following additional covenants:
(a) DEBT. Communications shall not borrow any monies or create
any Debt, EXCEPT (i) to the extent still outstanding after the Closing
Date, up to $10,000,000 of the Communications Bond Debt; (ii) Debt
arising under Financial Hedges permitted by, and in compliance with,
SECTION 9.26(C); (iii) Debt of Communications owed to Borrower
permitted by, and in compliance with, SECTIONS 9.20(m) and (p).
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(b) GUARANTIES. Communications shall not guarantee or assume
or agree to become liable in any way, either directly or indirectly,
for any Debt of others, including, without limitation, its Unrestricted
Subsidiaries, EXCEPT (i) endorsements of checks or drafts in the
ordinary course of business, and (ii) Communications' guarantee of the
Obligation.
(c) LOANS. Communications shall not make any loans or advances
to others, other than (i) loans to any Company, PROVIDED such loans are
unsecured loans, which are expressly subordinated to the Loan pursuant
to an Affiliate Subordination Agreement, and are subject to terms and
conditions acceptable to Borrower and Administrative Agent; (ii) loans
and advances to its Restricted Subsidiaries, OTHER THAN the Companies
or Guarantors, and (iii) loans and advances to its Affiliates (OTHER
THAN the Companies and Restricted Subsidiaries of Communications) in
compliance with SECTION 9.14.
(d) LIENS. Neither Communications nor any Restricted
Subsidiary of Communications (other than the Companies and Guarantors)
shall create, permit, or suffer the creation of any Liens on any of its
property, real or personal, EXCEPT:
(i) Liens securing the Obligation, and SO LONG AS the
Obligation is ratably secured therewith, Liens securing Debt
incurred by Communications under any Financial Hedge with any
Lender or an Affiliate of any Lender;
(ii) Pledges or deposits made to secure payment of
worker's compensation, or to participate in any fund in
connection with worker's compensation, unemployment insurance,
pensions, or other social security programs, but expressly
excluding any Liens in favor of the PBGC or otherwise under
ERISA;
(iii) Good-faith pledges or deposits made to secure
performance of bids, tenders, insurance or other contracts
(OTHER THAN for the repayment of borrowed money), or leases,
or to secure statutory obligations, surety or appeal bonds, or
indemnity, performance, or other similar bonds as all such
Liens arise in the ordinary course of business;
(iv) Encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property,
none of which impair in any material respect the use of such
property by the Person in question in the operation of its
business, and none of which is violated by existing or
proposed structures or land use;
(v) Liens of landlords or of mortgagees of landlords,
arising solely by operation of law, on fixtures and movable
property located on premises leased in the ordinary course of
business;
(vi) The following, SO LONG AS the validity or amount
thereof is being contested in good faith and by appropriate
and lawful proceedings diligently conducted, reserve or other
appropriate provisions (if any) required by GAAP shall have
been made, levy and execution thereon have been stayed and
continue to be stayed, and they do not in the aggregate
materially detract from the value of the property of the
Person in question, or materially impair the use thereof in
the operation of its business: (i) claims and Liens for Taxes
(other than Liens relating to Environmental Laws or ERISA);
(ii) claims and Liens upon, and defects of title to, real or
personal property, including any attachment of personal or
real property or other legal process prior to adjudication of
a dispute of the merits; and (iii) claims and Liens of
mechanics, materialmen, warehousemen, carriers, landlords, or
other like Liens; and
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(vii) Liens existing on the Closing Date and listed
on SCHEDULE 9.30.
(e) PREFERRED STOCK AND EXCHANGE DEBENTURES. Communications
shall not (a) amend or modify any provision of, or waive any condition
under, any document or instrument evidencing or relating to the
Preferred Stock or the Exchange Debentures, including, without
limitation, any Certificate of Designation for any Preferred Stock, and
the related documents or indentures evidencing or creating any Exchange
Debentures; (b) make any optional redemptions, prepayments, or other
payments on the Preferred Stock or any Exchange Debentures, other than
(i) regularly-scheduled required cash dividends on each series of
Preferred Stock on and after the respective Cash-Pay Date for such
series of Preferred Stock, or (ii) regularly scheduled dividends on the
Preferred Stock, paid solely in the form of additional shares of
Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends; PROVIDED THAT, in lieu of issuing any partial
shares of Preferred Stock to pay any non-cash dividend permitted by
this CLAUSE (ii), Communications may pay cash dividends in an amount
not to equal or exceed $1,000 for any quarterly dividend period; and
(c) use Distributions received from Borrower (OTHER THAN Distributions
made pursuant to SECTION 9.20(q)) for any purpose, other than to make a
tender offer for and to pay fees associated with a related consent
solicitation under, the Communications Bond Debt, or after January 15,
2003, to pay regularly scheduled dividends on the Preferred Stock. Upon
receipt of any Distribution of the Class A Preferred Stock made
pursuant to SECTION 9.20(t), Communications shall cancel and retire all
of the Class A Preferred Stock consistent with its contemplated plan of
recapitalization in connection with the initial public offering.
(f) DESIGNATION OF UNRESTRICTED SUBSIDIARIES. So long as no
Default or Potential Default exists or arises as a result thereof,
Communications may from time to time change the designation of any
Subsidiary of Communications from a Restricted Subsidiary of
Communications to an Unrestricted Subsidiary of Communications, or VICE
VERSA; PROVIDED THAT, (a) Communications shall provide Administrative
Agent written notification of such designation not less than 10
Business Days prior to the effective date of such designation, together
with a pro forma Compliance Certificate demonstrating compliance with
the financial covenants after giving effect to such designation, (b)
such designated Unrestricted Subsidiary shall satisfy all the
requirements of an Unrestricted Subsidiary, as set forth in the
definition of such term in SECTION 1.1, and (c) Communications shall
deliver to Administrative Agent a written certification executed by
Borrower and Communications, certifying that no Default or Potential
Default exists prior to or after giving effect to such designation.
(g) MANAGEMENT EXPENSES. To the extent Communications charges
any of its Subsidiaries for management expenses, such management
expenses must be fair and reasonable and must be allocated among its
Subsidiaries on a consistently-applied basis.
SECTION 10 DEFAULT. The term "DEFAULT" means the occurrence of any one or
more of the following events:
10.1 PAYMENT OF OBLIGATION. The failure or refusal of any Loan Party
or Subsidiary thereof to pay (a) all or any part of the Principal Debt when
the same becomes due (whether by its terms, by acceleration, or as otherwise
provided in the Loan Documents); or (b) interest, fees, or any other part of
the Obligation (including, without limitation, any deposit of cash collateral
required pursuant to SECTION 2.4) within three days after the same becomes
due and payable in accordance with the Loan Documents.
10.2 COVENANTS. The failure or refusal of Borrower (and, if
applicable, any other Loan Party) to punctually and properly perform,
observe, and comply with:
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(a) Any covenant, agreement, or condition contained in
SECTIONS 9.1, 9.3(a) through (d), 9.4, 9.10, 9.12, 9.13, 9.14, 9.16,
9.17, 9.20 through 9.24, 9.26, 9.27, 9.29, and 9.30;
(b) Any covenant, agreement, or conditions contained in
SECTIONS 9.3(e) through (k) and 9.6 (other than the covenants to pay
the Obligation as set forth therein, which shall be governed by SECTION
10.1), and such failure continues for five days; and
(c) Any other covenant, agreement, or condition contained in
any Loan Document (OTHER THAN the covenants to pay the Obligation or
provide cash collateral set forth in SECTION 10.1 and the covenants in
SECTION 10.2(a) and (b)), and such failure or refusal continues for 20
days after (i) Administrative Agent gives notice thereof, or (ii)
Borrower otherwise becomes aware of such failure or refusal.
10.3 DEBTOR RELIEF. Any Loan Party or any Subsidiary thereof (a)
shall not be Solvent, (b) fails to pay its Debts generally as they become
due, (c) voluntarily seeks, consents to, or acquiesces in the benefit of any
Debtor Relief Law, OTHER THAN as a creditor or claimant, or (d) becomes a
party to or is made the subject of any proceeding provided for by any Debtor
Relief Law, OTHER THAN as a creditor or claimant, that could suspend or
otherwise adversely affect the Rights of Administrative Agent or any Lender
granted in the Loan Documents (UNLESS, in the event such proceeding is
involuntary, the petition instituting same is dismissed within 30 days after
its filing).
10.4 JUDGMENTS AND ATTACHMENTS. Any Loan Party or any Restricted
Subsidiary thereof fails, within 60 days after entry, to pay, bond, or
otherwise discharge any judgment or order for the payment of money in excess
of $10,000,000 (individually or collectively) or any warrant of attachment,
sequestration, or similar proceeding against any of their respective assets
having a value (individually or collectively) of $10,000,000 which is not
stayed on appeal.
10.5 GOVERNMENT ACTION. (a) A final non-appealable order is issued
by any Governmental Authority, including, but not limited to, the FCC or the
United States Justice Department, seeking to cause any Loan Party or any
Subsidiary thereof to divest a significant portion of its assets pursuant to
any antitrust, restraint of trade, unfair competition, industry regulation,
or similar Laws, or (b) any Governmental Authority shall condemn, seize, or
otherwise appropriate, or take custody or control of all or any substantial
portion of the assets of any Loan Party or any Subsidiary thereof.
10.6 MISREPRESENTATION. Any representation or warranty made by any
Loan Party contained herein or in any Loan Document shall at any time prove
to have been incorrect in any material respect when made.
10.7 CHANGE OF MANAGEMENT. More than one of the three members of the
Executive Management Team of Communications on the Closing Date ceases to
hold a position on the Executive Management Team of Communications.
10.8 CHANGE OF CONTROL. (a) Except as otherwise permitted pursuant
to this Agreement, Borrower ceases to own the percentage of the issued and
outstanding equity interests issued by its Subsidiaries as determined on the
Closing Date or, if thereafter acquired, on the date of the related
Acquisition or Permitted Asset Swap; (b) Communications ceases to own 100% of
the voting control (directly or indirectly) of Borrower; (c) Communications
is engaged in any business or activity other than holding 100% of the stock
of Borrower and the other Subsidiaries of Communications; or (d) Dobson CC
Limited Partnership, an Oklahoma limited partnership, ceases to hold at least
60% of the voting stock of Communications prior to the initial public
offering of Communications or 50.1% of the voting stock of Communications
thereafter.
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10.9 AUTHORIZATIONS. (a) Any Authorization necessary for the
ownership or operations of any Loan Party or Subsidiary thereof shall expire,
and on or prior to such expiration, the same shall not have been renewed or
replaced by another Authorization authorizing substantially the same
operations by such Loan Party; (b) any Authorization necessary for the
ownership or operations of any Loan Party or Subsidiary thereof shall be
canceled, revoked, terminated, rescinded, annulled, suspended, or modified in
a materially adverse respect, or shall no longer be in full force and effect,
or the grant or the effectiveness thereof shall have been stayed, vacated,
reversed, or set aside, (c) any Loan Party or Subsidiary thereof is required
by any Governmental Authority to halt construction or operations under any
Authorization and such action shall continue uncorrected for thirty (30) days
after the applicable entity has received notice thereof; or (d) if any
Governmental Authority shall make any other final non-appealable
determination the effect of which would be to affect materially and adversely
the operations of any Loan Party or Subsidiary thereof as now conducted.
10.10 DEFAULT UNDER OTHER DEBT AND AGREEMENTS. (a) Any Loan Party
fails to pay when due (after lapse of any applicable grace periods) any Debt
of such Loan Party (other than the Obligation) in excess (individually or
collectively) of $1,000,000; (b) the acceleration of any Debt of any Loan
Party or the occurrence of any event or condition (which with notice or lapse
of time) would enable the holder of such Debt or any Person acting on behalf
of such holder to accelerate the maturing thereof, which Debt exceeds
(individually or collectively) $1,000,000; (c) any default exists under any
material written or oral agreement, contract, commitment, or understanding to
which a Loan Party is a party; or (d) the occurrence of an "EVENT OF DEFAULT"
under the Credit Agreement dated as of December 23, 1998, among Dobson/Sygnet
Operating Company, as Borrower, Bank of America, N.A. (formerly NationsBank,
N.A.), as Administrative Agent, and certain Lenders party thereto (as the
same may be amended, modified, restated, or supplemented from time to time).
10.11 LCS. Administrative Agent shall have been served with, or
becomes otherwise subject to, a court order, injunction, or other process or
decree restraining or seeking to restrain it from paying any amount under any
LC and either (a) there has been a drawing under such LC which Administrative
Agent would otherwise be obligated to pay and Borrower has refused to
reimburse Administrative Agent for such payment or (b) the expiration date of
such LC has occurred but the right of any beneficiary thereunder to draw
under such LC has been extended past the expiration date in connection with
the pendency of the related court action or proceeding AND Borrower has
failed to deposit with Administrative Agent cash collateral in an amount
equal to the maximum drawing which could be made under such LC.
10.12 VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Any Loan
Document shall, at any time after its execution and delivery and for any
reason, cease to be in full force and effect in any material respect or be
declared to be null and void (other than in accordance with the terms hereof
or thereof) or the validity or enforceability thereof be contested by any
Loan Party party thereto or any Loan Party shall deny in writing that it has
any or any further liability or obligations under any Loan Document to which
it is a party.
10.13 MATERIAL ADVERSE EFFECT. If any event or condition shall exist
which would reasonably be expected to be a Material Adverse Event.
10.14 ENVIRONMENTAL LIABILITY. If any event or condition shall occur
or exist with respect to any activity or substance regulated under the
Environmental Law and as a result of such event or condition, any Loan Party
or any of their respective Subsidiaries shall have incurred or in the opinion
of the Required Lenders will be reasonably likely to incur a liability in
excess of $3,000,000 during any consecutive twelve (12) month period or
$10,000,000 in the aggregate from and after the Closing Date to any date of
determination.
10.15 PLEDGED STOCK. If (a) Administrative Agent ceases to hold as
Collateral (for the benefit of Lenders) a perfected first priority Lien on (i)
all of the issued and outstanding shares of common stock issued
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by Borrower and each other Person whose stock is required to be pledged to
secure the Obligation pursuant to the Loan Documents, and such failure is not
cured within five Business Days; or (b) any Collateral Document after
delivery thereof pursuant to SECTION 6 shall for any reason (other than
pursuant to the terms thereof) cease to create a valid and perfected first
priority Lien on and security interest in the Collateral purported to be
covered thereby, EXCEPT as permitted under the Loan Documents.
10.16 DISSOLUTION. Any Loan Party or Restricted Subsidiary thereof
shall dissolve, liquidate, or otherwise terminate its existence except as
specifically permitted by SECTION 9.24.
10.17 PAYMENT OF CERTAIN OTHER AGREEMENTS. The payment directly or
indirectly (including, without limitation, any payment in respect of any
sinking fund, defeasance, redemption, or payment of any dividend or
distribution) by any Loan Party or any Subsidiary thereof of any amount of
the Communications Bond Debt, any Subordinated Debt, any Exchange Debenture,
or the Preferred Stock in a manner or at a time during which such payment is
not permitted under the terms of the Loan Documents, the Exchange Debenture
Indenture, the Certificate of Designation for any Preferred Stock, or under
any instrument or document evidencing or creating the Communications Bond
Debt or Subordinated Debt, including, without limitation, any subordination
provisions set forth therein.
10.18 DEFAULT OR ACCELERATION UNDER CERTAIN OTHER AGREEMENTS. (i)
The occurrence of any "DEFAULT" or "EVENT OF DEFAULT" or other breach which
remains uncured on any date of determination under or with respect to the
Communications Bond Debt, the Exchange Debentures, any Preferred Stock, or
any agreement creating or evidencing any Subordinated Debt; (ii) the trustee
with respect to, or any holder of, the Communications Bond Debt, the Exchange
Debentures, any Preferred Stock, or any Subordinated Debt shall effectively
declare all or any portion of that Debt or obligation thereunder due and
payable prior to the stated maturity thereof; or (iii) the Subordinated Debt,
the Communications Bond Debt, or Indebtedness or obligations under the
Exchange Debentures or any Preferred Stock becomes due before its stated
maturity by acceleration of the maturity thereof.
10.19 REDEMPTION OF CERTAIN OTHER DEBT OR OBLIGATION. If an event
shall occur, including, without limitation, a "CHANGE IN CONTROL" as defined
in any documents evidencing or creating the Communications Bond Debt, the
Exchange Debentures, any Preferred Stock, or any agreement evidencing or
creating the Subordinated Debt, and (i) the trustee or the holders of any
such Debt or obligation shall initiate notice to request or require (or any
Loan Party shall automatically be so required) to redeem or repurchase such
Debt or obligation, or (ii) any Loan Party shall initiate notice to holders
of the Subordinated Debt or the holders of any Communications Bond Debt,
Preferred Stock, or Exchange Debentures, in connection with a redemption of
any Debt or obligation arising under such agreements or instruments.
SECTION 11 RIGHTS AND REMEDIES.
11.1 REMEDIES UPON DEFAULT.
(a) DEBTOR RELIEF. If a Default exists under SECTION 10.3(c)
or 10.3(d), the commitment to extend credit hereunder shall
automatically terminate and the entire unpaid balance of the Obligation
shall automatically become due and payable without any action or notice
of any kind whatsoever, and Borrower shall be required to provide cash
collateral in an amount equal to 110% of the LC Exposure then existing
in accordance with SECTION 2.4(g).
(b) OTHER DEFAULTS. If any Default exists, Administrative
Agent may (and, subject to the terms of SECTION 12, shall upon the
request of Required Lenders) or Required Lenders may, do any one or
more of the following: (i) if the maturity of the Obligation has not
already been accelerated under SECTION 11.1(a), declare the entire
unpaid balance of the Obligation, or any part thereof, immediately due
and payable, whereupon it shall be due and payable; (ii) terminate the
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commitments of Lenders to extend credit hereunder; (iii) reduce any
claim to judgment; (iv) to the extent permitted by Law, exercise (or
request each Lender to, and each Lender shall be entitled to, exercise)
the Rights of offset or banker's Lien against the interest of each Loan
Party in and to every account and other property of any Loan Party
which are in the possession of Administrative Agent or any Lender to
the extent of the full amount of the Obligation (to the extent
permitted by Law, each Loan Party being deemed directly obligated to
each Lender in the full amount of the Obligation for such purposes);
(v) if the maturity of the Obligation has not already been accelerated
under SECTION 11.1(a), demand Borrower to provide cash collateral in an
amount equal to 110% of the LC Exposure then existing in accordance
with SECTION 2.4(g); and (vi) exercise any and all other legal or
equitable Rights afforded by the Loan Documents, the Laws of the State
of New York, or any other applicable jurisdiction as Administrative
Agent or Required Lenders (as the case may be) shall deem appropriate,
or otherwise, including, but not limited to, the Right to bring suit or
other proceedings before any Governmental Authority either for specific
performance of any covenant or condition contained in any of the Loan
Documents or in aid of the exercise of any Right granted to
Administrative Agent or any Lender in any of the Loan Documents.
11.2 COMPANY WAIVERS. To the extent permitted by Law, the Loan
Parties hereby waive presentment and demand for payment, protest, notice of
intention to accelerate, notice of acceleration, and notice of protest and
nonpayment, and agree that their respective liability with respect to the
Obligation (or any part thereof) shall not be affected by any renewal or
extension in the time of payment of the Obligation (or any part thereof), by
any indulgence, or by any release or change in any security for the payment
of the Obligation (or any part thereof).
11.3 PERFORMANCE BY ADMINISTRATIVE AGENT. If any covenant, duty, or
agreement of any Loan Party is not performed in accordance with the terms of
the Loan Documents, after the occurrence and during the continuance of a
Default, Administrative Agent may, at its option (but subject to the approval
of Required Lenders), perform or attempt to perform such covenant, duty, or
agreement on behalf of such Loan Party. In such event, any amount expended by
Administrative Agent in such performance or attempted performance shall be
payable by the Loan Parties, jointly and severally, to Administrative Agent
on demand, shall become part of the Obligation, and shall bear interest at
the Default Rate from the date of such expenditure by Administrative Agent
until paid. Notwithstanding the foregoing, it is expressly understood that
Administrative Agent does not assume, and shall never have, except by its
express written consent, any liability or responsibility for the performance
of any covenant, duty, or agreement of any Loan Party.
11.4 DELEGATION OF DUTIES AND RIGHTS. Lenders may perform any of
their duties or exercise any of their Rights under the Loan Documents by or
through their respective Representatives.
11.5 NOT IN CONTROL. Nothing in any Loan Document shall, or shall be
deemed to (a) give any Agent or any Lender the Right to exercise control over
the assets (including real property), affairs, or management of any Loan
Party or any Subsidiary thereof, (b) preclude or interfere with compliance by
any Loan Party or any Subsidiary thereof with any Law, or (c) require any act
or omission by any Loan Party or any Subsidiary thereof that may be harmful
to Persons or property. Any "MATERIAL ADVERSE EVENT" or other materiality
qualifier in any representation, warranty, covenant, or other provision of
any Loan Document is included for credit documentation purposes only and
shall not, and shall not be deemed to, mean that any Agent or any Lender
acquiesces in any non-compliance by any Loan Party or any Subsidiary thereof
with any Law or document, or that any Agent or any Lender does not expect the
Loan Parties and their respective Subsidiaries to promptly, diligently, and
continuously carry out all appropriate removal, remediation, and termination
activities required or appropriate in accordance with all Environmental Laws.
The Agents and the Lenders have no fiduciary relationship with or fiduciary
duty to any Loan Party or any Subsidiary thereof arising out of or in
connection with the Loan Documents, and the relationship between the Agents
and the Lenders, on the one hand, and Loan Parties and their Subsidiaries, on
the other hand, in connection with the Loan Documents is solely that of
debtor and creditor. The power of the Agents and Lenders under the Loan
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Documents is limited to the Rights provided in the Loan Documents, which
Rights exist solely to assure payment and performance of the Obligation and
may be exercised in a manner calculated by the Agents and Lenders in their
respective good faith business judgment.
11.6 COURSE OF DEALING. The acceptance by Administrative Agent or
Lenders at any time and from time to time of partial payment on the
Obligation shall not be deemed to be a waiver of any Default then existing.
No waiver by Administrative Agent, Required Lenders, or Lenders of any
Default shall be deemed to be a waiver of any other then-existing or
subsequent Default. No delay or omission by Administrative Agent, Required
Lenders, or Lenders in exercising any Right under the Loan Documents shall
impair such Right or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such Right preclude
other or further exercise thereof, or the exercise of any other Right under
the Loan Documents or otherwise.
11.7 CUMULATIVE RIGHTS. All Rights available to Administrative Agent
and Lenders under the Loan Documents are cumulative of and in addition to all
other Rights granted to Administrative Agent and Lenders at law or in equity,
whether or not the Obligation is due and payable and whether or not
Administrative Agent or Lenders have instituted any suit for collection,
foreclosure, or other action in connection with the Loan Documents.
11.8 APPLICATION OF PROCEEDS. Any and all proceeds ever received by
Administrative Agent or Lenders from the exercise of any Rights pertaining to
the Obligation shall be applied to the Obligation in the order and manner set
forth in SECTION 3.12.
11.9 CERTAIN PROCEEDINGS. Each Loan Party will promptly execute and
deliver, or cause the execution and delivery of, all applications,
certificates, instruments, registration statements, and all other documents
and papers Administrative Agent or Lenders may reasonably request in
connection with the obtaining of any consent, approval, registration,
qualification, permit, license, or Authorization of any Governmental
Authority or other Person necessary or appropriate for the effective exercise
of any Rights under the Loan Documents. Because the Loan Parties agree that
Administrative Agent's and Lenders' remedies at Law for failure of the Loan
Parties to comply with the provisions of this Section would be inadequate and
that such failure would not be adequately compensable in damages, the Loan
Parties agree that the covenants of this Section may be specifically enforced.
11.10 LIMITATION OF RIGHTS. Notwithstanding any other provision of
any Loan Document, any action taken or proposed to be taken by Administrative
Agent, any Agent, or any Lender under any Loan Document which would affect
the operational, voting, or other control of any Loan Party, shall be
pursuant to SECTION 310(d) of the COMMUNICATIONS ACT OF 1934 (as amended),
any applicable state Law, and the applicable rules and regulations thereunder
and, if and to the extent required thereby, subject to the prior consent of
the FCC or any applicable PUC.
11.11 EXPENDITURES BY LENDERS. Borrower shall promptly pay within
fifteen (15) Business Days after request therefor (a) all reasonable costs,
fees, and expenses paid or incurred by Administrative Agent and Arranger,
incident to any Loan Document (including, but not limited to, the reasonable
fees and expenses of counsel to Administrative Agent and Arranger and the
allocated cost of internal counsel in connection with the negotiation,
preparation, delivery, execution, coordination and administration of the Loan
Documents and any related amendment, waiver, or consent) and (b) all
reasonable costs and expenses of Lenders and Administrative Agent incurred by
Administrative Agent or any Lender in connection with the enforcement of the
obligations of any Loan Party arising under the Loan Documents (including,
without limitation, costs and expenses incurred in connection with any
workout or bankruptcy) or the exercise of any Rights arising under the Loan
Documents (including, but not limited to, reasonable attorneys' fees
including allocated cost of internal counsel, court costs and other costs of
collection), all of which shall be a part of the Obligation and shall bear
interest at the Default Rate from the date due until the date repaid.
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11.12 INDEMNIFICATION. BORROWER AND EACH OTHER LOAN PARTY (BY
EXECUTION OF A GUARANTY) AGREES TO INDEMNIFY AND HOLD HARMLESS EACH AGENT,
ARRANGER, AND EACH LENDER AND EACH OF THEIR RESPECTIVE AFFILIATES AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AND ADVISORS
(EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES,
LOSSES, LIABILITIES (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL
LIABILITIES), COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY
INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY
REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY
INVESTIGATION, LITIGATION, OR PROCEEDING OR PREPARATION OF DEFENSE IN
CONNECTION THEREWITH) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE
BORROWINGS (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE
INDEMNIFIED PARTY), EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY,
COST, OR EXPENSE IS FOUND IN A FINAL, NON- APPEALABLE JUDGMENT BY A COURT OF
COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE CASE OF AN INVESTIGATION, LITIGATION
OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 11.12 APPLIES,
SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION,
LITIGATION OR PROCEEDING IS BROUGHT BY THE BORROWER, ITS DIRECTORS,
SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY
INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR NOT THE
TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. BORROWER AND EACH OTHER
LOAN PARTY (BY EXECUTION OF A GUARANTY) AGREE NOT TO ASSERT ANY CLAIM AGAINST
ANY INDEMNIFIED PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO
THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL
OR PROPOSED USE OF THE PROCEEDS OF THE BORROWINGS. WITHOUT PREJUDICE TO THE
SURVIVAL OF ANY OTHER AGREEMENT OF THE BORROWER OR GUARANTORS HEREUNDER, THE
AGREEMENTS AND OBLIGATIONS OF THE LOAN PARTIES CONTAINED IN THIS SECTION
11.12 SHALL SURVIVE THE PAYMENT IN FULL OF THE BORROWINGS AND ALL OTHER
AMOUNTS PAYABLE UNDER THE LOAN DOCUMENTS.
SECTION 12 AGREEMENT AMONG LENDERS.
12.1 ADMINISTRATIVE AGENT.
(a) APPOINTMENT OF ADMINISTRATIVE AGENT. Each Lender hereby
appoints Bank of America, N.A. (and Bank of America, N.A. hereby
accepts such appointment) as its nominee and agent, in its name and on
its behalf: (i) to act as nominee for and on behalf of such Lender in
and under all Loan Documents; (ii) to arrange the means whereby the
funds of Lenders are to be made available to Borrower under the Loan
Documents; (iii) to take such action as may be requested by any Lender
under the Loan Documents (when such Lender is entitled to make such
request under the Loan Documents and after such requesting Lender has
obtained the concurrence of such other Lenders as may be required under
the Loan Documents); (iv) to receive all documents and items to be
furnished to Lenders under the Loan Documents; (v) to timely
distribute, and Administrative Agent agrees to so distribute, to each
Lender all material information, requests, documents, and items
received from Borrower under the Loan Documents; (vi) to promptly
distribute to each Lender its ratable part of each payment or
prepayment (whether voluntary, as proceeds of collateral upon or after
foreclosure, as proceeds of insurance thereon, or otherwise) in
accordance with the terms of the Loan Documents; (vii) to deliver to
the appropriate Persons requests, demands, approvals, and consents
received from Lenders; and (viii) to execute, on behalf of Lenders,
such releases or other documents or instruments as are permitted by the
Loan Documents or as directed by Lenders from time to time; PROVIDED,
HOWEVER, Administrative Agent shall not be required to take any action
which exposes Administrative Agent to personal liability or which is
contrary to the Loan Documents or applicable Law.
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(b) RESIGNATION OF ADMINISTRATIVE AGENT. SUCCESSOR
ADMINISTRATIVE AGENTS. Administrative Agent may resign at any time as
Administrative Agent under the Loan Documents by giving written notice
thereof to Lenders and may be removed as Administrative Agent under the
Loan Documents at any time with cause by Required Lenders. Should the
initial or any successor Administrative Agent ever cease to be a party
hereto or should the initial or any successor Administrative Agent ever
resign or be removed as Administrative Agent, then Required Lenders
shall elect the successor Administrative Agent from among the Lenders
(other than the resigning Administrative Agent). If no successor
Administrative Agent shall have been so appointed by Required Lenders,
within 30 days after the retiring Administrative Agent's giving of
notice of resignation or Required Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on
behalf of Lenders, appoint a successor Administrative Agent, which
shall be a commercial bank having a combined capital and surplus of at
least $1,000,000,000. Upon the acceptance of any appointment as
Administrative Agent under the Loan Documents by a successor
Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the Rights of the
retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations of Administrative
Agent under the Loan Documents (PROVIDED, HOWEVER, THAT when used in
connection with LCs issued and outstanding prior to the appointment of
the successor Administrative Agent, "ADMINISTRATIVE AGENT" shall
continue to refer solely to the bank that issued the outstanding LC;
PROVIDED FURTHER THAT any LCs issued or renewed after the appointment
of any successor Administrative Agent shall be issued by such successor
Administrative Agent), and each Lender shall execute such documents as
any Lender may reasonably request to reflect such change in and under
the Loan Documents. After any retiring Administrative Agent's
resignation or removal as Administrative Agent under the Loan
Documents, the provisions of this SECTION 12 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was
Administrative Agent under the Loan Documents.
(c) ADMINISTRATIVE AGENT AS A LENDER. NON-FIDUCIARY.
Administrative Agent, in its capacity as a Lender, shall have the same
Rights under the Loan Documents as any other Lender and may exercise
the same as though it were not acting as Administrative Agent; the term
"LENDER" shall, unless the context otherwise indicates, include
Administrative Agent and any issuer of an LC hereunder; and any
resignation, or removal of Administrative Agent hereunder shall not
impair or otherwise affect any Rights which it has or may have in its
capacity as an individual Lender. Each Lender and Borrower agree that
Administrative Agent is not a fiduciary for Lenders or for Borrower but
simply is acting in the capacity described herein to alleviate
administrative burdens for both Borrower and Lenders, that
Administrative Agent has no duties or responsibilities to Lenders or
Borrower except those expressly set forth herein, and that
Administrative Agent in its capacity as a Lender has all Rights of any
other Lender.
(d) OTHER ACTIVITIES OF ADMINISTRATIVE AGENT. Administrative
Agent and its Affiliates may now or hereafter be engaged in one or more
loan, letter of credit, leasing, or other financing transactions with
Borrower, act as trustee or depositary for Borrower, or otherwise be
engaged in other transactions with Borrower (collectively, the "OTHER
ACTIVITIES") not the subject of the Loan Documents. Without limiting
the Rights of Lenders specifically set forth in the Loan Documents,
Administrative Agent and its Affiliates shall not be responsible to
account to Lenders for such other activities, and no Lender shall have
any interest in any other activities, any present or future guaranties
by or for the account of Borrower which are not contemplated or
included in the Loan Documents, any present or future offset exercised
by Administrative Agent and its Affiliates in respect of such other
activities, any present or future property taken as security for any
such other activities, or any property now or hereafter in the
possession or control of Administrative Agent or its Affiliates which
may be or become security for the obligations of Borrower arising under
the Loan Documents by reason of the general description of indebtedness
secured or of property contained in any other agreements, documents or
instruments related to any such other activities;
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PROVIDED THAT, if any payments in respect of such guaranties or such
property or the proceeds thereof shall be applied to reduction of the
Obligation arising under the Loan Documents, then each Lender shall be
entitled to share in such application ratably.
12.2 EXPENSES. Upon demand by Administrative Agent, each Lender
shall pay its ratable portion of any reasonable expenses (including, without
limitation, court costs, reasonable attorneys' fees, and other costs of
collection) incurred by Administrative Agent in connection with any of the
Loan Documents if and to the extent Administrative Agent does not receive
reimbursement therefor from other sources within 60 days after incurred;
PROVIDED THAT, each Lender shall be entitled to receive its ratable portion
of any reimbursement for such expenses, or part thereof, which Administrative
Agent subsequently receives from such other sources.
12.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise
provided in the Loan Documents, nothing in the Loan Documents shall be deemed
to give any Lender any advantage over any other Lender insofar as the
Obligation arising under the Loan Documents is concerned, or to relieve any
Lender from absorbing its ratable portion of any losses sustained with
respect to the Obligation (except to the extent such losses result from
unilateral actions or inactions of any Lender that are not made in accordance
with the terms and provisions of the Loan Documents).
12.4 DELEGATION OF DUTIES; RELIANCE. Administrative Agent may
perform any of its duties or exercise any of its Rights under the Loan
Documents by or through its Representatives. Administrative Agent and its
Representatives shall (a) be entitled to rely upon (and shall be protected in
relying upon) any writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telecopy, telegram, telex or teletype message,
statement, order, or other documents or conversation believed by it or them
to be genuine and correct and to have been signed or made by the proper
Person and, with respect to legal matters, upon opinion of counsel selected
by Administrative Agent, (b) be entitled to deem and treat each Lender as the
owner and holder of the Obligation owed to such Lender for all purposes
until, subject to SECTION 13.13, written notice of the assignment or transfer
thereof shall have been given to and received by Administrative Agent (and
any request, authorization, consent, or approval of any Lender shall be
conclusive and binding on each subsequent holder, assignee, or transferee of
the Obligation owed to such Lender or portion thereof until such notice is
given and received), (c) not be deemed to have notice of the occurrence of a
Default or Potential Default unless a responsible officer of Administrative
Agent, who handles matters associated with the Loan Documents and
transactions thereunder, has received written notice from a Lender or
Borrower and stating that such notice is a "NOTICE OF DEFAULT," and (d) be
entitled to consult with legal counsel (including counsel for Borrower),
independent accountants, and other experts selected by Administrative Agent
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts.
12.5 LIMITATION OF LIABILITY.
(a) GENERAL. None of the Agents or any of their respective
Representatives shall be liable for any action taken or omitted to be
taken by it or them under the Loan Documents in good faith and
reasonably believed by it or them to be within the discretion or power
conferred upon it or them by the Loan Documents or be responsible for
the consequences of any error of judgment, except for fraud, gross
negligence, or willful misconduct; and none of the Agents or any of
their respective Representatives has a fiduciary relationship with any
Lender by virtue of the Loan Documents (PROVIDED THAT, nothing herein
shall negate the obligation of Administrative Agent to account for
funds received by it for the account of any Lender).
(b) NON-DISCRETIONARY ACTIONS. INDEMNIFICATION. Unless
indemnified to its satisfaction against loss, cost, liability, and
expense, neither Administrative Agent nor any other Agent shall be
compelled to do any act under the Loan Documents or to take any action
toward the execution or
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enforcement of the powers thereby created or to prosecute or defend any
suit in respect of the Loan Documents. If Administrative Agent requests
instructions from Lenders or Required Lenders, as the case may be, with
respect to any act or action (including, but not limited to, any
failure to act) in connection with any Loan Document, Administrative
Agent shall be entitled (but shall not be required) to refrain (without
incurring any liability to any Person by so refraining) from such act
or action unless and until it has received such instructions. Except
where action of Required Lenders or all Lenders is required in the Loan
Documents, Administrative Agent may act hereunder in its own discretion
without requesting instructions. In no event, however, shall
Administrative Agent or any of its respective Representatives be
required to take any action which it or they determine could incur for
it or them criminal or onerous civil liability. Without limiting the
generality of the foregoing, no Lender shall have any right of action
against Administrative Agent as a result of Administrative Agent's
acting or refraining from acting hereunder in accordance with the
instructions of Required Lenders (or all Lenders if required in the
Loan Documents).
(c) INDEPENDENT CREDIT DECISION. Administrative Agent nor any
other Agent shall be responsible in any manner to any Lender or any
Participant for, and each Lender represents and warrants that it has
not relied upon Administrative Agent or any other Agent in respect of,
(i) the creditworthiness of any Loan Party and the risks involved to
such Lender, (ii) the effectiveness, enforceability, genuineness,
validity, or the due execution of any Loan Document, (iii) any
representation, warranty, document, certificate, report, or statement
made therein or furnished thereunder or in connection therewith, (iv)
the existence, priority, or perfection of any Lien hereafter granted or
purported to be granted under any Loan Document, or (v) observation of
or compliance with any of the terms, covenants, or conditions of any
Loan Document on the part of any Loan Party. Each Lender agrees to
indemnify Administrative Agent and its respective Representatives and
hold them harmless from and against (but limited to such Lender's Pro
Rata Part of) any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses, and
reasonable disbursements of any kind or nature whatsoever which may be
imposed on, asserted against, or incurred by them in any way relating
to or arising out of the Loan Documents or any action taken or omitted
by them under the Loan Documents (INCLUDING ANY OF THE FOREGOING
ARISING FROM THE NEGLIGENCE OF ADMINISTRATIVE AGENT OR ITS
REPRESENTATIVES), to the extent Administrative Agent and its respective
Representatives are not reimbursed for such amounts by any Loan Party
(PROVIDED THAT, Administrative Agent, and its respective
Representatives shall not have the Right to be indemnified hereunder
for its or their own fraud, gross negligence, or willful misconduct).
12.6 DEFAULT; COLLATERAL.
(a) Upon the occurrence and continuance of a Default, Lenders
agree to promptly confer in order that Required Lenders or Lenders, as
the case may be, may agree upon a course of action for the enforcement
of the Rights of Lenders; and Administrative Agent shall be entitled to
refrain from taking any action (without incurring any liability to any
Person for so refraining) unless and until Administrative Agent shall
have received instructions from Required Lenders. All Rights of action
under the Loan Documents and all Rights to the Collateral, if any,
hereunder may be enforced by Administrative Agent and any suit or
proceeding instituted by Administrative Agent in furtherance of such
enforcement shall be brought in its name as Administrative Agent
without the necessity of joining as plaintiffs or defendants any other
Lender, and the recovery of any judgment shall be for the benefit of
Lenders subject to the expenses of Administrative Agent. In actions
with respect to any property of Borrower, Administrative Agent is
acting for the ratable benefit of each Lender. Any and all agreements
to subordinate (whether made heretofore or hereafter) other
indebtedness or obligations of Borrower to the Obligation shall be
construed as being for the ratable benefit of each Lender.
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(b) Each Lender authorizes and directs Administrative Agent to
enter into the Collateral Documents for the benefit of the Lenders.
EXCEPT to the extent unanimity is required hereunder, each Lender
agrees that any action taken by the Required Lenders in accordance with
the provisions of the Loan Documents, and the exercise by the Required
Lenders of the powers set forth herein or therein, TOGETHER WITH such
other powers as are reasonably incidental thereto, shall be authorized
and binding upon all of the Lenders.
(c) Administrative Agent is hereby authorized on behalf of all
of the Lenders, without the necessity of any notice to or further
consent from any Lender, from time to time to take any action with
respect to any Collateral or Collateral Documents which may be
necessary to perfect and maintain perfected the Liens upon the
Collateral granted pursuant to the Collateral Documents.
(d) Administrative Agent shall have no obligation whatsoever
to any Lender or to any other Person to assure that the Collateral
exists or is owned by any Loan Party or is cared for, protected, or
insured or has been encumbered or that the Liens granted to
Administrative Agent herein or pursuant hereto have been properly or
sufficiently or lawfully created, perfected, protected, or enforced, or
are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure, or
fidelity, or to continue exercising, any of the Rights granted or
available to Administrative Agent in this SECTION 12.6 or in any of the
Collateral Documents; IT BEING UNDERSTOOD and agreed that in respect of
the Collateral, or any act, omission, or event related thereto,
Administrative Agent may act in any manner it may deem appropriate, in
its sole discretion, given Administrative Agent's own interest in the
Collateral as one of the Lenders and that Administrative Agent shall
have no duty or liability whatsoever to any Lender, OTHER THAN to act
without gross negligence or willful misconduct.
(e) Lenders hereby irrevocably authorize Administrative Agent,
at its option and in its discretion, to release any Lien granted to or
held by Administrative Agent upon any Collateral: (i) upon termination
of the Total Commitment and payment and satisfaction of the Obligation;
(ii) constituting property in which no Loan Party owned an interest at
the time the Lien was granted or at any time thereafter; (iii)
constituting property leased to a Loan Party under a lease which has
expired or been terminated in a transaction permitted under the Loan
Document or is about to expire and which has not been, and is not
intended by such Loan Party to be, renewed; (iv) consisting of an
instrument evidencing Debt pledged to Administrative Agent (for the
benefit of Lenders), if the Debt evidenced thereby has been paid in
full; (v) upon the sale, transfer, or disposition of Collateral which
is expressly permitted pursuant to the Loan Documents, including,
without limitation, under SECTION 9.22; (vi) as contemplated in SECTION
6.5, or (vii) if approved, authorized, or ratified in writing by all
necessary Lenders. Upon request by Administrative Agent at any time,
Lenders will confirm in writing Administrative Agent's authority to
release particular types or items of Collateral pursuant to this
SECTION 12.6.
(f) In furtherance of the authorizations set forth in this
SECTION 12.6, each Lender hereby irrevocably appoints Administrative
Agent its attorney-in-fact, with full power of substitution, for and on
behalf of and in the name of each such Lender, (i) to enter into
Collateral Documents (including, without limitation, any appointments
of substitute trustees under any Collateral Document), (ii) to take
action with respect to the Collateral and Collateral Documents to
perfect, maintain, and preserve Lender's Liens, and (iii) to execute
instruments of release or to take other action necessary to release
Liens upon any Collateral to the extent authorized in PARAGRAPH (e)
hereof. This power of attorney shall be liberally, not restrictively,
construed so as to give the greatest latitude to Administrative Agent's
power, as attorney, relative to the Collateral matters described in
this SECTION 12.6. The powers and authorities herein conferred on
Administrative Agent may be exercised by Administrative Agent through
any Person who, at the time of the execution of a particular
instrument, is an officer of Administrative Agent. The power of
attorney conferred by
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this SECTION 12.6(f) is granted for valuable consideration and is
coupled with an interest and is irrevocable so long as the Obligation,
or any part thereof, shall remain unpaid or Lenders are obligated to
make any Borrowings under the Loan Documents.
12.7 LIMITATION OF LIABILITY. To the extent permitted by Law, (a)
neither Administrative Agent nor any other Agent (acting in their respective
agent capacities) shall incur any liability to any other Lender, Agent, or
Participant except for acts or omissions resulting from its own fraud, gross
negligence or willful misconduct, and (b) neither Administrative Agent nor
any other Agent, Lender, or Participant shall incur any liability to any
other Person for any act or omission of any other Lender, Agent, or
Participant.
12.8 RELATIONSHIP OF LENDERS. Nothing herein shall be construed
as creating a partnership or joint venture among Agents and Lenders.
12.9 BENEFITS OF AGREEMENT. None of the provisions of this SECTION
12 shall inure to the benefit of any Loan Party or any other Person other
than Lenders; consequently, no Loan Party or any other Person shall be
entitled to rely upon, or to raise as a defense, in any manner whatsoever,
the failure of any Agent or any Lender to comply with such provisions.
12.10 AGENTS. None of the Lenders identified in this Agreement as
"CO-SYNDICATION AGENTS," "CO-DOCUMENTATION AGENTS,""MANAGING AGENT," or
"CO-AGENT" shall have any Rights, powers, obligations, liabilities,
responsibilities, or duties under the Loan Documents other than those
applicable to all Lenders as such. Without limiting the foregoing, none of
the Lenders so identified as "CO-SYNDICATION AGENTS," "CO-DOCUMENTATION
AGENTS," "MANAGING AGENT," or "CO-AGENT" shall have or be deemed to have any
fiduciary relationship with any Lender. Any Lender that is a "CO-SYNDICATION
AGENTS," "CO-DOCUMENTATION AGENTS," "MANAGING AGENT," or "CO-AGENT" may
voluntarily relinquish its title by giving written notice thereof to
Administrative Agent and Borrower. Upon such relinquishments, a successor
"CO-SYNDICATION AGENTS," "CO-DOCUMENTATION AGENTS,""MANAGING AGENT," or
"CO-AGENT" may be appointed upon the mutual agreement of Borrower and
Administrative Agent.
12.11 OBLIGATIONS SEVERAL. The obligations of Lenders hereunder are
several, and each Lender hereunder shall not be responsible for the
obligations of the other Lenders hereunder, nor will the failure of one Lender
to perform any of its obligations hereunder relieve the other Lenders from the
performance of their respective obligations hereunder.
12.12 FINANCIAL HEDGES. To the extent any Lender or any Affiliate of
a Lender issues a Financial Hedge in accordance with the requirements of the
Loan Documents and accepts the benefits of the Liens in the Collateral arising
pursuant to the Collateral Documents, such Lender (for itself and on behalf of
any such Affiliates) agrees (i) to appoint Bank of America, N.A., as its
nominee and agent, to act for and on behalf of such Lender or Affiliate
thereof in connection with the Collateral Documents and (ii) to be bound by
the terms of this SECTION 12; whereupon all references to "LENDER" in this
SECTION 12 and in the Collateral Documents shall include, on any date of
determination, any Lender or Affiliate of a Lender that is party to a
then-effective Financial Hedge which complies with the requirements of the
Loan Document. Additionally, if the Obligation owed to any Lender or Affiliate
of a Lender consists SOLELY of Debt arising under a Financial Hedge (such
Lender or Affiliate being referred to in this SECTION 12.12 as an "ISSUING
LENDER"), then such Issuing Lender (by accepting the benefits of any
Collateral Documents) acknowledges and agrees that pursuant to the Loan
Documents and without notice to or consent of such Issuing Lender: (i) Liens
in the Collateral may be released in whole or in part; (ii) all Guaranties may
be released; (iii) any Collateral Document may be amended, modified,
supplemented, or restated; and (iv) all or any part of the Collateral may be
permitted to secure other Debt.
12.13 SUCCESSOR ADMINISTRATIVE AGENT. Bank of America has been
appointed as the Administrative Agent under the Loan Documents, as successor
to the "ADMINISTRATIVE AGENTS" under each
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of the Existing Credit Agreements, and Administrative Agent hereby assumes all
duties of the "COLLATERAL AGENT" under any and all of the Existing Credit
Agreements. Any reference to "COLLATERAL AGENT" under the Loan Documents shall
be deemed to be a reference to the Administrative Agent hereunder.
SECTION 13 MISCELLANEOUS.
13.1 HEADINGS. The headings, captions, and arrangements used in any
of the Loan Documents are, unless specified otherwise, for convenience only
and shall not be deemed to limit, amplify, or modify the terms of the Loan
Documents, nor affect the meaning thereof.
13.2 NONBUSINESS DAYS. In any case where any payment or action is due
under any Loan Document on a day which is not a Business Day, such payment or
action may be delayed until the next-succeeding Business Day, but interest and
fees shall continue to accrue in respect of any payment to which it is
applicable until such payment is in fact made; PROVIDED THAT, if, in the case
of any such payment in respect of a Eurodollar Rate Borrowing, the
next-succeeding Business Day is in the next calendar month, then such payment
shall be made on the next-preceding Business Day.
13.3 COMMUNICATIONS. Unless specifically otherwise provided, whenever
any Loan Document requires or permits any consent, approval, notice, request,
or demand from one party to another, such communication must be in writing
(which may be by telex or telecopy) to be effective and shall be deemed to
have been given (a) if by telex, when transmitted to the telex number, if any,
for such party, and the appropriate answer back is received, (b) if by
telecopy, when transmitted to the telecopy number for such party (and all such
communications sent by telecopy shall be confirmed promptly thereafter by
personal delivery or mailing in accordance with the provisions of this
section; PROVIDED, THAT any requirement in this parenthetical shall not affect
the date on which such telecopy shall be deemed to have been delivered), (c)
if by mail, on the third Business Day after it is enclosed in an envelope,
properly addressed to such party, properly stamped, sealed, and deposited in
the appropriate official postal service, or (d) if by any other means, when
actually delivered to such party. Until changed by notice pursuant hereto, the
address (and telex and telecopy numbers, if any) for Administrative Agent and
each Lender, Administrative Agent, and other Agents is set forth on SCHEDULE
2.1, and for Borrower is the address set forth by Borrower's signature on the
signature page of this Agreement and for each Guarantor is the address set
forth by such Guarantor's signature on the signature page of its Guaranty. A
copy of each such communication to Administrative Agent shall also be sent to
Haynes and Boone, LLP, 901 Main Street, Dallas, Texas 75202, Fax:
214/651-5940, Attn: Karen S. Nelson. A copy of each such communication to
Borrower shall also be sent to McAfee & Taft, 211 North Robinson, Suite 1000,
Oklahoma City, Oklahoma 73102, Fax: 405/235-2265, Attn: Richard Riggs.
13.4 FORM AND NUMBER OF DOCUMENTS. Each agreement, document,
instrument, or other writing to be furnished under any provision of the Loan
Documents must be in form and substance and in such number of counterparts as
may be reasonably satisfactory to Administrative Agent and its counsel.
13.5 EXCEPTIONS TO COVENANTS. No Loan Party shall take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained in any Loan Document if such action or omission would
result in the breach of any other covenant contained in any of the Loan
Documents.
13.6 SURVIVAL. All covenants, agreements, undertakings,
representations, and warranties made in any of the Loan Documents shall
survive all closings under the Loan Documents and, except as otherwise
indicated, shall not be affected by any investigation made by any party. All
Rights of, and provisions relating to, reimbursement and indemnification of
Administrative Agent, any Agent, or any Lender (and any other provision of the
Loan Documents that expressly provides for such survival) shall survive
termination of this Agreement and payment in full of the Obligation.
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13.7 GOVERNING LAW. THE LOAN DOCUMENTS HAVE BEEN ENTERED INTO
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK (EXCEPT TO THE EXTENT THE LAWS OF
ANOTHER JURISDICTION GOVERN THE CREATION, PERFECTION, VALIDITY, OR ENFORCEMENT
OF LIENS UNDER THE COLLATERAL DOCUMENTS), AND THE APPLICABLE FEDERAL LAWS OF
THE UNITED STATES OF AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THE LOAN DOCUMENTS.
13.8 INVALID PROVISIONS. If any provision in any Loan Document is
held to be illegal, invalid, or unenforceable, such provision shall be fully
severable; the appropriate Loan Document shall be construed and enforced as if
such provision had never comprised a part thereof; and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by such provision or by its severance therefrom. Administrative
Agent, Lenders, and each Loan Party party to such Loan Document agree to
negotiate, in good faith, the terms of a replacement provision as similar to
the severed provision as may be possible and be legal, valid, and enforceable.
13.9 ENTIRETY. THE RIGHTS AND OBLIGATIONS OF EACH LOAN PARTY,
LENDERS, AND AGENTS SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS,
DOCUMENTS, AND INSTRUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN SUCH PARTIES
ARE SUPERSEDED BY AND MERGED INTO SUCH WRITINGS. THIS AGREEMENT (AS AMENDED IN
WRITING FROM TIME TO TIME) AND THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED BY
ANY LOAN PARTY, ANY LENDER, AND/OR ANY AGENT, (TOGETHER WITH ALL COMMITMENT
LETTERS AND FEE LETTERS AS THEY RELATE TO THE PAYMENT OF FEES AFTER THE
CLOSING DATE) REPRESENT THE FINAL AGREEMENT BETWEEN THE LOAN PARTIES, LENDERS,
AND AGENTS, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BY SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN SUCH PARTIES.
13.10 JURISDICTION; VENUE; SERVICE OF PROCESS; JURY TRIAL. EACH PARTY
HERETO (INCLUDING EACH GUARANTOR BY EXECUTION OF A GUARANTY), IN EACH CASE FOR
ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY (A) IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE (PURSUANT TO SECTION 5-1402 OF THE NEW
YORK GENERAL OBLIGATIONS LAW) AND FEDERAL COURTS LOCATED IN THE BOROUGH OF
MANHATTAN IN THE STATE OF NEW YORK, AND AGREES AND CONSENTS THAT SERVICE OF
PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BY SERVICE OF PROCESS AS
PROVIDED BY NEW YORK LAW, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE
LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT, (C) IRREVOCABLY
WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE AND MAINTAIN AN
AGENT FOR SERVICE OF PROCESS IN NEW YORK IN CONNECTION WITH ANY SUCH
LITIGATION AND TO DELIVER TO ADMINISTRATIVE AGENT EVIDENCE THEREOF, IF
REQUESTED, (E) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES
THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS
ADDRESS SET FORTH HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING
AGAINST ANY PARTY HERETO ARISING OUT OF OR IN CONNECTION WITH THE LOAN
DOCUMENTS OR THE OBLIGATION SHALL BE BROUGHT IN ONE OF THE AFOREMENTIONED
COURTS, AND (G) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY. The scope of each of the foregoing waivers is intended to be
all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including, without
limitation, contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. The Loan Parties and each other party to the
Loan Documents acknowledge that this waiver is a material inducement to the
agreement of each party hereto to enter into a business relationship, that
each has already relied on this
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waiver in entering into the Loan Documents, and each will continue to rely on
each of such waivers in related future dealings. The Loan Parties and each
other party to the Loan Documents warrant and represent that they have
reviewed these waivers with their legal counsel, and that they knowingly and
voluntarily agree to each such waiver following consultation with legal
counsel. THE WAIVERS IN THIS SECTION 13.10 ARE IRREVOCABLE, MEANING THAT THEY
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR
ANY OTHER LOAN DOCUMENT. In the event of Litigation, this Agreement may be
filed as a written consent to a trial by the court.
13.11 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS.
(a) Except as otherwise specifically provided, (i) this
Agreement may only be amended, modified, or waived by an instrument in
writing executed jointly by Borrower and Required Lenders, and, in the
case of any matter affecting Administrative Agent (EXCEPT removal of
Administrative Agent as provided in SECTION 12) by Administrative
Agent, and may only be supplemented by documents delivered or to be
delivered in accordance with the express terms hereof, and (ii) the
other Loan Documents may only be the subject of an amendment,
modification, or waiver if Borrower and Required Lenders, and, in the
case of any matter affecting Administrative Agent (EXCEPT as set forth
above), Administrative Agent, have approved same.
(b) Any amendment to the Loan Documents which purports to (i)
change the allocation of payments among the Facilities or Subfacilities
or (ii) decrease the amount of any mandatory payment or commitment
reduction required by SECTION 3.3(b)(iii) (from Equity Issuance) or
SECTION 3.3(c) (from Excess Cash Flow) must be by an instrument in
writing executed by Borrower and by (A) the Term Loan A Lenders holding
at least 50.1% of the Term Loan A Commitment if prior to the initial
Borrowing Date under the Term Loan A Facility or Term Loan A Principal
Debt thereafter; (B) the Term Loan B Lenders holding at least 50.1% of
the Term Loan B Principal Debt; (C) the Revolver Lenders holding at
least 50.1% of the Revolver Commitment or, if there is no remaining
Revolver Commitment, 50.1% of the Revolver Principal Debt; (D) the
Discretionary Revolver Lenders holding at least 50.1% of the
Discretionary Revolver Commitment under all Discretionary Revolver
Loans then-outstanding or, if there is no remaining Discretionary
Revolver Commitment under any Discretionary Revolver Loans, 50.1% of
the Discretionary Revolver Principal Debt under all Discretionary
Revolver Loans then-outstanding; (E) the Discretionary Term A Lenders
holding at least 50.1% of the Discretionary Term A Commitment if prior
to the initial Borrowing Date under any Discretionary Term A Loans or
Discretionary Term A Loan Principal Debt under all Discretionary Term A
Loans thereafter, and (F) the Discretionary Term B Lenders holding at
least 50.1% of the Discretionary Term B Commitment if prior to the
initial Borrowing Date under any Discretionary Term B Loans or
Discretionary Term B Loan Principal Debt under all Discretionary Term B
Loans thereafter.
(c) Except as provided in SECTION 13.11(b), any amendment to
or consent or waiver under any Loan Document which purports to
accomplish any of the following must be by an instrument in writing
executed by Borrower and executed (or approved, as the case may be) by
each Lender affected thereby, and, in the case of any matter affecting
Administrative Agent, by Administrative Agent: (i) postpones or delays
any date fixed by the Loan Documents for any payment or mandatory
prepayment of all or any part of the Obligation payable to such Lender
or Administrative Agent; (ii) reduces the interest rate or decreases
the amount of any payment of principal, interest, fees, or other sums
payable to Administrative Agent or any such Lender hereunder (except
such reductions as are contemplated by this Agreement); (iii) changes
the definition of "REQUIRED LENDERS" or this SECTION 13.11(c) or any
other provisions of the Loan Documents that require the unanimous
consent of the Lenders; (iv) changes the order of application of any
payment or prepayment set forth in SECTIONS 3.3 and 3.12 in any manner
that materially affects such Lender
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or Administrative Agent; (v) except as otherwise permitted by any Loan
Document (including, without limitation, SECTION 6.5), waives
compliance with, amends, or releases all or substantially all of the
Guaranties; (vi) except as contemplated in SECTION 6.5, releases all or
substantially all of the Collateral for the Obligation or permits the
creation, incurrence, assumption, or existence of any Lien on all or
substantially all of the Collateral to secure any obligations, OTHER
THAN Liens securing the Obligation and Permitted Liens; or (vi) changes
this CLAUSE (c) or any other matter specifically requiring the consent
of all Lenders hereunder. Without the consent of such Lender, no
Lender's "COMMITTED SUM" or "COMMITMENT PERCENTAGE" may be increased.
(d) Any conflict or ambiguity between the terms and provisions
of this Agreement and terms and provisions in any other Loan Document
shall be controlled by the terms and provisions herein.
(e) No course of dealing nor any failure or delay by
Administrative Agent, any Lender, or any of their respective
Representatives with respect to exercising any Right of Administrative
Agent or any Lender hereunder shall operate as a waiver thereof. A
waiver must be in writing and signed by Administrative Agent and
Required Lenders (or by all Lenders, if required hereunder) to be
effective, and such waiver will be effective only in the specific
instance and for the specific purpose for which it is given.
13.12 MULTIPLE COUNTERPARTS. The Loan Documents may be executed in a
number of identical counterparts, each of which shall be deemed an original
for all purposes and all of which constitute, collectively, one agreement;
but, in making proof of any Loan Document, it shall not be necessary to
produce or account for more than one such counterpart. It is not necessary
that each Lender execute the same counterpart so long as identical
counterparts are executed by Borrower, each Lender, and Administrative Agent.
This Agreement shall become effective when counterparts hereof shall have been
executed and delivered to Administrative Agent by each Lender, Administrative
Agent, and Borrower, or, when Administrative Agent shall have received
telecopied, telexed, or other evidence satisfactory to it that such party has
executed and is delivering to Administrative Agent a counterpart hereof.
13.13 SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS.
(a) This Agreement shall be binding upon, and inure to the
benefit of the parties hereto and their respective successors and
assigns, EXCEPT THAT (i) Borrower may not, directly or indirectly,
assign or transfer, or attempt to assign or transfer, any of its
Rights, duties, or obligations under any Loan Documents without the
express written consent of all Lenders, and (ii) EXCEPT as permitted
under this Section, no Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber its portion of the Obligation.
(b) Each Lender may assign to one or more Eligible Assignees
all or a portion of its Rights and obligations under the Loan Documents
(including, without limitation, all or a portion of its Borrowings and
its Notes -- to the extent any Principal Debt owed to such assigning
Lender is evidenced by a Note or Notes); PROVIDED, HOWEVER, that:
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to another
Lender, an Affiliate of Lender or an Approved Fund of any
Lender, or in the case of an assignment of all of a Lender's
Rights and obligations under the Loan Documents, any such
partial assignment under any Facility or Discretionary Loan
shall not be less than the following amounts for the Facility
or Discretionary Loan indicated (unless Administrative Agent
and, unless a Default or Potential Default has occurred and is
continuing, Borrower consent thereto (in
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their sole discretion) in writing which may be evidenced by
their acceptance and execution of the related Assignment and
Acceptance Agreement):
<TABLE>
<CAPTION>
===============================================================================
FACILITY/ DISCRETIONARY LOAN MINIMUM ASSIGNMENT
===============================================================================
<S> <C>
Revolver Facility $2,500,000 (inclusive of any concurrent
assignments under the Term Loan A
Facility, the Term Loan B Facility, any
Discretionary Revolver Loans, any
Discretionary Term A Loans, or any
Discretionary Term B Loans by the
assigning Lender to the same assignee)
- -------------------------------------------------------------------------------
Discretionary Revolver Loans $2,500,000 (inclusive of any concurrent
assignments under the Revolver Facility,
the Term Loan A Facility, the Term Loan B
Facility, any Discretionary Term A Loans,
or any Discretionary Term B Loans by the
assigning Lender to the same assignee)
- ----------------------------- ------------------------------------------------
Term Loan A Facility $2,500,000 (inclusive of any concurrent
assignments under the Revolver Facility,
the Term Loan B Facility, any
Discretionary Revolver Loans, any
Discretionary Term A Loans, or any
Discretionary Term B Loans by the
assigning Lender to the same assignee)
- ----------------------------- ------------------------------------------------
Discretionary Term A Loans $2,500,000 (inclusive of any concurrent
assignments under the Revolver Facility,
the Term Loan A Facility, the Term Loan B
Facility, any Discretionary Revolver
Loans, or any Discretionary Term B Loans
by the assigning Lender to the same
assignee)
- ----------------------------- ------------------------------------------------
Term Loan B Facility $1,000,000
- ----------------------------- ------------------------------------------------
Discretionary Term B Loans $1,000,000
============================= ================================================
</TABLE>
; PROVIDED THAT, no partial assignment for any Facility or
Discretionary Loan (including any assignment among Lenders)
may result in any Lender holding less than $500,000 in any
Facility or Discretionary Loan;
(iii) each such assignment by a Lender shall be of a
proportionate part of all of the assigning Lender's Rights and
obligations under this Agreement and the Notes (to the extent
any Principal Debt owed to such assigning Lender is evidenced
by a Note or Notes), except that this CLAUSE (iii) shall not
be construed to prohibit the assignment of
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a proportionate part of all of the assigning Lender's Rights
and obligations in respect of one Facility or Discretionary
Loan;
(iv) the parties to such assignment shall execute and
deliver to Administrative Agent for its acceptance an
Assignment and Acceptance Agreement substantially in the form
of EXHIBIT F hereto, together with any Notes (to the extent
any Principal Debt owed to such assigning Lender is evidenced
by a Note or Notes) subject to such assignment and a
processing fee of $3,500, including, without limitation, any
assignment between Lenders; and
(v) so long as any Lender is an Agent (OTHER THAN a
Co-Agent or a Managing Agent) under this Agreement, such
Lender (or an Affiliate of such Lender) shall retain an
economic interest in the Loan Documents, will not assign all
of its Rights, duties, or obligations under the Loan
Documents, except to an Affiliate of such Lender, and will not
enter into any Assignment and Acceptance Agreement that would
have the effect of such Lender assigning all of its Rights,
duties, or obligations under the Loan Documents to any Person
other than an Affiliate of such Lender unless such Agent has
relinquished such title in accordance with SECTION 12.1 (with
respect to Administrative Agent) or SECTION 12.10 (with
respect to the other Agents).
Upon execution, delivery, and acceptance of such Assignment and
Acceptance Agreement, the assignee thereunder shall be a party hereto
and, to the extent of such assignment, have the obligations, Rights,
and benefits of a Lender under the Loan Documents and the assigning
Lender shall, to the extent of such assignment, relinquish its Rights
and be released from its obligations under the Loan Documents. Upon the
consummation of any assignment pursuant to this Section, but only upon
the request of the assignor or assignee made through Administrative
Agent, Borrower shall issue appropriate Notes to the assignor and the
assignee, reflecting such Assignment and Acceptance. If the assignee is
not incorporated under the laws of the United States of America or a
state thereof, it shall deliver to Borrower and Administrative Agent
certification as to exemption from deduction or withholding of Taxes in
accordance with SECTION 4.6.
(c) Administrative Agent (acting solely for this
administrative purpose as an agent for Borrower) shall maintain at its
address referred to in SECTION 13.3 a copy of each Assignment and
Acceptance Agreement delivered to and accepted by it and a register for
the recordation of the names and addresses of the Lenders and the
Commitment Percentage, and principal amount of the Borrowings owing to,
each Lender from time to time (the "REGISTER"). The entries in the
Register shall be conclusive and binding for all purposes, absent
manifest error, and Borrower, Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of the Loan Documents. The Register shall be
available for inspection by Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice. Upon the
consummation of any assignment in accordance with this SECTION 13.13,
SCHEDULE 2.1 shall automatically be deemed amended (to the extent
required) by Administrative Agent to reflect the name, address, and,
where appropriate, the respective Committed Sums under the Facilities
and Discretionary Facility (as the case may be) of the assignor and
assignee.
(d) Upon its receipt of an Assignment and Acceptance Agreement
executed by the parties thereto, together with any Notes (to the extent
any Principal Debt owed to such assigning Lender is evidenced by a Note
or Notes) subject to such assignment and payment of the processing fee,
Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of EXHIBIT F hereto, (i)
accept such Assignment and Acceptance Agreement, (ii) record the
information contained therein in the Register, and (iii) give prompt
notice thereof to the parties thereto.
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(e) Subject to the provisions of this Section and in
accordance with applicable Law, any Lender may, in the ordinary course
of its commercial banking business and in accordance with applicable
Law, at any time sell to one or more Persons (OTHER THAN Borrower or
any Affiliate of Borrower) (each a "PARTICIPANT") participating
interests in its portion of the Obligation. In the event of any such
sale to a Participant, (i) such Lender shall remain a "LENDER" under
the Loan Documents and the Participant shall not constitute a "LENDER"
hereunder, (ii) such Lender's obligations under the Loan Documents
shall remain unchanged, (iii) such Lender shall remain solely
responsible for the performance thereof, (iv) such Lender shall remain
the holder of its share of the Principal Debt for all purposes under
the Loan Documents, (v) Borrower and Administrative Agent shall
continue to deal solely and directly with such Lender in connection
with such Lender's Rights and obligations under the Loan Documents, and
(vi) such Lender shall be solely responsible for any withholding Taxes
or any filing or reporting requirements relating to such participation
and shall hold Borrower and Administrative Agent and their respective
successors, permitted assigns, officers, directors, employees, agents,
and representatives harmless against the same. Participants shall have
no Rights under the Loan Documents, other than certain voting Rights as
provided below. Subject to the following, each Lender shall be entitled
to obtain (on behalf of its Participants) the benefits of SECTION 4
with respect to all participations in its part of the Obligation
outstanding from time to time, SO LONG AS Borrower shall not be
obligated to pay any amount in excess of the amount that would be due
to such Lender under SECTION 4 calculated as though no participations
have been made. No Lender shall sell any participating interest under
which the Participant shall have any Rights to approve any amendment,
modification, or waiver of any Loan Document, except to the extent such
amendment, modification, or waiver extends the due date for payment of
any amount in respect of principal (OTHER THAN mandatory prepayments),
interest, or fees due under the Loan Documents, reduces the interest
rate or the amount of principal or fees applicable to the Obligation
(EXCEPT such reductions as are contemplated by the Loan Documents), or
releases all or any substantial portion of the Guaranties or all or any
substantial portion of the Collateral for the Obligation under the Loan
Documents (EXCEPT such releases of Guaranties or Collateral as are
contemplated in SECTION 6.5); PROVIDED THAT, in those cases where a
Participant is entitled to the benefits of SECTION 4 or a Lender grants
Rights to its Participants to approve amendments to or waivers of the
Loan Documents respecting the matters previously described in this
sentence, such Lender must include a voting mechanism in the relevant
participation agreement or agreements, as the case may be, whereby a
majority of such Lender's portion of the Obligation (whether held by
such Lender or Participant) shall control the vote for all of such
Lender's portion of the Obligation. Except in the case of the sale of a
participating interest to another Lender, the relevant participation
agreement shall not permit the Participant to transfer, pledge, assign,
sell participations in, or otherwise encumber its portion of the
Obligation, unless the consent of the transferring Lender (which
consent will not be unreasonably withheld) has been obtained.
(f) Notwithstanding any other provision set forth in this
Agreement, any Lender may, without notice to, or the consent of
Borrower or Administrative Agent, at any time assign and pledge all or
any portion of its Borrowings and its Notes (to the extent any
Principal Debt owed to such assigning Lender is evidenced by a Note or
Notes) to any Federal Reserve Bank as collateral security pursuant to
REGULATION A and any Operating Circular issued by such Federal Reserve
Bank or any Lender which is a fund may pledge all or any portion of its
Borrowings and its Notes (to the extent any Principal Debt owed to such
assigning Lender is evidenced by a Note or Notes) to any trustee or to
any other representative of holders of obligations owed or securities
issued by such fund as security for such obligations or securities;
provided that any transfer to any Person upon the enforcement of such
pledge or security interest may only be made subject to this SECTION
13.13. No such assignment or pledge shall release the assigning Lender
from its obligations hereunder.
(g) Any Lender may furnish any information concerning the Loan
Parties and Subsidiaries thereof in the possession of such Lender from
time to time to Eligible Assignees
101
<PAGE>
and Participants (including prospective Eligible Assignees and
Participants) and to counterparties under a Financial Hedge issued by a
Lender or an Affiliate of a Lender to the extent permitted by the Loan
Documents.
13.14 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. The obligations of each Loan Party under the Loan Documents
shall remain in full force and effect until termination of the Total
Commitment, payment in full of the Principal Debt and of all interest, fees,
and other amounts of the Obligation then due and owing, and expiration of all
LCs, EXCEPT that SECTIONS 4, 11, and 13, and any other provisions under the
Loan Documents expressly intended to survive by the terms hereof or by the
terms of the applicable Loan Documents, shall survive such termination. If at
any time any payment of the principal of or interest on any Note or any other
amount payable by any Loan Party under any Loan Document is rescinded or must
be otherwise restored or returned upon the insolvency, bankruptcy, or
reorganization of such Loan Party or otherwise, the obligations of each Loan
Party under the Loan Documents with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
13.15 RESTATEMENT OF EXISTING CREDIT AGREEMENTS/NO NOVATION. The
parties hereto agree that, on the Closing Date, after all conditions precedent
set forth in SECTION 7.1 have been satisfied or waived: (a) the Obligation (as
defined herein) represents, among other things, the amendment, extension,
consolidation, and modification of the "OBLIGATION" (as defined in each of the
Existing Credit Agreements); (b) this Agreement is intended to, and does
hereby, restate, consolidate, renew, extend, amend, modify, supersede, and
replace the Existing Credit Agreements in their entirety; (c) the Notes, if
any, executed pursuant to this Agreement amend, renew, extend, modify,
replace, substitute for, and supersede in their entirety (but do not
extinguish, the Debt arising under) the promissory notes issued pursuant to
the Existing Credit Agreements, if any, which existing promissory notes shall
be returned to Administrative Agent promptly after the Closing Date, marked
"CANCELED AND REPLACED," and, thereafter, delivered by Administrative Agent to
Borrower; (d) the Guaranties executed pursuant to this Agreement are intended
to, and do hereby, restate, renew, extend, amend, modify, supersede, and
replace any guaranties executed and delivered pursuant to the Existing Credit
Agreements; (e) the Security Agreements executed pursuant to this Agreement
are intended to, and do hereby, restate, renew, extend, amend, modify,
supersede, and replace and pledge or security agreements executed and
delivered pursuant to the Existing Credit Agreements; and (f) the entering
into and performance of their respective obligations under the Loan Documents
and the transactions evidenced hereby do not constitute a novation nor shall
they be deemed to have terminated, extinguished, or discharged the
indebtedness under the Existing Credit Agreements or the collateral security
therefor, all of which indebtedness and collateral security shall continue
under and be governed by this Agreement and the other Loan Documents, except
as expressly provided otherwise herein. On the Closing Date, (i) all
outstanding Debt under the Existing Credit Agreements owed to any "LENDER"
that is not continuing as a Lender under this Agreement (each a
"NON-CONTINUING LENDER") shall be repaid in full by Borrower and such
Non-Continuing Lender's commitment under the Existing Credit Agreements shall
be terminated and (ii) with respect to Existing Lenders which are continuing
as Lenders under this Agreement (the "CONTINUING LENDERS"), Administrative
Agent shall make appropriate allocations and adjustments in the initial
funding instructions to the Lenders to reflect the modifications effected by
the Loan Documents to each Continuing Lender's Committed Sum and Commitment
Percentage under each Facility.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.]
102
<PAGE>
Signature Page to that certain Amended, Restated, and Consolidated
Revolving Credit and Term Loan Agreement dated as of the date first stated
above, among Dobson Operating Co., L.L.C. (successor by merger with Dobson
Operating Company and Dobson Cellular Operations Company), as Borrower, Bank
of America, N.A., as Administrative Agent, and certain Lenders named therein.
EXECUTED to be effective as of the Closing Date.
<TABLE>
<S> <C>
DOBSON OPERATING CO., L.L.C.
(SUCCESSOR BY MERGER WITH DOBSON OPERATING
COMPANY AND DOBSON CELLULAR OPERATIONS
COMPANY)
Address: 13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114 By: /s/ RONALD L. RIPLEY
-----------------------------------
Telephone: 405-529-8500 Ronald L. Ripley, Assistant General
Facsimile: 405-529-8515 Manager
BANK OF AMERICA, N.A., AS ADMINISTRATIVE
AGENT AND AS A LENDER
By: /s/ JULIE A. SCHELL
-----------------------------------
Julie A. Schell, Vice President
</TABLE>
<PAGE>
Signature Page to that certain Amended, Restated, and Consolidated
Revolving Credit and Term Loan Agreement dated as of the date first stated
above, among Dobson Operating Co., L.L.C. (successor by merger with Dobson
Operating Company and Dobson Cellular Operations Company), as Borrower, Bank
of America, N.A., as Administrative Agent, and certain Lenders named therein,
including the undersigned.
EXECUTED to be effective as of the Closing Date.
<TABLE>
<S> <C>
THE BANK OF NOVA SCOTIA, AS CITIZENS BANK OF MASSACHUSETTS,
MANAGING AGENT AND A LENDER AS CO-AGENT AND A LENDER
By: /s/ VINCENT J. FITZGERALD, JR. By: /s/ CYNTHIA J. TERWILLIGER
-------------------------------------- --------------------------------------
Vincent J. Fitzgerald, Jr., Authorized Cynthia J. Terwilliger, Assistant Vice
Signatory President
BANKERS TRUST COMPANY, AS CITY NATIONAL BANK, AS A LENDER
MANAGING AGENT AND A LENDER
By: /s/ PATRICK M. DRUM
By: /s/ GREGORY SHEFRIN --------------------------------------
-------------------------------------- Patrick M. Drum, Assistant Vice President
Gregory Shefrin, Principal
COBANK, ACB, AS MANAGING AGENT AND A
LENDER
BARCLAYS BANK PLC, AS MANAGING AGENT
AND A LENDER By: /s/ ANITA YOUNGBLUT
--------------------------------------
By: /s/ DANIELE IACOVONE Anita Youngblut, Vice President
--------------------------------------
Daniele Iacovone, Associate Director CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E), AS A LENDER
CANADIAN IMPERIAL BANK OF By: TCW Asset Management Company, as
COMMERCE, AS A LENDER Attorney-in-Fact
By: /s/ KOREN VOLK By: /s/ JONATHAN R. INSULL
-------------------------------------- ----------------------------------
Koren Volk, Authorized Signatory Jonathan R. Insull, Vice President
CIBC INC., AS MANAGING AGENT AND A LENDER By: /s/ JUSTIN L. DRISCOLL
----------------------------------
By: /s/ LAURA HOM Justin L. Driscoll, Senior Vice
-------------------------------------- President
Laura Hom, Executive Director,
CIBC World Markets Corp. As Agent
THE CIT GROUP/EQUIPMENT
FINANCING, INC., AS A LENDER
By: /s/ J.E. PALMER
--------------------------------------
J.E. Palmer, Assistant Vice President
</TABLE>
<PAGE>
Signature Page to that certain Amended, Restated, and Consolidated
Revolving Credit and Term Loan Agreement dated as of the date first stated
above, among Dobson Operating Co., L.L.C. (successor by merger with Dobson
Operating Company and Dobson Cellular Operations Company), as Borrower, Bank
of America, N.A., as Administrative Agent, and certain Lenders named therein,
including the undersigned.
EXECUTED to be effective as of the Closing Date.
<TABLE>
<S> <C>
COOPERATIEVE CENTRALE FIRST UNION NATIONAL BANK, AS
RAIFFEISEN-BOERENLEENBANK B.A., CO-DOCUMENTATION AGENT AND A LENDER
"RABOBANK NEDERLAND," NEW YORK
BRANCH, AS MANAGING AGENT AND A LENDER By: /s/ CHRIS KALMBACH
--------------------------------------
By: /s/ ALAN E. MCLINTOCK Chris Kalmbach, Vice President
--------------------------------------
Alan E. McLintock, Vice President
FIRSTRUST BANK, AS A LENDER
By: /s/ IAN REECE
-------------------------------------- By: /s/ KENT D. NELSON
Ian Reece, Senior Credit Officer --------------------------------------
Kent D. Nelson, Vice President and
Manager
CREDIT LYONNAIS, AS MANAGING AGENT AND
A LENDER
FLEET NATIONAL BANK, AS MANAGING
By: /s/ MARK A. CAMPELLONE AGENT AND A LENDER
--------------------------------------
Mark A. Campellone, First Vice By: /s/ CHRISTINE M. CAMPANELLI
President --------------------------------------
Christine M. Campanelli, Vice President
THE DAI-ICHI KANGYO BANK, LTD.
NEW YORK BRANCH, AS A LENDER
FRANKLIN FLOATING RATE TRUST, AS
By: /s/ DANIEL GUEVARA A LENDER
--------------------------------------
Daniel Guevara, Assistant Vice By: /s/ CHAUNCEY LUFKIN
President --------------------------------------
Chauncey Lufkin, Vice President
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES, AS
MANAGING AGENT AND A LENDER THE FUJI BANK, LIMITED, AS A LENDER
By: /s/ WILLIAM E. LAMBERT By: /s/ MASAHITO FUKUDA
-------------------------------------- --------------------------------------
William E. Lambert, Vice President Masahito Fukuda, Senior Vice President
By: /s/ BRIAN E. HAUGHNEY
--------------------------------------
Brian E. Haughney, Assistant Vice KEMPER FLOATING RATE FUND, AS A
President LENDER
By: /s/ MARK E. WITTNEBEL
--------------------------------------
Mark E. Wittnebel, Senior Vice President
</TABLE>
<PAGE>
Signature Page to that certain Amended, Restated, and Consolidated
Revolving Credit and Term Loan Agreement dated as of the date first stated
above, among Dobson Operating Co., L.L.C. (successor by merger with Dobson
Operating Company and Dobson Cellular Operations Company), as Borrower, Bank
of America, N.A., as Administrative Agent, and certain Lenders named therein,
including the undersigned.
EXECUTED to be effective as of the Closing Date.
<TABLE>
<S> <C>
KEY CORPORATE CAPITAL INC., AS KZH STERLING LLC, AS A LENDER
MANAGING AGENT AND A LENDER
By: /s/ VIRGINIA CONWAY
By: /s/ TIM WILLARD --------------------------------------
-------------------------------------- Virginia Conway, Authorized Agent
Tim Willard, Vice President
LEHMAN COMMERCIAL PAPER INC., AS
KZH CRESCENT-3 LLC, AS A LENDER CO-SYNDICATION AGENT AND A LENDER
By: /s/ VIRGINIA CONWAY By: /s/ MICHELE SWANSON
-------------------------------------- --------------------------------------
Virginia Conway, Authorized Agent Michele Swanson, Authorized Signatory
KZH CYPRESSTREE-1 LLC, AS A LENDER LIBERTY - STEIN ROE ADVISOR
FLOATING RATE ADVANTAGE FUND, AS
By: /s/ VIRGINIA CONWAY A LENDER
--------------------------------------
Virginia Conway, Authorized Agent By: Stein Roe & Farnham Incorporated, as
Advisor
KZH III LLC, AS A LENDER By: /s/ BRIAN W. GOOD
--------------------------------------
By: /s/ VIRGINIA CONWAY Brian W. Good, Vice President &
-------------------------------------- Portfolio Manager
Virginia Conway, Authorized Agent
MERCANTILE BANK NATIONAL
KZH ING-3 LLC, AS A LENDER ASSOCIATION, AS CO-AGENT AND A LENDER
By: /s/ VIRGINIA CONWAY By: /s/ MICHAEL J. HOMEYER
-------------------------------------- --------------------------------------
Virginia Conway, Authorized Agent Michael J. Homeyer, Assistant Vice
President
KZH RIVERSIDE LLC, AS A LENDER
MORGAN STANLEY DEAN WITTER
By: /s/ VIRGINIA CONWAY PRIME INCOME TRUST, AS A LENDER
--------------------------------------
Virginia Conway, Authorized Agent By: /s/ PETER GEWIRTE
--------------------------------------
Peter Gewirte, Vice President
KZH SOLEIL LLC, AS A LENDER
By: /s/ ANN TURLIP
--------------------------------------
Ann Turlip, Authorized Agent
</TABLE>
<PAGE>
Signature Page to that certain Amended, Restated, and Consolidated
Revolving Credit and Term Loan Agreement dated as of the date first stated
above, among Dobson Operating Co., L.L.C. (successor by merger with Dobson
Operating Company and Dobson Cellular Operations Company), as Borrower, Bank of
America, N.A., as Administrative Agent, and certain Lenders named therein,
including the undersigned.
EXECUTED to be effective as of the Closing Date.
<TABLE>
<S> <C>
NATIONAL CITY BANK, AS MANAGING PNC BANK, N.A., AS CO-DOCUMENTATION AGENT
AGENT AND A LENDER AND A LENDER
By: /s/ MICHAEL GRIMES By: /s/ THOMAS A. COATES
-------------------------------------- --------------------------------------
Michael Grimes, Vice President Thomas A. Coates, Vice President
NORTH AMERICAN SENIOR FLOATING PPM SPYGLASS FUNDING TRUST, AS A
RATE FUND, AS A LENDER LENDER
By: CypressTree Investment Management By: /s/ KELLY C. WALKER
Company, Inc., as Portfolio Manager --------------------------------------
Kelly C. Walker, Authorized Agent
By: /s/ CATHERINE C. MCDERMOTT
--------------------------------------
Catherine C. McDermott, Principal SFR TRADING, INC., AS A LENDER
By: /s/ KELLY C. WALKER
OLYMPIC FUNDING TRUST, SERIES --------------------------------------
1999-1, AS A LENDER Kelly C. Walker, Vice President
By: /s/ KELLY C. WALKER
-------------------------------------- STEIN ROE FLOATING RATE LIMITED
Kelly C. Walker, Authorized Agent LIABILITY COMPANY, AS A LENDER
By: /s/ BRIAN W. GOOD
OPPENHEIMER SENIOR FLOATING --------------------------------------
RATE FUND, AS A LENDER Brian W. Good, Vice President, Stein Roe
& Farnham Incorporated, as Advisor to
By: /s/ SCOTT FARRAR the Stein Roe Floating Rate Limited
-------------------------------------- Liability Company
Scott Farrar, Vice President
SUMMIT BANK, AS A LENDER
PARIBAS, LOS ANGELES AGENCY, AS A
LENDER By: /s/ DONALD J. OBERG, JR.
--------------------------------------
By: /s/ DARLYNN ERNST KITCHER Donald J. Oberg, Jr., Vice President
--------------------------------------
Darlynn Ernst Kitcher, Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
By: /s/ THOMAS G. BRANDT N.A., AS A LENDER
--------------------------------------
Thomas G. Brandt, Managing Director
By: /s/ KAREN C. COPELAND
--------------------------------------
Karen C. Copeland, Vice President
</TABLE>
<PAGE>
Signature Page to that certain Amended, Restated, and Consolidated
Revolving Credit and Term Loan Agreement dated as of the date first stated
above, among Dobson Operating Co., L.L.C. (successor by merger with Dobson
Operating Company and Dobson Cellular Operations Company), as Borrower, Bank
of America, N.A., as Administrative Agent, and certain Lenders named therein,
including the undersigned.
EXECUTED to be effective as of the Closing Date.
<TABLE>
<S> <C>
TORONTO DOMINION (TEXAS), INC., AS UNITED OF OMAHA LIFE INSURANCE
CO-SYNDICATION AGENT AND A LENDER COMPANY, AS A LENDER
By: /s/ ANN S. SLANIS By: TCW Asset Management Company, its
-------------------------------------- Investment Advisor
Ann S. Slanis, Vice President
By: /s/ JONATHAN R. INSULL
--------------------------------------
TRAVELERS CORPORATE LOAN FUND Jonathan R. Insull, Vice President
INC., AS A LENDER
By: /s/ JUSTIN L. DRISCOLL
By: Travelers Asset Management International --------------------------------------
Corporation Justin L. Driscoll, Senior Vice
President
By: /s/ ALLEN R. CANTRELL U. S. BANK NATIONAL ASSOCIATION, AS
-------------------------------------- CO-AGENT AND A LENDER
Allen R. Cantrell, Investment Officer
By: /s/ THOMAS G. GUNDER
--------------------------------------
THE TRAVELERS INSURANCE Thomas G. Gunder, Vice President
COMPANY, AS A LENDER
By: /s/ ALLEN R. CANTRELL WEBSTER BANK, AS A LENDER
--------------------------------------
Allen R. Cantrell, Investment Officer By: /s/ BARBARA E. HILLMEYER
--------------------------------------
Barbara E. Hillmeyer, Vice President
UNION BANK OF CALIFORNIA, N.A., AS
MANAGING AGENT AND A LENDER
By: /s/ DARREN H. MIYATA
--------------------------------------
Darren H. Miyata, Assistant Vice
President
</TABLE>
<PAGE>
CLASS A CLASS A
COMMON STOCK COMMON STOCK
SHARES SHARES
DOBSON
COMMUNICATIONS CORPORATION
INCORPORATED UNDER THE LAWS CUSIP 256069 105
OF THE STATE OF OKLAHOMA SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, $.001 PAR VALUE, OF
DOBSON COMMUNICATIONS CORPORATION
transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of said Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Stephen T. Dobson [Seal] /s/ Everett R. Dobson
SECRETARY CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
UMB BANK, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT___________ Custodian_________
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with Act _________________________
right of survivorship (Minor)
and not as tenants in UNIF TRF MIN ACT ___________ Custodian (until
common (Cust) age __________)
___________ under Uniform
(Minor) Transfers of
Minors Act ___________________
(Cust)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OF OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the class A common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within named
Corporation, with full power of substitution in the premises.
Dated_________________________
X__________________________________
X__________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
By_______________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
===============================
McAFEE & TAFT
FOR DISCUSSION PURPOSES ONLY
DRAFT OF: January 25, 2000
TIME: 2:00 p.m.
===============================
AGREEMENT TO PROVIDE INDEMNITY
THIS AGREEMENT is made and entered into as of January 24, 2000 by and
among DOBSON COMMUNICATIONS CORPORATION, an Oklahoma corporation ("Dobson")
and DOBSON CC LIMITED PARTNERSHIP, an Oklahoma limited partnership ("DCCLP")
with reference to the following circumstances:
A. Dobson's board of directors has approved the distribution of the
stock of Logix Communications Enterprises, Inc. ("Logix") to the Shareholders
(the "Distribution").
B. Based on the opinion of Arthur Andersen LLP dated January 24 2000,
Dobson and DCCLP believe that Dobson will not incur any income tax resulting
from the Distribution, provided, among other things, DCCLP does not take, or
cause or permit Logix to take, on or before the second anniversary of the
Distribution, certain actions with respect to Logix or the capital stock of
Logix which DCCLP will receive in the Distribution (the "Logix Stock"), which
actions by DCCLP or Logix could cause Dobson to realize taxable income solely
as a result of the Distribution (a "Prohibited Action").
C. The parties desire to set forth their understanding and agreements
with respect to their respective rights and obligations if income tax is due
from Dobson as a result of a Prohibited Action.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. SHAREHOLDER AGREEMENT. DCCLP agrees prior to taking or causing
or permitting Logix to take a Prohibited Action that results in Dobson
incurring taxable income from the Distribution pursuant to Section 355(e) of
the Internal Revenue Code of 1986, as amended (the "Code") DCCLP shall either
a) Satisfy itself by reasonable means that the fair market
value of Logix at the time of the Distribution, as
estimated in good faith by the Board of Directors of
Dobson, does not exceed the sum of Dobson's tax basis in
Logix and/or the Logix stock, for federal income tax
purposes, at the time of the Distribution plus the
aggregate net operating losses of Dobson legally available
to offset against such taxable income PLUS PENALTIES OR
INTEREST THEREON; or
<PAGE>
b) Cause Logix to enter into and execute an indemnity
agreement with Dobson (the "Indemnity Agreement")
reasonably satisfactory to Dobson, whereby Logix will
indemnify Dobson for any income tax, together with any
penalties or interest thereon (collectively, the "Income
Tax"), incurred by Dobson under Section 355(e) of the Code
solely attributable to the Distribution and arising as a
result of a Prohibited Action and Logix is financially
capable of performing its obligations under the Indemnity
Agreement.
DCCLP or its representative must certify as to the existence of facts or
circumstances necessary to meet Section 1(a) and 1(b) above prior to
consummating a Prohibited Action. Any Indemnity Agreement executed by Logix
and Dobson pursuant to Section 1(b) above will contain terms mutually
agreeable to Dobson and DCCLP. For purposes of calculating any income tax
liability under Section 1(b) above, the amount of income taxes will be
determined after the application of the aggregate net operating losses of
Dobson legally available to offset taxable income incurred under Section
355(e) of the Code as a result of the Distribution.
2. PROCEDURE. If a Taxing Authority claims that Dobson must pay
income tax as a result of a Prohibited Action for which Logix is responsible
under the Indemnity Agreement, DCCLP shall have control over the defense or
prosecution of any proceedings related to such claim (a "Claim"). DCCLP
shall not have the right to settle any Claim unless Dobson would be released
of any and all liability with respect to the facts giving rise to the Claim.
DCCLP shall give Dobson five (5) days notice prior to settling any such Claim
and Dobson shall have the right to approve or reject the settlement of such
Claim; provided, however, that if the settlement provides that Dobson shall
be relieved from all tax liability with respect to the facts giving rise to
the Claim, then upon rejection of the settlement of any such Claim, Dobson
shall assume control of the defense or prosecution of such Claim, at its sole
cost and expense from that point forward, and the liability of Logix with
respect to such Claim as finally resolved shall be limited to the monetary
equivalent of the rejected settlement amount concerning such Claim. Dobson
shall retain the right to employ its own counsel and discuss matters with
Logix related to the defense or prosecution of any such Claim controlled by
Logix. Dobson shall be solely responsible for its own costs and expenses in
connection with such participation; provided, however, that all decisions of
DCCLP shall be final and that Dobson shall cooperate with DCCLP in all
respects in defense of such Claim, including refraining from taking any
position adverse to DCCLP for so long as DCCLP has complied with Section 1(b)
hereof.
3. GOVERNING LAW. This Agreement shall governed by, and construed
in accordance with, the laws of the State of Oklahoma.
4. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns.
5. ENTIRE AGREEMENT. This Agreement constitutes the complete and
exclusive agreement between the parties hereto with respect to the subject
matter hereof and supersedes all
-2-
<PAGE>
prior agreements, understandings, and representations (oral, written,
implied, or expressed), with respect to such subject matter.
2. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one and the same instrument.
-3-
<PAGE>
DATED the day and year first above written.
DOBSON: DOBSON COMMUNICATIONS CORPORATION,
an Oklahoma corporation
By
------------------------------------------
Everett R. Dobson, Chairman of the Board
and Chief Executive Officer
DCCLP: DOBSON CC LIMITED PARTNERSHIP
By: RLD, INC., General Partner
By
------------------------------------
Everett R. Dobson, President
-4-
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
CORPORATE STRUCTURE
Dobson Communications Corporation
INCORPORATED: 2-3-97 Oklahoma
Subsidiaries:
DCC PCS, Inc.
INCORPORATED: 6-7-95 Oklahoma
SHAREHOLDER: Dobson Communications Corporation
Dobson Cellular Systems, Inc.
INCORPORATED: 5-22-90 Oklahoma
SHAREHOLDER: Dobson Operating Co., L.L.C.
Dobson JV Company
INCORPORATED: 7-2-99 Oklahoma
SHAREHOLDER: Dobson Cellular Systems, Inc.
Dobson Operating Co., L.L.C.
FORMED: 1-5-00 Oklahoma
MEMBER: Dobson Communications Corporation
<PAGE>
Dobson/Sygnet Communications Company
INCORPORATED: 7-23-98 Oklahoma
SHAREHOLDER: Dobson Cellular Systems, Inc.
Dobson Tower Company
INCORPORATED: 11-30-98 Oklahoma
SHAREHOLDER: Dobson Communications Corporation
Santa Cruz Cellular Telephone, Inc.
INCORPORATED: 10-23-87 California
SHAREHOLDER: Dobson Cellular Systems, Inc. - 86.2312%
- -------------------
(1) In Massachusetts, Rhode Island, Ohio, Logix Communications
Corporation is qualified as Dobson Wireless, Inc., with the pre-merger
Logix Communications Corporation also being qualified.
(2) RSA 339, Inc., has been merged into Dobson Cellular of
California, Inc. The merger documents have been filed and approved by the
Oklahoma Secretary of State, but approval by the applicable California
authorities is pending.
<PAGE>
Sygnet Communications, Inc.
INCORPORATED: Ohio
SHAREHOLDER: Sygnet Wireless, Inc.
Sygnet Wireless, Inc.
INCORPORATED: Ohio
SHAREHOLDER: Dobson/Sygnet Communications Company
Western Financial Services, Corp.
INCORPORATED: 1-14-94 Oklahoma
SHAREHOLDER: Dobson Communications Corporation
LIMITED PARTNERSHIP INTERESTS
Oklahoma RSA 5 Limited Partnership
FORMATION: 8-9-89 Oklahoma
OWNERSHIP INTEREST: Oklahoma Independent RSA 5 Partnership - 65%
(Managing General Partner)
Oklahoma RSA 7 Limited Partnership
FORMATION: 8-9-89 Oklahoma
OWNERSHIP INTEREST: Oklahoma Independent RSA 7 Partnership - 65%
(Managing General Partner)
Texas RSA No. 2 Limited Partnership
FORMATION: 2-19-91 Oklahoma
OWNERSHIP INTEREST: Dobson Cellular Systems, Inc. - 61%
(Managing General Partner)
Oklahoma RSA 3 Limited Partnership
FORMATION: Oklahoma
OWNERSHIP INTEREST: Dobson Cellular Systems, Inc. - 5%
(Limited Partner)
GENERAL PARTNERSHIP INTERESTS
Gila River Cellular General Partnership
FORMATION: 9-30-97 Arizona
OWNERSHIP INTEREST: Dobson Cellular of Arizona, Inc. - 75%
<PAGE>
Oklahoma Independent RSA 5 Partnership
FORMATION: 3-21-94 Oklahoma
OWNERSHIP INTEREST: Dobson Cellular Systems, Inc. - 99%
Oklahoma Independent RSA 7 Partnership
FORMATION: 3-21-94 Oklahoma
OWNERSHIP INTEREST: Dobson Cellular Systems, Inc. - 99%
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports 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.
/s/ ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
January 26, 2000
<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 February 5, 1999, with respect to the consolidated
financial statements of Sygnet Wireless, Inc. included in Amendment No. 4 to the
Registration Statement (Form S-1 File No. 333-90759) and related prospectus of
Dobson Communications Corporation for the registration of its Class A Common
Stock.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 25, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial and Other Data" and to the use of our report
dated December 1, 1999, with respect to the consolidated financial statements of
American Cellular Corporation, and our report dated March 15, 1999, with respect
to the consolidated financial statements of PriCellular Corporation included in
Amendment No. 4 to the Registration Statement (Form S-1 No. 333-90759) and
related prospectuses of Dobson Communications Corporation for the registration
of 28,750,000 and 1,470,000 shares of its Class A Common Stock.
/s/ Ernst & Young LLP
Chicago, Illinois
January 26, 2000
