<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 5
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............. $665,500,000 $175,692(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) $175,518 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 1,500,000 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 FEBRUARY 3, 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 95.8% of the total combined voting power of our outstanding common
stock.
Our Class A common stock has been approved for quotation 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 394,965 additional shares of Class A common stock, and the
shareholders listed on page 91 have granted the underwriters a 30-day option to
purchase up to an aggregate of 3,355,035 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.
February , 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...................... 53
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Business............................... 55
Management............................. 76
Certain Transactions................... 85
Principal and Selling Shareholders..... 90
The Recapitalization................... 93
Description of Capital Stock........... 95
Shares Eligible for Future Sale........ 103
Federal Income Tax Considerations...... 105
Underwriting........................... 108
Legal Matters.......................... 113
Experts................................ 114
Where You Can Find More Information.... 115
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 15 acquisitions,
increasing the total population we serve by approximately 5.8 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............................. 1,500,000 shares
Class A Common Stock Issued Upon the
Conversion of Old Class B Common Stock
and Old Class C Common Stock.............. 1,140,923 shares
Common Stock To Be Outstanding
After This Offering and The Concurrent
Offering to AT&T Wireless................. 27,640,923 shares of Class A common stock
63,253,088 shares of Class B common stock
90,894,011 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 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) (92,566) (82,365) (77,859)
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) (167,857) (73,910) (108,657)
Minority interests in income of subsidiaries.............. (2,487) (2,487) (2,125) (2,125)
Income tax benefit........................................ 11,469 42,255 28,892 27,181
--------- ----------- -------- -----------
Loss from continuing operations........................... (23,285) (128,089) (47,143) (83,601)
Dividends on preferred stock.............................. (23,955) (57,962) (50,513) (47,122)
--------- ----------- -------- -----------
Loss from continuing operations applicable to
common stockholders....................................... $ (47,240) $ (186,051) $(97,656) $ (130,723)
========= =========== ======== ===========
Loss from continuing operations applicable to common
stockholders per common share............................. $ (99.75) $ (2.05) $(198.51) $ (1.44)
========= =========== ======== ===========
Weighted average common shares outstanding................ 473,564 90,894,011 491,954 90,894,011
========= =========== ======== ===========
</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 $ 76,393
Net fixed assets.......................................... 187,291 187,291
Total assets.............................................. 1,666,383 2,118,935
Total debt................................................ 1,059,458 1,103,858
Mandatorily redeemable preferred stock.................... 525,797 440,797
Stockholders' equity (deficit)............................ (296,249) 258,987
</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 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.
8
<PAGE>
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 $83.6 million for the
nine months ended September 30, 1999 and $128.1 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 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.
9
<PAGE>
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 63,253,088 shares of our Class B
common stock, representing approximately 95.8% of the total voting power of our
outstanding common stock or 93.5% if the underwriters exercise their
over-allotment option in full. Everett R. Dobson will beneficially own
52,928,173 shares of our Class B common stock, representing approximately 80.2%
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 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,
10
<PAGE>
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 $1.1 billion of
consolidated indebtedness, approximately $440.8 million aggregate liquidation
preference of senior preferred stock and consolidated stockholders' equity of
approximately $259.0 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.
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
11
<PAGE>
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
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
12
<PAGE>
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.
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
13
<PAGE>
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 $26.71 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 $26.71 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.
14
<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 1,500,000 shares of Class A common stock in the
concurrent offering to AT&T Wireless will be approximately $519.5 million, or
$527.3 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 $(519.7) million, or $(5.71) 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 $(5.71), which represents an
immediate dilution of $26.71 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........ 10.40
------------
Pro forma net tangible book value per share of Class A
common stock after this offering.......................... (5.71)
------------
Dilution per share of Class A common stock to new
investors................................................. $ 26.71
============
</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 1,500,000 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:
- 3,381 shares of Class C common stock that we have reserved for issuance
upon the exercise of options granted under our 1996 stock option plan;
- 23,607 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:
- 3,381 shares of our Class C common stock, which would have been
convertible into 376,779 shares of Class A common stock at a weighted
average exercise price of approximately $3.72 per Class A common stock
equivalent; and
- 23,511.88 shares of our Class D common stock, which would have been
convertible into 2,620,164 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 $ 76,393
Restricted investments...................................... 57,771 57,771
---------- ----------
Total cash and restricted investments..................... $ 58,110 $ 134,164
========== ==========
Long term debt, including current maturities:
Credit facilities:
Existing Dobson Operating Company and Dobson Cellular
Operations Company credit facilities.................. $ 272,000 $ --
New credit facility..................................... -- 476,040
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 1,086,358
---------- ----------
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 27,640,923 shares issued and
outstanding on a pro forma basis........................ -- 28
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
Paid-in capital........................................... 18,548 562,059
Retained deficit.......................................... (314,862) (303,164)
---------- ----------
Total stockholders' (deficit) equity.................... (296,249) 258,987
---------- ----------
Total capitalization.................................. $1,298,616 $1,813,252
========== ==========
</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 agreement 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.
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 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.
There are no material conditions to be satisfied by the joint venture other
than the payment by the joint venture of the merger consideration.
19
<PAGE>
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
Our joint venture with AT&T Wireless is 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.
The joint venture has entered 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 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.
20
<PAGE>
OPERATING ARRANGEMENTS
In connection with our joint venture, each of AT&T Wireless and us entered
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.
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.
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.
21
<PAGE>
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 1,500,000 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) 4,506 (1) (77,859) -- (77,859)
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) 4,506 (69,404) (39,253) (108,657)
Minority interests in income of
subsidiaries..................... (2,125) -- (2,125) -- (2,125)
--------- ---------- ---------- ----------- -------------
Loss from continuing operations
before income taxes.............. (76,035) 4,506 (71,529) (39,253) (110,782)
Income tax benefit................. 28,892 (1,711)(2) 27,181 -- 27,181
--------- ---------- ---------- ----------- -------------
Loss from continuing operations.... (47,143) 2,795 (44,348) (39,253) (83,601)
Dividends on preferred stock....... (50,513) 3,391 (3) (47,122) -- (47,122)
--------- ---------- ---------- ----------- -------------
Loss from continuing operations
applicable to common
stockholders..................... $ (97,656) $ 6,186 $ (91,470) $ (39,253) $ (130,723)
========= ========== ========== =========== =============
Loss from continuing operations
applicable to common stockholders
per share........................ $ (198.51) $ (1.01) $ (1.44)
========= ========== =============
Supplemental loss from continuing
operations attributable to common
stockholders per share........... $ (2.07)(5)
=============
Weighted average shares
outstanding...................... 491,954 90,894,011 90,894,011
========= ========== =============
</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 $2.8 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
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; and
- the addition of $1.2 million of amortization of deferred financing costs
related to the new credit facility.
(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
($188.2 million) or ($2.07) per share.
26
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DOBSON AMERICAN
COMMUNICATIONS CELLULAR
CORPORATION SYGNET ADJUSTMENTS SUB-TOTAL ADJUSTMENTS TOTAL
--------------- -------- ----------- ---------- ----------- ----------
($ 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) (25,692)(4) (92,566) (92,566)
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) (61,910) (108,711) (59,146) (167,857)
Minority interests in income of
subsidiaries................................ (2,487) -- -- (2,487) -- (2,487)
-------- -------- -------- ---------- -------- ----------
Loss from continuing operations before income
taxes....................................... (34,754) (14,534) (61,910) (111,198) (59,146) (170,344)
Income tax benefit............................ 11,469 -- 30,786 (5) 42,255 -- 42,255
-------- -------- -------- ---------- -------- ----------
Loss from continuing operations............... (23,285) (14,534) (31,124) (68,943) (59,146) (128,089)
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) $(65,131) $ (126,905) $(59,146) $ (186,051)
======== ======== ======== ========== ======== ==========
Loss from continuing operations applicable to
common stockholders per share............... $ (99.75) $ (1.40) $ (2.05)
======== ========== ==========
Supplemental loss from continuing operations
attributable to common stockholders per
share....................................... $ (2.68)(8)
==========
Weighted average shares outstanding........... 473,564 90,894,011 90,894,011
======== ========== ==========
</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 $3.7 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); and
- the addition of $1.6 million of amortization of deferred financing costs
related to the new credit facility.
(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
($243.6 million) or ($2.68) per share.
29
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DOBSON AMERICAN
COMMUNICATIONS CELLULAR
CORPORATION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS TOTAL
-------------- ----------- ---------- ----------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets, net of
restricted investments...... $ 64,575 $ 448,554 (1) $ 513,129 $ (372,500)(4) $ 140,629
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 $ 455,808 $2,122,191 $ -- $2,122,191
========== ========= ========== =========== ==========
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 44,400 (2) 1,084,244 -- 1,084,244
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) 543,538 (1)
(37,146)(2)
48,844 (3) 258,987 -- 258,987
---------- --------- ---------- ----------- ----------
Total liabilities and
stockholders' (deficit)
equity.................... $1,666,383 $ 455,808 $2,122,191 $ -- $2,122,191
========== ========= ========== =========== ==========
</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; and
- the additional cash from proceeds from this offering and the concurrent
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
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 15 acquisitions of cellular licenses and
systems for an aggregate purchase price of $1,208.4 million, increasing the
total population service by our systems by approximately 5.8 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.
42
<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
$26.9 million for the year ended December 31, 1996. Our total service revenues,
roaming revenues and equipment sales and other revenues represented 57.6%, 39.4%
and 3.1% of our total operating revenues, respectively, in the year ended
December 31, 1997 and 65.3%, 29.1% and 5.5% of our total operating revenues,
respectively, in the year ended December 31, 1996.
43
<PAGE>
The following table sets forth the components of our revenues for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1996 1997
-------- --------
($ 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
44
<PAGE>
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.
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.
45
<PAGE>
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 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
46
<PAGE>
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 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 certain of its subsidiaries and us.
Advances bear interest, at our option, on a prime rate or LIBOR formula. Our
obligations under the credit facility are secured by:
- a pledge of the membership interests in the borrower;
- stock and partnership interests of certain of the borrower's 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. 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 certain of
its subsidiaries, including:
- a ratio of total indebtedness to operating cash flow 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
47
<PAGE>
- 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.
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.
CAPITAL COMMITMENTS
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
48
<PAGE>
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, Michigan 3, Michigan 10 and
Texas 9 rural service areas for an aggregate purchase price of $272.0 million.
These acquisitions are expected to close in the first half of 2000. On June 24,
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 third 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 14, 1999, we concluded the
purchase of the FCC license for, and certain assets related to, Pennsylvania 2
RSA for $6.0 million. Effective January 31, 2000, we concluded the purchase of
the FCC license for, and certain assets related to, Alaska 3 RSA for
$12.0 million. We have no definitive agreements with respect to any acquisitions
other than our acquisitions of Alaska 1, 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 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."
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
49
<PAGE>
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................... $ 323.0 million
Proceeds from sale of
Class A common stock in Refinance 11 3/4% senior
this offering.............. $ 489.8 million notes........................ $ 188.4 million
Proceeds from sale of Equity contribution to
Class A common stock to American Cellular joint
AT&T Wireless.............. $ 29.7 million venture...................... $ 372.5 million
Dobson/Sygnet credit Redemption of preferred
facility................... $ 24.0 million stock........................ $ 74.2 million
Debt service on credit
facilities................. $ 108.0 million
Completion of pending
acquisitions............... $ 284.0 million
Commitments to Nortel and
Lucent, and additional
budgeted capital
expenditures............... $ 100.0 million
---------------- ----------------
$1,343.5 million $1,450.1 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
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
50
<PAGE>
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.
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
51
<PAGE>
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.
52
<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
53
<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.
54
<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 15 acquisitions of cellular licenses and systems,
increasing the total population served by our systems by approximately
5.8 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, 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 0.6 million as of September 30, 1999. Each acquisition
55
<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 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. 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.
56
<PAGE>
- 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.
57
<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 0.6 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
58
<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.
59
<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
60
<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.
61
<PAGE>
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.
62
<PAGE>
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.
63
<PAGE>
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 actively involved in the
Cellular Telecommunications Industry Association, the leading cellular
industry association.
64
<PAGE>
- 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 to larger, better capitalized
and more experienced cellular operators that may be able to offer consumers
certain network advantages.
65
<PAGE>
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, has allocated spectrum in the 700 MHz band for
auction in May 2000 that may be licensed for mobile use, and has stated its
intent to reauction in July 2000 personal communication service licenses that
have been the subject of bankruptcy proceedings and/or otherwise returned to the
FCC. 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.
66
<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.
67
<PAGE>
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.
68
<PAGE>
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
69
<PAGE>
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 spectrum cap 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
70
<PAGE>
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.
71
<PAGE>
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.
72
<PAGE>
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.
73
<PAGE>
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's rules
implementing these requirements are effective. 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 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 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 intrastate 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 customers, and the FCC is not enforcing the
74
<PAGE>
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.
75
<PAGE>
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.
76
<PAGE>
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.
77
<PAGE>
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
78
<PAGE>
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. On February 2, 2000, Mr. Jaschke exercised
options to acquire 576 shares of our old Class B common stock. 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
79
<PAGE>
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.
80
<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 $89,500 received upon commencement of employment.
(14) Not employed by us in 1997 and 1998.
The following tables list those persons in the previous table who were
granted options to purchase shares of our Class C common stock and our old
Class B common stock in 1999. As part of our recapitalization, options for the
purchase of our old Class B common stock will be amended to be exercisable into
shares of our Class D common stock. Our Class C common stock and Class D common
stock will automatically convert to our Class A common stock on a 111.44-for-one
basis upon transfer. The following tables provide information regarding our
outstanding options on a converted basis. No stock options were exercised by the
persons in the following tables in 1999. Eighteen option holders did, however,
exercise options for an aggregate of 9,393 shares of old Class B common stock,
and 845 shares of Class C common stock, on February 2, 2000. These shares are
convertible into 1,140,923 aggregate shares of Class A common stock. See
"Certain Transactions."
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL REALIZABLE
VALUE AT MID-
NUMBER OF PERCENT OF TOTAL RANGE OF ASSUMED
SECURITIES UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE INITIAL OFFERING
NAME OPTIONS GRANTED EMPLOYEES IN 1999 ($/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
81
<PAGE>
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 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. On February 2, 2000, Mr. Evans exercised options to
acquire 3,457 shares of our old Class B common stock. See "Certain
Transactions." 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 C common stock held
by Mr. Sheetz become fully vested upon a change of control. On February 2, 2000,
Mr. Sheetz exercised options to acquire 121 shares of our Class C common stock.
See "Certain Transactions."
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. On February 2, 2000, Mr. Pharis exercised options
to acquire 192 shares of our old Class B common stock. See "Certain
Transactions."
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.
82
<PAGE>
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 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.
83
<PAGE>
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 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.
84
<PAGE>
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.
85
<PAGE>
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
86
<PAGE>
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
87
<PAGE>
$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
Class F preferred stock, 12 3/4% senior preferred stock and 13% senior 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 17,412
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 J.W. Equity Funding II, Inc., an
affiliate of John W. Childs, 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
88
<PAGE>
directors and principal shareholders, Everett Dobson, Russell Dobson, Dana
Schmaltz, 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:
- the fair market value of Logix at the time of the distribution, as
estimated in good faith by our board of directors, does not exceed the sum
of our tax basis in Logix and/or the Logix stock for federal income tax
purposes, at the time of the distrubution plus our aggregate net operating
losses legally available to offset that taxable income, plus penalties or
interest thereon; or
- Logix executes an indemnity agreement with us, reasonably satisfactory to
us, whereby Logix will indemnify us for any income tax, together with any
penalties or interest thereon, incurred by us solely attributable to the
distribution of Logix stock and arising as a result of the actions of the
Logix shareholders, and Logix is financially capable of performing its
indemnity obligations.
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, subject to
anti-dilution adjustments;
- we would use approximately $53.7 million of the proceeds from this
offering to pay accrued dividends on, and to redeem all of, the remaining
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 or controls and
their co-investors will receive a direct or indirect benefit from these
transactions.
On February 2, 2000, eighteen option holders exercised options for an
aggregate of 9,393 shares of Class D common stock and 845 shares of Class C
common stock. The aggregate exercise price was $1.8 million, approximately
$1.6 million of which was paid by the issuance of notes to us by the option
holders. In the exercise of their options, Messrs. G. Edward Evans issued a note
to us in the amount of $300,000.00, R. Thomas Morgan issued a note to us in the
amount of $72,385.64, Richard D. Sewall, Jr. issued a note to us in the amount
of $101,220.00, and Albert H. Pharis, Jr. issued a note to us in the amount of
$110,820.48. Each note accrues interest equal to the short-term applicable
federal rate as determined by the Internal Revenue Service existing on
February 2, 2000. All principal and interest accruing on the notes are due and
payable on the first anniversary of the notes. Each note is secured by the
shares received by each option holder on the exercise of their options.
89
<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 February 2, 2000, 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)..................... -- -- 52,928,173 83.68% 82.19% 58.23%
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(5) -- -- -- * *
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 12.36% 12.14% 8.60%
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 12.36% 12.14% 8.60%
One Federal St., 21st Floor
Boston, MA 02110
Dana L. Schmaltz(2)(7)(8)................ -- -- 7,817,010 12.36% 12.14% 8.60%
One Federal St., 21st Floor
Boston, MA 02110
All directors, nominees and executive
officers as a group (12 persons)....... 1,349,779 4.76% 61,096,665 96.60% 96.98% 68.70%
<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)..................... 83.53% 80.17%
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)............... 12.33% 11.84%
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) 12.33% 11.84%
One Federal St., 21st Floor
Boston, MA 02110
Dana L. Schmaltz(2)(7)(8)................ 12.33% 11.84%
One Federal St., 21st Floor
Boston, MA 02110
All directors, nominees and executive
officers as a group (12 persons)....... 96.63% 92.75%
</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 issued and 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
90
<PAGE>
not include the shares of Class A common stock issuable upon conversion of
the outstanding shares of Class B common stock.
(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 issued
and 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, Inc.:
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, Edwin J.
Kozlowski, James D. Murphy, Benno C. Schmidt, Mario Soussou and William E.
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 and their
affiliated entities. 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 3,355,035 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:
91
<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% 3,087,763 4.79% 4,106,520 6.36%
Bock Family Trust.............. 3,662 * 1,571 * 2,091 *
John W. Childs................. 342,454 * 142,699 * 199,755 *
Richard S. Childs.............. 5,390 * 3,196 * 2,194 *
James E. Childs................ 5,390 * 3,196 * 2,194 *
Samual A. Anderson............. 1,079 * 640 * 439 *
Timothy J. Healy............... 5,496 * 2,359 * 3,137 *
Glenn A. Hopkins............... 25,055 * 10,718 * 14,337 *
Jerry D. Horn.................. 17,583 * 7,546 * 10,037 *
B. Lane MacDonald.............. 3,662 * 1,571 * 2,091 *
Raymond B. Rudy................ 10,989 * 4,717 * 6,272 *
Dana L. Schmaltz............... 9,158 * 3,929 * 5,229 *
Chechesse Creek Trust.......... 1,833 * 788 * 1,045 *
Steven G. Segal................ 64,471 * 27,671 * 36,800 *
SGS 1995 Family Limited
Partnership.................. 4,762 * 2,043 * 2,719 *
Steven G. Segal 1995
Irrevocable Trust............ 16,851 * 7,233 * 9,618 *
SGS-III Family Limited
Partnership.................. 1,833 * 788 * 1,045 *
Adam L. Suttin................. 23,444 * 10,062 * 13,382 *
Adam L. Suttin Irrevocable
Family Trust................. 2,199 * 942 * 1,257 *
Suttin Family Trust II......... 4,099 * 1,651 * 2,448 *
Eugene N. Suttin IRA........... 18,131 * 7,782 * 10,349 *
Edward D. Yun.................. 9,158 * 3,929 * 5,229 *
Yun Family Trust............... 733 * 315 * 418 *
Bob Elman...................... 2,652 * 1,571 * 1,081 *
Ed Kozlowski................... 3,662 * 1,571 * 2,091 *
Jim Murphy..................... 2,652 * 1,571 * 1,081 *
Rebacliff, Baker & Dobbs,
LLC.......................... 1,100 * 472 * 628 *
Benno C. Schmidt............... 1,833 * 788 * 1,045 *
Mario Soussou.................. 7,325 * 3,146 * 4,179 *
Bill Watts..................... 14,652 * 6,289 * 8,363 *
OFS Investment Partners II..... 11,419 * 6,518 * 4,901 *
<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.......................... 8.09% 4.51% 11.54% 6.44%
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%
92
<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 pay accrued dividends on, and redeem all of, our outstanding Class E
preferred stock for approximately $53.7 million in cash with a portion of the
proceeds of the offering.
The following table reflects our current capitalization, as of February 2,
2000:
<TABLE>
<CAPTION>
CLASS AUTHORIZED SHARES OUTSTANDING
- ----- ----------------- -----------
<S> <C> <C>
COMMON STOCK
Old Class A common............................. 1,438,000 492,504.01
Old Class B common............................. 31,000 9,393
Old Class C common............................. 31,000 845
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.............................. 90,000 75,093.70
Class E preferred.............................. 517,000 0
Other preferred................................ 709,000 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............................. 1,438,000 588,286.54
Old Class B common............................. 31,000 9,393
Old Class C common............................. 31,000 845
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.............................. 90,000 0
Class E preferred.............................. 517,000 38,365.76
Other preferred................................ 709,000 --
</TABLE>
93
<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. We will also issue 111.44 shares of our new Class A common
stock for each outstanding share of our old Class B common stock and old
Class C 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 27,640,923
New Class B common........................................ 70,000,000 63,253,088
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........................................... 4,726,000 0
</TABLE>
94
<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, 70,000,000 shares of Class B common stock, 4,226 shares of Class C common
stock and 33,000 shares of Class D common stock. Immediately after this
offering, there will be:
- 27,640,923 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;
- 3,381 shares of Class C common stock authorized for issuance upon the
exercise of options granted under our 1996 stock option plan;
- 23,607 shares of Class D common stock authorized for issuance upon the
exercise of options granted under our 1996 stock option plan;
- 63,253,088 shares of Class B common stock issued and outstanding owned by
35 shareholders; and
- 66,250,031 shares of Class A common stock reserved for issuance upon
conversion of shares of our Class B common stock, Class C common stock and
Class D common stock.
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.
95
<PAGE>
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.
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 are convertible at any time at
the option of the holder and automatically convert upon transfer 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 and the holders of our Class B common stock have entered into a new
investors agreement which replaces our existing investors agreement. The new
investors agreement provides 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 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 provides each of the
signatories with pre-emptive rights with respect to future private equity issues
by us. The investors agreement contains restrictions on transfer identical to
those that will be contained in Dobson's restated certificate of incorporation,
which will become effective immediately prior to consummation of this offering.
These restrictions 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 also grants 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 also provides 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 is entitled to designate up to four
directors. 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.
96
<PAGE>
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.
97
<PAGE>
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.
98
<PAGE>
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
99
<PAGE>
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;
100
<PAGE>
- 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
101
<PAGE>
- 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, 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.
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.
102
<PAGE>
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 27,640,923 shares of Class A common stock
outstanding and 63,253,088 shares of Class B common stock outstanding. In
addition, 26,892.88 shares of Class C common stock and Class D common stock, or
2,996,943 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,
103
<PAGE>
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."
104
<PAGE>
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,
105
<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.
106
<PAGE>
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.
107
<PAGE>
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.
108
<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
402,447 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 3,347,553 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 4,496,943 shares of Class A common stock,
63,253,088 shares of Class B common stock, 845 shares of Class C common stock
and 9,393 shares of Class D 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
109
<PAGE>
common stock under our 2000 stock incentive plan. The 4,496,943 shares of Class
A common stock subject to the 180-day lock-up agreements, includes the 1,500,000
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 $26.71 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.
110
<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.
111
<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;
112
<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.
113
<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.
114
<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.
115
<PAGE>
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
--------
<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
---------------------
FEBRUARY , 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 FEBRUARY , 2000.
PROSPECTUS
1,500,000 SHARES
[LOGO]
CLASS A COMMON STOCK
------------------
We are offering to sell up to 1,500,000 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 an aggregate of 394,965 additional
shares of Class A common stock from us and up to an aggregate of 3,355,035
additional shares of Class A common stock from the shareholders listed on
page 91 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 95.8% of the total combined voting power of our outstanding common
stock.
Our Class A common stock has been approved for quotation 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.
FEBRUARY , 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 1,500,000 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 1996 stock option plan. As of February 2, 2000, options to
purchase an aggregate of 23,511.88 shares of its Class B Common Stock and
3,381 shares of its Class C Common Stock were outstanding. 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 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. (13)
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 (5)
3.1 Form of Registrant's Amended and Restated Certificate of
Incorporation. (5)
3.2 The Registrant's Amended and Restated Bylaws. (5)
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. (13)
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. (13)
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* 2000-1 Amendment to the DCC 1996 Stock Option Plan (13)
10.1.4* 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)
10.7.2.3 Stockholder and Investor Rights Agreement, dated
January 31, 2000 among the Registrant and the Shareholders
listed therein (without exhibits) (5)
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. (5)
10.10 Agreement and Plan of Reorganization and Corporation
Separation. (5)
10.11 Agreement to Provide Indemnity, dated January 24, 2000 by
and among Dobson Communications Corporation and Dobson CC
Limited Partnership. (5)
10.12 Amended and Restated Limited Liability Company Agreement of
ACC Acquisition LLC between AT&T Wireless Services JV Co.
and Dobson JV Company dated as of January 31, 2000. (5)
10.13 Management Agreement between Dobson Cellular Systems, Inc.
and ACC Acquisition LLC dated as of January 31, 2000. (5)
10.13.1 Letter to Management Agreement between Dobson Cellular
Systems, Inc. and ACC Acquisition LLC dated as of
January 31, 2000. (5)
10.14 Operating Agreement dated January 31, 2000 by and between
AT&T Wireless Services, Inc., on behalf of itself and its
Affiliate (as defined therein) and ACC Acquisition L.L.C.,
on behalf of itself and its Affiliates (as defined
therein). (5)
10.15 Operating Agreement dated January 31, 2000 by and between
Dobson Cellular Systems, Inc., on behalf of itself and its
Affiliates (as defined therein) and ACC Acquisition
L.L.C., on behalf of itself and its Affiliates (as defined
therein). (5)
21 List of Subsidiaries. (13)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
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.
(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
II-9
<PAGE>
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:
(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. 5 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 2nd day of February, 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. 5 to the Registration Statement has been signed by the following persons in
the capacities indicated on the 2nd day of February, 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 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. (13)
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 (5)
3.1 Form of Registrant's Amended and Restated Certificate of
Incorporation. (5)
3.2 The Registrant's Amended and Restated Bylaws. (5)
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. (13)
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. (13)
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]
10.3.3* Letter dated December 26, 1996 from Registrant to G. Edward
Evans describing employment arrangement. (8) [10.3.1]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION METHOD OF FILING
--------------------- ----------- -------------------------------
<C> <S> <C>
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)
10.7.2.3 Stockholder and Investor Rights Agreement, dated
January 31, 2000 among the Registrant and the Shareholders
listed therein (without exhibits) (5)
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. (5)
10.10 Agreement and Plan of Reorganization and Corporation
Separation. (5)
10.11 Agreement to Provide Indemnity, dated January 24, 2000 by
and among Dobson Communications Corporation and Dobson CC
Limited Partnership. (5)
10.12 Amended and Restated Limited Liability Company Agreement of
ACC Acquisition LLC between AT&T Wireless Services JV Co.
and Dobson JV Company dated as of January 31, 2000. (5)
10.13 Management Agreement between Dobson Cellular Systems, Inc.
and ACC Acquisition LLC dated as of January 31, 2000. (5)
10.13.1 Letter to Management Agreement between Dobson Cellular
Systems, Inc. and ACC Acquisition LLC dated as of
January 31, 2000. (5)
10.14 Operating Agreement dated January 31, 2000 by and between
AT&T Wireless Services, Inc., on behalf of itself and its
Affiliate (as defined therein) and ACC Acquisition L.L.C.,
on behalf of itself and its Affiliates (as defined
therein). (5)
10.15 Operating Agreement dated January 31, 2000 by and between
Dobson Cellular Systems, Inc., on behalf of itself and its
Affiliates (as defined therein) and ACC Acquisition
L.L.C., on behalf of itself and its Affiliates (as defined
therein). (5)
21 List of Subsidiaries. (13)
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.
<PAGE>
(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.
<PAGE>
25,000,000 SHARES
DOBSON COMMUNICATIONS CORPORATION
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
February __, 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
<PAGE>
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)
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
"Recapitalization Agreement"), providing for the recapitalization
described in the Prospectus under the captions "Capitalization,"
"The Recapitalization" 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,"
"The Recapitalization" 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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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.
11
<PAGE>
(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
12
<PAGE>
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
13
<PAGE>
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:
14
<PAGE>
(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.
15
<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
16
<PAGE>
and Selling Shareholders" and on Schedule 3 hereto) does 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
17
<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.
18
<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
19
<PAGE>
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
20
<PAGE>
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
21
<PAGE>
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 "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 1996 Stock Option Plan or
22
<PAGE>
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.
23
<PAGE>
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
24
<PAGE>
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.
25
<PAGE>
(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
26
<PAGE>
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
27
<PAGE>
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
28
<PAGE>
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.
29
<PAGE>
(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
30
<PAGE>
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
31
<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,
32
<PAGE>
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 made in reliance upon and
in conformity with 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 such Selling Stockholder, and
each person, if any, who controls the Company or each such 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
33
<PAGE>
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 controllin person for 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
34
<PAGE>
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
35
<PAGE>
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..................................
Salomon Smith Barney Inc....................................
Deutsche Bank Securities Inc................................
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
---------
Total.......................................................
=========
</TABLE>
44
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Number of Shares
Name and address of Selling Stockholders of Option Stock
- ---------------------------------------- ----------------
<S> <C>
[To be supplied by Skadden, Arps, Slate, Meagher & Flom LLP]
------------
Total
============
</TABLE>
45
<PAGE>
EXHIBIT 9(D)
[Form of opinion of McAfee & Taft]
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Oklahoma. The
Company is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction listed on Schedule I hereto and has all power
and authority necessary to own or hold its properties and conduct the businesses
in which it is engaged.
(ii) The Company has represented to us that the subsidiaries listed on
Schedule II hereto are the only material subsidiaries of the Company. Each
subsidiary of the Company listed on Schedule II hereto (the "Significant
Subsidiaries") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
(or in the case of each subsidiary that is a partnership, is duly organized and
is validly existing as a partnership in good standing under the laws of its
jurisdiction of organization), is duly qualified to do business and is in good
standing as a foreign corporation or partnership in each jurisdiction listed on
Schedule II hereto and has all power and authority necessary to own or hold its
properties and conduct the businesses in which it is engaged.
(iii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock and preferred stock of
the Company (including the shares of Class A Common Stock, par value $0.001 per
share, being delivered on the date hereof (the "Class A Common Stock")) have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the issued shares of capital stock of each Significant Subsidiary of the Company
have been duly and validly authorized and issued and are fully paid,
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. The certificates for the Class A Common Stock (including
the shares of Class A Common Stock being delivered on the date hereof) are in
valid form.
(iv) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares of the
Class A Common Stock pursuant to the Company's charter or by-laws or any
agreement or other instrument known to such counsel other than preemptive or
other rights set forth in the Prospectus which have been waived by the holders
thereof; and, except as set forth in the Prospectus, no options, warrants or
other rights to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding.
(v) The Company and each of its Significant Subsidiaries have good and
marketable title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the
46
<PAGE>
Prospectus or such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and its Significant Subsidiaries; and all real
property and buildings held under lease by the Company and its Significant
Subsidiaries are held by them under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company
and its Significant Subsidiaries.
(vi) To the best of our knowledge, there are no legal or governmental
proceedings pending to which the Company or any of its Significant Subsidiaries
is a party or of which any property or assets of the Company or any of its
Significant Subsidiaries is the subject (i) which is required to be disclosed in
the Registration Statement which is not adequately disclosed in the Prospectus
or (ii) which, if determined adversely to the Company or any of its Significant
Subsidiaries, might have a material adverse effect (A) on the consolidated
financial position, stockholders' equity, results of operations, business or
prospects of the Company and its Significant Subsidiaries or (B) on the power or
ability of the Company to perform its obligations under the Underwriting
Agreement or the consummation of any of the transactions contemplated thereby or
in the Prospectus; and, to the best of our knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others.
(vii) The Registration Statement was declared effective under the
Securities Act of 1933, as amended (the "Securities Act") as of [date and time],
the Prospectus was filed with the United States Securities and Exchange
Commission (the "Commission") pursuant to subparagraph [( )] of Rule 424(b)
under the Securities Act, on [date] and no stop order suspending the
effectiveness of the Registration Statement has been issued and, to the best
knowledge of such counsel, no proceeding for that purpose is pending or
threatened by the Commission.
(viii) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to the date hereof
(other than the financial statements and related schedules therein, as to which
such counsel need express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations (the
"Rules and Regulations") of the Commission thereunder.
(ix) The statements contained in the Prospectus under the captions
"Risk Factors--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.," "The American
Cellular Acquisition," "Description of Capital Stock" and "Underwriting,"
insofar as such statements constitute a summary of the legal matters or
documents referred to therein, are accurate and constitute a fair summary
thereof.
47
<PAGE>
(x) The statements contained in the Prospectus under the caption
"Federal Income Tax Considerations," insofar as they describe federal statutes,
rules and regulations, are accurate and constitute a fair summary thereof.
(xi) 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 or filed as exhibits to the Registration Statement or incorporated
therein by reference as permitted by the Rules and Regulations.
(xii) The Underwriting 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.
(xiii) The issue and sale of the shares of Class A Common Stock being
delivered on the date hereof by the Company and the compliance by the Company
with all of the provisions of the Underwriting Agreement and the consummation of
the transactions contemplated thereby and 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 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, providing for the recapitalization described in the Prospectus
under the captions "Capitalization," "The Recacpitalization" and "Description
of Capital Stock" (such actions are herein collectively called the
"Recapitalization"), do not and 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 known to us to which the Company or any of the
Significant Subsidiaries is a party or by which the Company or any of the
Significant Subsidiaries is bound or to which any of the property or assets
of the Company or any of the Significant Subsidiaries is subject, nor will
such actions result in any violation of the provisions of the charter or
by-laws of the Company or any of the Significant Subsidiaries or 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 Significant Subsidiaries
or any of their properties or assets; and, except for the registration of the
Class A Common Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act, and applicable state or foreign securities laws in connection
with the purchase and distribution of the Class A Common Stock by the
Underwriters and the
48
<PAGE>
filing of the Company's Amended and Restated Certificate of Incorporation
with the Secretary of State of Oklahoma, 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 thereby and by the Recapitalization.
(xiv) To the best of our knowledge, 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 such securities 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, other than such rights set forth in the
Prospectus which have been waived by the holders thereof.
(xv) The Amended and Restated Certificate of Incorporation providing
for the Recapitalization, creating the Class A Common Stock, the Class B Common
Stock, par value $.001 per share, of the Company, the Class D Common Stock, par
value $.001 per share, of the Company, amending the terms of the Class C Common
Stock, par value $.001 per share, of the Company, and redesignating the 12 1/4%
Senior Exchangeable Preferred Stock due 2008 issued in January 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 has been filed
with the Secretary of State of Oklahoma.
(xvi) Neither the Company nor any subsidiary of the Company are, or will
be after the offering of the Class A Common Stock and the use of proceeds
therefrom, an "investment company" within the meaning of such term under the
Investment Company Act of 1940, as amended, and the rules and regulations of the
Commission thereunder.
(xvii) The Nasdaq Stock Market has approved the Class A Common Stock for
inclusion in the National Market System, subject only to official notice of
issuance and evidence of satisfactory distribution.
(xviii) The Company and each of its Significant Subsidiaries have such
material permits, licenses, franchises and authorizations of governmental or
regulatory authorities, other than permits, licenses, franchises and
authorizations issued by the Federal Communications Commission as to which we
express no opinion ("Permits"), including, without limitation, under any
applicable environmental laws, as are necessary to own, lease and operate their
respective properties and to conduct their respective businesses as currently
being conducted and as proposed to be conducted as described in the Prospectus;
we have no reason to believe that the Company and each of the Significant
Subsidiaries have not fulfilled and performed all of their respective material
obligations with respect to such Permits; and to our 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
49
<PAGE>
Company or any of its Significant Subsidiaries under any Permit, and such
counsel has no reason to believe that any government body or agency is
considering limiting, suspending or revoking any Permit.
(xix) The Company and each of its Significant 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 such counsel has no reason to believe that the conduct
of their respective businesses will conflict with any such rights of others.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of America
and the laws of the State of Oklahoma and (ii) in giving the opinion referred to
in paragraph (v) above, state that no examination of record titles for the
purpose of such opinion has been made, and that it is relying upon a general
review of the titles of the Company and its subsidiaries, upon opinions of local
counsel and abstracts, reports and policies of title companies rendered or
issued at or subsequent to the time of acquisition of such property by the
Company or its subsidiaries, upon opinions of counsel to the lessors of such
property and, in respect of matters of fact, upon certificates of officers of
the Company or its subsidiaries, PROVIDED that such counsel shall state that it
believes that both the Underwriters and it are justified in relying upon such
opinions, abstracts, reports, policies and certificates. Such counsel shall
also have furnished to the Representatives a written statement, addressed to the
Underwriters and dated the date hereof, in form and substance satisfactory to
the Representatives, to the effect that (x) such counsel has acted as counsel to
the Company in connection with previous financing transactions and has acted as
counsel to the Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the attention
of such counsel which lead it to believe that the Registration Statement, as of
the date and the time the Registration Statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, or that the Prospectus contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus except for the statements made in
the Prospectus under the captions referred to in paragraphs (ix) and (x)
above, insofar as such statements relate to the Stock and concern legal
matters.
50
<PAGE>
Exhibit 9(E)
[Form of Selling Stockholders' Opinion]
[To be supplied.]
51
<PAGE>
EXHIBIT 9(F)
[Form of opinion of Wilkinson Barker Knauer, LLP]
(i) (1) The issue and sale of the shares of Class A Common Stock being
delivered on the date hereof by the Company and the compliance by the Company
with all of the provisions of the Underwriting Agreement and the consummation of
the transactions contemplated thereby, 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 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, providing for the recapitalization described in the Prospectus
under the captions "Capitalization," "The Recapitalization" and "Description
of Capital Stock" (such actions are herein collectively called the
"Recapitalization"), do not and will not result in any violation of the
provisions of (a) the Communications Act of 1934, as amended, and the rules
and regulations promulgated thereunder (the "Act") or (b) to the best of our
knowledge, any order or decree of the Federal Communications Commission (the
"FCC") or any state authority governing telecommunications matters; and (2)
no registration, filing, application, notice, transfer, consent, approval,
audit, qualification, waiver or other action of any kind is required by the
FCC by virtue of the execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions contemplated thereby and
by the Recapitalization, and the issuance and delivery of the Class A Common
Stock, or to avoid the loss of any license or authorization issued by the FCC
or any state authority governing telecommunications matters (the "Licenses"),
or the violation or breach of any applicable law thereto.
(ii) The statements contained in the Prospectus in the second paragraph
under the caption "Risk Factors--Risks Related to Our Business--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.," under the caption
"Risk Factors--Risks Related to 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.," in the last four
paragraphs under the caption "Business--Competitive Strengths/Competition" and
under the caption "Business--Regulation," insofar as such statements constitute
a summary of the legal matters, documents or proceedings referred to therein,
are accurate and constitute a fair summary thereof.
(iii) All Licenses required for the operation of the business of the
Company and its subsidiaries as, to the best of our knowledge, it is being
operated, are in full force
52
<PAGE>
and effect. 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. To the
best of our knowledge, 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. To the best of our knowledge, each of the
Company and its subsidiaries is in compliance in all material respects with
the terms of the Licenses, as applicable, and to the best of our knowledge
there is no condition, event or occurrence existing, nor is there any
proceeding being conducted of which the Company has received notice, nor, 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.
53
<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
121/4% Senior Exchangeable Preferred Stock
(121/4% 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");
-2-
<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 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
-3-
<PAGE>
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 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.
-4-
<PAGE>
10.4. NOTICES. All notices, requests and demands hereunder will
be served by registered or certified mail, postage prepaid, as follows:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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 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.
-5-
<PAGE>
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
--------------------------------------
Name:
Title:
DOBSON:
---------------------------------------------
Russell L Dobson
-6-
<PAGE>
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
-7-
<PAGE>
AT&T: AT&T WIRELESS SERVICES, INC.
By
-----------------------------------------
William W. Hague
Title:
-----------------------------
-8-
<PAGE>
JWC GROUP STOCKHOLDERS: BOCK FAMILY TRUST
By /s/ John V. Bock, Jr.*
John V. Bock, Jr., Trustee
/s/ John W. Childs*
John W. Childs
/s/ Richard S. Childs*
Richard S. Childs
/s/ James E. Childs*
James E. Childs
/s/ Timothy J. Healy*
Timothy J. Healy
/s/ Samuel A. Anderson*
Samuel A. Anderson
/s/ Glenn A. Hopkins*
Glenn A. Hopkins
/s/ Jerry D. Horn*
Jerry D. Horn
/s/ B. Lane MacDonald*
B. Lane MacDonald
/s/ Raymond B. Rudy*
Raymond B. Rudy
-9-
<PAGE>
---------------------------------
Dana L. Schmaltz
CHECHESSE CREEK TRUST
By
-------------------------------
Dana L. Schmaltz, Trustee
/s/ Steven G. Segal*
Steven G. Segal
SGS 1995 FAMILY LIMITED
PARTNERSHIP
By /s/ Steven G. Segal*
Steven G. Segal, General Partner
STEVEN G. SEGAL 1995
IRREVOCABLE TRUST
By /s/ Steven G. Segal*
Steven G. Segal, Donor
SGS III 1995 FAMILY LIMITED
PARTNERSHIP
By /s/ Steven G. Segal*
Steven G. Segal, General Partner
/s/ Adam L. Suttin*
Adam L. Suttin
-10-
<PAGE>
ADAM L. SUTTIN IRREVOCABLE
FAMILY TRUST
By /s/ Hope Suttin*
Hope Suttin, Trustee
SUTTIN FAMILY TRUST II
By Adam L. Suttin*
Adam L. Suttin, Trustee
EUGENE SUTTIN SELF DIRECTED
CUSTODIAL IRA
By /s/ Samuel A. Katz*
Samuel A. Katz, Vice President,
Trust Bank of _______________
/s/ Edward D. Yun*
Edward D. Yun
YUN FAMILY TRUST
By /s/ Edward D. Yun*
Edward D. Yun, Trustee
/s/ Bob Elman*
Bob Elman
/s/ Edwin J. Kozlowski*
Edwin J. Kozlowski
/s/ James D. Murphy*
James D. Murphy
-11-
<PAGE>
REBACLIFF, BAKER & DOBBS, LLC
By /s/ Michael A. Smart*
Michael A. Smart, Member
/s/ Benno C. Schmidt, Jr.*
Benno C. Schmidt, Jr.
/s/ Mario Soussou*
Mario Soussou
/s/ William E. Watts*
William E. Watts
OFS INVESTMENT PARTENRS II
By /s/ Allan A. Dowds*
Allan 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
-12-
<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
-13-
<PAGE>
FK&S Draft -- 2/3/00
[1,500,000] SHARES
DOBSON COMMUNICATIONS CORPORATION
CLASS A COMMON STOCK, PAR VALUE $0.001 PER SHARE
STOCK PURCHASE AGREEMENT
February __, 2000
AT&T Wireless Services, Inc.
7277 164th Avenue, N.E.
Redmond, WA 98052
Dear Sirs:
Dobson Communications Corporation, an Oklahoma corporation (the
"Company"), proposes to sell to AT&T Wireless Services, Inc. ("AWS")
[1,500,000] shares (the "Stock") of the Company's Class A Common Stock, par
value $0.001 per share (the "Class A Common Stock"). This is to confirm the
agreement concerning the purchase of the Stock from the Company by AWS.
Capitalized terms used but not defined herein have the meanings given to such
terms in the Underwriting Agreement dated as of the date hereof (the
"Underwriting Agreement") between the Company and the underwriters named
therein.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents, warrants and agrees that:
(a) The Registration Statement and the Prospectus conform, and any
post-effective amendments or supplements to the Registration Statement or the
Prospectus did, when they became effective or were 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 did not, as of the effective
date (as to the Registration Statement and any pre-effective amendment
thereto) and as of the applicable filing date with respect to any
post-effective amendment to the Registration Statement, and 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.
<PAGE>
(b) The shares of the Stock to be issued and sold by the Company to
AWS 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 are in valid and sufficient form.
(c) This Agreement has been duly authorized, executed and delivered
by the Company and (assuming the due authorization, execution and delivery
thereof by AWS) 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.
(d) 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 31, 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 "Recapitalization Agreement"), providing for the
recapitalization described in the Prospectus under the captions
"Capitalization", "The Recapitalization" 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) will not result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries; (iii) will not 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, (b) by applicable
state or foreign securities laws in connection with the purchase of the Stock
by AWS and (c) by the National Association of Securities Dealers, Inc., will
not require any consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body for the
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby and by the
Recapitalization.
2
<PAGE>
(e) 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 AWS for a
brokerage commission, finder's fee or like payment in connection with the
issuance, purchase and sale of the Stock.
(f) 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.
(g) 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.
(h) (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 31, 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 31, 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 Agreement"), and the
Management Agreement, dated as of January 31, 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 AWS or to acquire American Cellular Corporation.
3
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF AWS. AWS
represents, warrants and agrees that:
(a) The execution and delivery of this Agreement by it and the
consummation of the transactions contemplated hereby by it have been duly and
validly authorized by its board of directors and no other proceedings on its
part which have not been taken are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby.
(b) This Agreement has been duly executed and delivered by it and
(assuming the due authorization, execution and delivery thereof by the
Company) constitutes its valid and binding obligation, enforceable against it
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and may be subject to
general principles of equity.
(c) It has not employed any broker, finder or investment banker or
incurred any liability for any brokerage fees, commissions or finder's fees
in connection with the transactions contemplated hereby.
(d) It is not relying on and acknowledges that no representation is
being made by the Company or any of its officers, employees, affiliates,
agents or representatives, except for representations and warranties
expressly set forth in this Agreement and information set forth in the
Registration Statement, and, in particular, it is not relying on, and
acknowledges that no representation is being made in respect of, (i) any
projections, estimates or budgets delivered to or made available to them of
future revenues, expenses or expenditures, or future results of operations
and (ii) any other information or documents delivered or made available to it
or its representatives, except for representations and warranties expressly
set forth in this Agreement, information set forth in the Registration
Statement, and such information and documents obtained by it as a stockholder
of the Company and through its representatives who serve as members of the
Company's board of directors, as the case may be.
3. PURCHASE OF THE STOCK BY AWS; DELIVERY AND PAYMENT. 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 to AWS, and AWS
agrees to purchase from the Company, [1,500,000] shares of the Stock. The
price of the Stock shall be $_____ per share. Delivery of and payment for
the 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 First Delivery Date. On the First Delivery Date, the Company shall
deliver or cause to be delivered a certificate representing the Stock to AWS
against payment to or upon the order of the Company of the purchase price by
wire transfer in immediately available funds. Upon delivery, the Stock shall
be registered in the name of AWS.
4. 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
4
<PAGE>
connection and (b) all other costs and expenses incident to the performance
of the obligations of the Company under this Agreement; provided that AWS
shall pay its own costs and expenses, including the costs and expenses of its
counsel.
5. CONDITION OF AWS' OBLIGATIONS. The obligations of AWS hereunder
are subject to the accuracy, when made and on the First Delivery Date, of the
representations and warranties of the Company contained herein, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, 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 AWS, and the
Company shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such matters.
(b) McAfee & Taft, A Professional Corporation, shall have furnished
to AWS their written opinion, as counsel to the Company, addressed to AWS and
dated the First Delivery Date, in the form of the opinion delivered to the
Underwriters pursuant to Section 9(d) of the Underwriting Agreement.
(c) Wilkinson Barker Knauer, LLP shall have furnished to AWS their
written opinion, as regulatory counsel to the Company, addressed to AWS and
dated the First Delivery Date, in the form of the opinion delivered to the
Underwriters pursuant to Section 9(f) of the Underwriting Agreement.
(d) The Company shall have furnished to AWS a certificate, dated
the First Delivery Date, of its Chairman of the Board, its President or a
Vice President and its Chief Financial Officer, in the form of the
certificate delivered to the Underwriters pursuant to Section 9(l) of the
Underwriting Agreement.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) AWS shall indemnify and hold harmless the Company and its
affiliates, directors, shareholders, officers, employees, agents and/or the
legal representatives of any of them (each, a "Section 6(a) Indemnified
Party"), against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) (collectively, "Losses") incurred by him/her or it in
connection with the investigation, defense, or disposition of any action,
suit or other proceeding in which any Section 6(a) Indemnified Party may be
involved or with which he/she or it may be threatened (whether arising out of
or relating to matters asserted by third parties against a Section 6(a)
Indemnified Party or incurred or sustained by such party in the absence of a
third-party claim), that arises out of or results from (a) any representation
or warranty of AWS contained herein being untrue in any material respect as
of the date on which it was made or (b) any material default by such
5
<PAGE>
indemnifying party or any of its affiliates in the performance of their
respective obligations herein, except to the extent (but only to the extent)
any such Losses arise out of or result from the gross negligence or willful
misconduct of such Section 6(a) Indemnified Party or its affiliates.
(b) The Company shall indemnify and hold harmless AWS and its
affiliates, directors, shareholders, officers, employees, agents and/or the
legal representatives of any of them (each, a "Section 6(b) Indemnified
Party"), against all Losses incurred by him/her or it in connection with the
investigation, defense, or disposition of any action, suit or other
proceeding in which any Section 6(b) Indemnified Party may be involved or
with which he/she or it may be threatened (whether arising out of or relating
to matters asserted by third parties against a Section 6(b) Indemnified Party
or incurred or sustained by such party in the absence of a third-party
claim), that arises out of or results from (a) any representation or warranty
of the Company contained herein being untrue in any material respect as of
the date on which it was made or (b) any material default by the Company or
any of its affiliates in the performance of their respective obligations
herein, except to the extent (but only to the extent) any such Losses arise
out of or result from the gross negligence or willful misconduct of such
Section 6(b) Indemnified Party or its affiliates.
(c) (i) The terms of this Section 6(c) shall apply to any claim (a
"Claim") for indemnification under the terms of Sections 6(a) or 6(b). The
Section 6(a) Indemnified Party or Section 6(b) Indemnified Party (each, an
"Indemnified Party"), as the case may be, shall give prompt written notice of
such Claim to the indemnifying party (the "Indemnifying Party") under the
applicable Section, which party may assume the defense thereof, provided that
any delay or failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of its obligations hereunder only to the extent, if at
all, that it is materially prejudiced by reason of such delay or failure.
The Indemnified Party shall have the right to approve any counsel selected by
the Indemnifying Party and to approve the terms of any proposed settlement,
such approval not to be unreasonably delayed or withheld (unless, in the case
of approval of a proposed settlement, such settlement provides only, as to
the Indemnified Party, the payment of money damages actually paid by the
Indemnifying Party and a complete release of the Indemnified Party in respect
of the claim in question). Notwithstanding any of the foregoing to the
contrary, the provisions of this Section 6 shall not be construed so as to
provide for the indemnification of any Indemnified Party for any liability to
the extent (but only to the extent) that such indemnification would be in
violation of applicable law or that such liability may not be waived,
modified or limited under applicable law, but shall be construed so as to
effectuate the provisions of this Section 6 to the fullest extent permitted
by law.
(ii) In the event that the Indemnifying Party undertakes the
defense of any Claim, the Indemnifying Party will keep the
Indemnified Party advised as to all material developments in
connection with such Claim, including, but not limited to, promptly
furnishing the Indemnified Party with copies of all material
documents filed or served in connection therewith.
6
<PAGE>
(iii) In the event that the Indemnifying Party fails to assume
the defense of any Claim within ten business days after receiving
written notice thereof, the Indemnified Party shall have the right,
subject to the Indemnifying Party's right to assume the defense
pursuant to the provisions of this Section 6, to undertake the
defense, compromise or settlement of such Claim for the account of
the Indemnifying Party. Unless and until the Indemnifying Party
assumes the defense of any Claim, the Indemnifying Party shall advance
to the Indemnified Party any of its reasonable attorneys' fees and
other costs and expenses incurred in connection with the defense of
any such action or proceeding. Each Indemnified Party shall agree in
writing prior to any such advancement that, in the event he or it
receives any such advance, such Indemnified Party shall reimburse the
Indemnifying Party for such fees, costs and expenses to the extent
that it shall be determined that he or it was not entitled to
indemnification under this Section 6.
(iv) In no event shall an Indemnifying Party be required to pay
in connection with any Claim for more than one firm of counsel (and
local counsel) for each of the following groups of Indemnified
Parties: (A) AWS, its affiliates, directors, shareholders, officers,
employees, agents and/or the legal representatives of any of them;
and (B) the Company, its affiliates, directors, shareholders,
officers, employees, agents and/or the legal representatives of any
of them.
7. TERMINATION. The obligations of AWS hereunder may be terminated
by AWS by notice given to and received by the Company prior to delivery of
and payment for the Stock if the First Delivery Date does not occur prior to
March 31, 2000.
8. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to AWS, shall be delivered or sent by mail, telex or facsimile
transmission to AT&T Wireless Services, Inc., 7277 164th Ave., N.E., Redmond,
Washington 98052, Attention: William W. Hague (Fax: 425-580-8405); with a
copy to Friedman Kaplan & Seiler LLP, 875 Third Avenue, New York, New York
10022, Attention: Matthew S. Haiken, Esq. (Fax: 212-355-6401); 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).
7
<PAGE>
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
9. BENEFICIARIES OF AGREEMENT. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit
of the parties hereto, and the Section 6(a) Indemnified Parties and the
Section 6(b) Indemnified Parties, and are not intended to benefit, and may
not be relied upon or enforced by, any other party as a third party
beneficiary or otherwise.
10. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company and AWS 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.
11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of New York.
12. 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.
13. 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.
8
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and AWS, please indicate your acceptance in the space provided for
that purpose below.
Very truly yours,
DOBSON COMMUNICATIONS CORPORATION
By:
-----------------------------------
Name:
Title:
Accepted:
AT&T WIRELESS SERVICES, INC.
By:
-----------------------------------
Name:
Title:
9
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOBSON COMMUNICATIONS CORPORATION
The undersigned, Everett R. Dobson and Stephen T. Dobson, certify that
they are the President and Secretary, respectively, of DOBSON COMMUNICATIONS
CORPORATION, a corporation organized and existing under the laws of the State
of Oklahoma (the "Corporation"), and do hereby further certify as follows:
1. The name of this Corporation is DOBSON COMMUNICATIONS CORPORATION.
2. The name under which the Corporation was originally incorporated
was Dobson Holdings 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
<PAGE>
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 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
-2-
<PAGE>
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, par value $.001
per share; Seventy Million (70,000,000) shares shall be Class B Common Stock,
par value $.001 per share; Four Thousand Two Hundred Twenty Six (4,226)
shares shall be Class C Common Stock, par value $.001 per share; and Thirty
Three Thousand (33,000) shares shall be Class D Common Stock, par value $.001
per share (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
12 1/4% 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, 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;
-3-
<PAGE>
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 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
-4-
<PAGE>
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 or other applicable law, 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 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
-5-
<PAGE>
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
Class D Common Stock shall be payable only 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 any class of Common
Stock, the outstanding shares of the other such class of Common Stock shall
be
-6-
<PAGE>
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; provided, however, that the
estate of such Class B Stockholder may transfer shares of Class B
Common Stock only to a Class B Transferee pursuant to paragraphs
5.4.1(b), 5.4.1(c) or 5.4.1(d) below;
(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, 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 thereof,
including any trust in respect of which such Class B Stockholder
and/or Founding Investor (as hereafter defined) or a Class B
Permitted Transferee of such Founding Investor pursuant to paragraphs
5.4.1(b), 5.4.1(c) and 5.4.1(d) above has any general or special
power of appointment or general or special non-testamentary power or
-7-
<PAGE>
special testamentary power of appointment limited to any Class B
Permitted Transferee or Class B Permitted Transferees, so long as one
or more trustees of such trust or savings or retirement account is a
Class B Permitted Transferee thereof, a bank, trust company or other
financial institution having trust powers.
(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 Class B
Permitted Transferee thereof, 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").
"Class B Permitted Transferee" shall mean, if the Class B
Stockholder is a corporation, partnership, limited liability company,
business trust or other business entity:
(h) 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;
(i) 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 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;
(j) Dobson CC Limited Partnership, an Oklahoma limited
partnership and and any of its partners as of the date of this Amended and
Restated Certificate of Incorporation and their partners who receive such
shares, by way of dividend or distribution (upon dissolution, liquidation or
otherwise);
(k) 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
-8-
<PAGE>
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;
and
(l) any Founding Investor or any Class B Permitted
Transferee of a Founding Investor pursuant to paragraphs 5.4.1(b), 5.4.1(c)
and 5.4.1(d) above.
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.
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
-9-
<PAGE>
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.
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
-10-
<PAGE>
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 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 TRANSFERS. In the event of any attempted
transfer of the Beneficial Ownership of any shares of Class C Common Stock,
the shares of Class C Common Stock with respect to which the transfer of such
Beneficial Ownership has been attempted shall be deemed
-11-
<PAGE>
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.
5.6.2 CLASS D TRANSFERS. In the event of any attempted
transfer of the Beneficial Ownership of any shares of Class D Common Stock,
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.
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, and such shares may be transferred to or registered in
the name of the pledgee. 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.
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 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.
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
-12-
<PAGE>
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 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.
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
-13-
<PAGE>
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) consolidate 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 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.
5.7.4 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.
-14-
<PAGE>
5.7.5 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.
5.7.6 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 C Common Stock and of Class D Common Stock.
5.7.7 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 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.
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.
-15-
<PAGE>
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 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
-16-
<PAGE>
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.
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
-17-
<PAGE>
State of Oklahoma), and except as otherwise provided by the Act or 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 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.
-18-
<PAGE>
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 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
-19-
<PAGE>
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 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.
-20-
<PAGE>
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 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
-21-
<PAGE>
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 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;
-22-
<PAGE>
(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 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 Common 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
-23-
<PAGE>
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
-24-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
DOBSON COMMUNICATIONS CORPORATION
(As adopted January 10, 2000)
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of Dobson
Communications Corporation (the "Corporation") shall be in the City of
Oklahoma City, County of Oklahoma, State of Oklahoma.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and out of the State of Oklahoma as the Board
of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. VOTING RIGHTS. With respect to voting powers, except as
otherwise required by the Oklahoma General Corporation Act, the voting rights
of all shares are as set forth in the Corporation's Certificate of
Incorporation, as may be amended, on file with the Oklahoma Secretary of
State (the "Certificate of Incorporation").
Section 2. MEETINGS OF STOCKHOLDERS. Meetings of stockholders for
any purpose may be held at such time and place, within or without the State
of Oklahoma, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 3. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held on the second Tuesday of April, if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 9:00 a.m., or at such
time or date as shall be determined by the Board of Directors. At the annual
meeting, stockholders shall elect a board of directors, and transact such
other business as may be properly brought before the meeting.
Section 4. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting, stating the place, date and hour of such meeting, shall be given to
each stockholder
<PAGE>
entitled to vote thereat not less than ten (10) days nor more than sixty (60)
days before the date of the meeting unless otherwise required by law.
Section 5. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the election, either at a place
within the city where the meeting is to be held or at the place where the
meeting is to be held, and the list shall be produced and kept at the time
and place of the meeting during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by law or by the
Certificate of Incorporation, may be called by the Chairman of the Board of
Directors or the President and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors, or at the
request in writing of stockholders owning a majority in amount of the total
combined voting power of all classes of common stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 7. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting of stockholders, stating the place, date, hour and the purpose or
purposes thereof, shall be given to each stockholder entitled to vote
thereat, not less than ten (10) days nor more than sixty (60) days before the
date fixed for the meeting unless otherwise required by law. Business
transacted at any special meeting of the stockholders shall be limited to the
purposes stated in the notice.
Section 8. ADJOURNMENT OF MEETINGS. The chairman of any meeting of
stockholders or the holders of a majority of the outstanding shares entitled
to vote thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting; provided, however, that if the date of any
adjourned meeting is more than thirty (30) days after the date of which the
meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date and hour of the
adjourned meeting shall be given in conformity herewith. At such adjourned
meeting at which a quorum shall be present or represented, any business may
be transacted at the meeting as originally noticed.
Section 9. QUORUM. The holders of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
law or by the Certificate of Incorporation. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person
<PAGE>
or represented by proxy, shall constitute a quorum entitled to take action
with respect to the vote on that matter.
Section 10. VOTE REQUIRED. When a quorum is present at any meeting,
the affirmative vote of the holders of a majority of the shares of stock
having voting power present in person or represented by proxy shall decide
any question brought before such meeting other than elections of directors,
unless the question is one upon which, by express provision of law or of the
Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such
question. Unless otherwise required by the Certificate of Incorporation, all
elections of directors shall be decided by a plurality vote, and, where a
separate vote by a class or classes is required, the affirmative vote of the
majority of shares of such class or classes present in person or represented
by proxy at the meeting shall be the act of such class.
Section 11. PROXIES. Each stockholder entitled to vote shall at
every meeting of the stockholders be entitled to vote in person or by proxy ,
but no proxy shall be voted or acted upon after three (3) years from its date
unless the proxy provides for a longer period.
Section 12. ACTION WITHOUT A MEETING. Any action required to or
which may be taken at any annual or special meeting of the stockholders, may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than a minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action by the stockholders without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. NUMBER OF DIRECTORS. The number of directors which shall
constitute the whole Board shall be at least three (3) and not more than
fifteen (15). The number of directors shall be increased (a) by two (2) upon
a "Voting Rights Triggering Event," as defined in the Corporation's
Certificate of Designation for its 12 1/4% Senior Exchangeable Preferred Stock
(the "12 1/4% Senior Preferred Stock") filed with the Oklahoma Secretary of
State on January 21, 1998, and on December 23, 1998 such two (2) directors to
be elected by the holders of 12 1/4% Senior Preferred Stock issued pursuant to
and as provided in such Certificate of Designation therefor; and (b) by two
(2) upon a "Voting Rights Triggering Event," as defined in the Corporation's
Certificate of Designation for its 13% Senior Exchangeable Preferred Stock
due 2009 (the "13% Senior Preferred Stock"), such two (2) directors to be
elected by the holders of 13% Senior Preferred Stock issued pursuant to and
as provided in such Certificate of Designation therefor. Within the limits
above specified, the number of directors shall be determined from time to
time by resolution of the Board of Directors or by the stockholders. Except
as provided in Section 2, Section 3 and in Section 15 of this Article III and
in the aforementioned Certificates of Designation, the directors shall be
elected at the annual meeting of stockholders.
<PAGE>
Section 2. TERM AND QUALIFICATION. The directors shall be divided
into three classes, as nearly equal in number as may be 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 or chosen that
all classes of directors shall remain or become equal in number, as nearly as
may be. 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.
Section 3. VACANCIES. Except as provided in Section 2 and Section 15
of this Article III, vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and any director so chosen shall hold office until
the next annual election and until such director's successor is duly elected
and shall qualify, unless such director resigns or is removed. Whenever the
holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the Certificate of
Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by
such class or classes or series thereof then in office, or by a sole
remaining director so elected.
Section 4. AUTHORITY OF THE BOARD OF DIRECTORS. The business of the
Corporation shall be managed by its Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
Section 5. PLACE OF MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Oklahoma.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such time and at such place as shall from time to
time be determined by the Board. Five (5) days' notice of all regular
meetings shall be given, and such notice shall state the place, date and hour
of such meeting.
Section 7. SPECIAL MEETINGS. Special meetings of the Board may be
called by the President on at least forty-eight (48) hours' notice to each
director either personally, by mail, by telegram or by facsimile
transmission. Special meetings shall be called by the President or
<PAGE>
Secretary in like manner and on like notice on the written request of two (2)
directors unless the Corporation has at that time less than three (3)
directors, in which latter event the request of only one (1) director shall
be required. Notice of any special meeting shall state the place, date, hour
and the business to be transacted at and the purpose of such meeting.
Section 8. QUORUM AND VOTING. At all meetings of the Board, a
majority of the directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meetings
at which there is a quorum shall be the act of the Board of Directors, except
as may be otherwise specifically provided by law or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 9. COMMITTEES. The Board of Directors may, by resolution,
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation,
which, to the extent provided in the resolution and permitted by the Oklahoma
General Corporation Act, 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. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 10. MINUTES. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
Section 11. TELEPHONIC AND OTHER PARTICIPATION. Members of the Board
of Directors, or of any committee thereof, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment that enables all persons participating in the
meeting to hear each other. Such participation shall constitute presence in
person at such meeting.
Section 12. ACTION WITHOUT A MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent of
such action is signed by all members of the Board or of such committee as the
case may be, and such written consent is filed with the minutes of
proceedings of the Board or committee.
Section 13. EXPENSES. The directors may be paid their expenses, if
any, of attendance of such meeting of the Board of Directors and may be paid
a fixed sum for attendance at such meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
<PAGE>
Section 14. REMOVAL OF OFFICERS. The Board of Directors at any time
may, by affirmative vote of a majority of the members of the Board then in
office, remove any officer elected or appointed by the Board of Directors for
cause or without cause.
Section 15. REMOVAL OF DIRECTORS. Any director may be removed, for
cause or without cause, by a majority vote of the stockholders entitled to
vote for the election of such director at any annual or special meeting of
the stockholders. Whenever the holders of any class or series are entitled
to elect one or more directors by the provisions of the Certificate of
Incorporation, any director so elected may be removed without cause only upon
the vote of the holders of the outstanding shares of that class or series and
not the vote of the outstanding shares as a whole. Upon such removal of a
director, the stockholders (and not the remaining directors) shall elect a
director to replace such removed director at the same stockholders' meeting
at which such removal took place or at a subsequent stockholders' meeting.
ARTICLE IV
NOTICES
Section 1. TYPE AND METHOD OF NOTICE. Notices of meetings for
directors and stockholders shall be in writing and delivered personally or
mailed to the directors or stockholders at their addresses appearing on the
books of the Corporation. Notice by mail shall be deemed to be given at the
time when the same shall be deposited in the United States mail, postage
prepaid. Notice to directors may also be given by telegram or facsimile
transmission. Notice by telegram shall be deemed to be given when delivered
to the sending telegraph office. Notice by facsimile transmission shall be
deemed to be given when received.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of law or of the Certificate of Incorporation or
by these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein,
shall be deemed equivalent to notice.
ARTICLE V
OFFICERS
Section 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall, at a minimum, consist of a President and
a Secretary. The Board of Directors may also choose additional officers,
including a Chairman, Vice-Chairman of the Board of Directors, a Chief
Executive Officer, a Chief Operating Officer, a Chief Financial Officer, one
or more Vice-Presidents who may be classified by their specific function, a
Secretary, a Treasurer and one or more Assistant Secretaries and Assistant
Treasurers. Two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 2. SELECTION OF OFFICERS. The Board of Directors after each
annual meeting of stockholders shall choose a Chairman of the Board of
Directors, a Chief
<PAGE>
Executive Officer, a President and a Secretary, and may choose such other
officers and agents as it shall deem necessary.
Section 3. SALARIES OF OFFICERS. The salaries of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 4. TERM OF OFFICE. The officers of the Corporation shall
hold office until their successors are chosen and qualify, until their
earlier resignation or removal. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
Section 5. CHAIRMAN AND VICE-CHAIRMAN. The Chairman, or, in the
absence of the Chairman, a Vice-Chairman of the Board of Directors, if
chosen, shall preside at all meetings of the Board of Directors, and shall
perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe. If the Board of Directors
designates the Chairman of the Board to act as Chief Executive Officer, such
duties shall be performed by such person.
Section 6. CHIEF EXECUTIVE OFFICER. The Board of Directors shall
select a Chief Executive Officer of the Corporation, who will serve as an
officer of the Corporation. The Chief Executive Officer shall (i) have
overall supervision of the business of the Corporation and shall direct the
affairs and policies of the Corporation, subject to any direction which may
be given by the Board of Directors; (ii) shall have authority to designate
the duties and powers of the officers and delegate special powers and duties
to specified officers, so long as such designation shall not be inconsistent
with the laws of the State of Oklahoma, these bylaws or actions of the Board
of Directors, and (iii) in general have all other powers and shall perform
all other duties incident to the chief executive officer of a corporation and
such other powers and duties as may be prescribed by the Board of Directors
from time to time. The Chief Executive Officer shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 7. CHIEF OPERATING OFFICER. The Board of Directors may
select a Chief Operating Officer, who will serve as an officer of the
Corporation. The Chief Operating Officer, if one is selected, need not hold
any other office or title. The Chief Operating Officer, if one is selected,
shall have supervision of the day-to-day business of the Corporation and
shall direct the day-to-day affairs and policies of the Corporation subject
to any directions which may be given by the Board of Directors and the Chief
Executive Officer. The Chief Operating Officer shall have authority to
designate the duties and powers of the officers and delegate special powers
and duties to specified officers, so long as such designation shall not be
inconsistent with the laws of the State of Oklahoma, these bylaws or actions
of the Board of Directors or the Chief Executive Officer, and shall in
general have all other powers and shall perform all other duties incident to
the Chief Operating Officer of a corporation and such other powers and duties
as may be prescribed by the Board of Directors and the Chief Executive
Officer from time to time.
<PAGE>
Section 8. PRESIDENT. In the absence of the Chairman of the Board,
the President shall be the chief executive officer of the Corporation. The
President shall preside at all meetings of the stockholders and, unless a
Chairman or Vice-Chairman of the Board has been chosen, be present at all
meetings of the Board of Directors, and shall have general and active
management of the business of the Corporation and shall see that all orders
and resolutions of the Board of Directors, are carried into effect. If the
Board of Directors does not designate the Chairman of the Board to act as
Chief Executive Officer, the President shall serve as Chief Executive Officer
of the Corporation. If the Board of Directors does not designate the Chief
Operating Officer of the Corporation, the President shall serve as the Chief
Operating Officer of the Corporation..
Section 9. DUTIES OF PRESIDENT. The President shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent
of the Corporation.
Section 10. VICE-PRESIDENT. The Vice-President, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe. The Board of Directors may designate one or more Vice
Presidents as Executive Vice President, Senior Vice President or such other
designation as the Board of Directors may select.
Section 11. SECRETARY. The Secretary shall attend the meetings of
the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the Corporation and the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and regular and special
meetings of the Board of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or President, under whose
supervision the Secretary shall be. Additionally, the Secretary shall have
custody of the corporate seal of the Corporation, and the Secretary or an
Assistant Secretary, shall have the authority to affix the same on any
instrument requiring it, and when so affixed, it may be attested by the
Secretary's signature or by the signature of such Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by the Secretary's
signature.
Section 12. CHIEF FINANCIAL OFFICER. The Board of Directors may
select a Chief Financial Officer, who will be an officer of the Corporation.
The Chief Financial Officer, if one is selected, may not need not hold any
other officer title. The Chief Financial Officer, if one is selected, shall
have the duties and powers as the Board of Directors prescribes.
Section 13. ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, shall, in
<PAGE>
the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors from time to time prescribe.
Section 14. TREASURER. The Treasurer, if one is chosen, or if not,
the Secretary, shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors.
Section 15. DUTIES OF TREASURER. The Treasurer, if one is chosen, or
if not, the Secretary, shall disburse the funds of the Corporation as may be
ordered by the Board of Directors' taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all transactions performed by the Treasurer (or Secretary, as the
case may be) and of the financial condition of the Corporation.
Section 16. ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors, shall, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the Board
of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFERS OF STOCK
CLOSING OF TRANSFER BOOKS AND
REGISTERED STOCKHOLDERS
Section 1. STOCK CERTIFICATE. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the
name of, the Corporation by the Chairman or Vice-Chairman of the Board of
Directors, or the President or a Vice-President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by the stockholder in the
Corporation.
Section 2. SIGNATURES. Any or all of the signatures on the
certificate may be a facsimile. In case an officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if the person who signed the certificate was such officer,
transfer agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost
or stolen or destroyed, upon the making of an affidavit of
<PAGE>
that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's legal representative,
advertise the same in such manner as the Corporation shall require and/or to
give the Corporation a bond in such sum as the Corporation may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. STOCK TRANSFERS. Subject to transfer restrictions
permitted by Section 1055 of title 18 of the Oklahoma Statutes and to stop
transfer orders directed in good faith by the Corporation to any transfer
agent to prevent possible violations of federal or state securities laws,
rules or regulations, upon surrender to the Corporation or the transfer agent
of Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
Section 5. RECORD DATES. The Board of Directors may fix a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to the time for the other action hereinafter described, as of which
there shall be determined the stockholders who are entitled: to notice of or
to vote at any meeting of stockholders or any adjournment thereof; to express
consent to corporate action in writing without a meeting; to receive payment
of any dividend or other distribution or allotment of any rights; or to
exercise any rights with respect to any other lawful action.
Section 6. RECORD OWNER. The Corporation shall be entitled to treat
the person in whose name any share of stock is registered on the books of the
Corporation as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim or other interest in such shares in
the part of any other person, whether or not the Corporation shall have
express or other notice thereof.
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law.
Section 2. FUNDS FOR DIVIDENDS. There may be set apart out of any of
the funds of the Corporation available for dividends such amounts as the
Board of Directors deems proper as a reserve or reserves for working capital,
depreciation, losses in value, or for any other proper corporate purpose, and
the Board of Directors may increase, decrease or abolish any such reserve in
the manner in which it was created.
<PAGE>
Section 3. REPORTS TO STOCKHOLDERS. The Board of Directors shall
present at each annual meeting and at any special meeting of the
stockholders, when called for by vote of the stockholders, a full and clear
statement of the business and condition of the Corporation.
Section 4. FINANCIAL INSTRUMENTS. All checks and demands for money
and notes of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall be
as fixed by the Board of Directors.
Section 6. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the Treasurer or by the Assistant Secretary or Assistant Treasurer. The
seal may be used by causing it, or a facsimile thereof, to be impressed or
affixed or in any other manner reproduced.
Section 7. BOOKS OF ACCOUNT. The books of account and other records
of the Corporation may be kept (subject to any provisions of Oklahoma law) at
the principal place of business and chief executive office of the Corporation.
ARTICLE VIII
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
Section 1. GENERAL. To the extent and in the manner permitted by the
laws of the State of Oklahoma and specifically as is permitted under Section
1031 of Title 18 of the Oklahoma Statutes, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement.
ARTICLE IX
AMENDMENTS
Section 1. GENERAL. The Bylaws may be amended and repealed, or new
bylaws may be adopted, by the stockholders or by the Board of Directors at
any annual or special meeting of the stockholders or of the Board of
Directors if such notice of such amendment, repeal, or adoption of new bylaws
be contained in the notice of such meeting.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
DOBSON COMMUNICATIONS CORPORATION
(As adopted January___, 2000)
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
STOCKHOLDER AND
INVESTOR RIGHTS AGREEMENT
dated as of ______________, 2000
<PAGE>
STOCKHOLDER AND INVESTOR RIGHTS AGREEMENT
-----------------------------------------
STOCKHOLDER AND INVESTOR RIGHTS AGREEMENT, dated as of January __,
2000 (this "Agreement"), by and among the Persons listed on Schedule I and
Dobson Communications Corporation, an Oklahoma corporation (the "Company").
Each of the foregoing Persons (other than the Company), together with all
other Persons who, in connection with a Transfer (as hereinafter defined) are
required to become a party to this Agreement are sometimes referred to
herein, individually, as a "Stockholder" and, collectively, as the
"Stockholders."
RECITALS
--------
WHEREAS:
(A) The Company and the Stockholders are parties to that certain
Amended and Restated Stockholder and Investor Rights Agreement dated as of
September 17, 1999 (the "Existing Agreement"); and
(B) The Company is planning an initial public offering of shares of
its capital stock; and
(C) The parties hereto have agreed to enter into this Stockholder
and Investor Rights Agreement in order to provide for certain matters
relating to the Company and its Common Stock effective as of the IPO Date; and
(D) The authorized capital stock of the Company consists of: (a)
245,037,226 shares of common stock, par value $0.01 per share ("Common
Stock"), consisting of (i) 175 million shares of Class A Common Stock (the
"Class A Common Stock"), (ii) 70 million shares of Class B Common Stock (the
"Class B Common Stock"); (iii) 4,226 shares of Class C Common Stock (the
"Class C Common Stock") and (iv) 33,000 shares of Class D Common Stock (the
"Class D Common Stock"); and (b) 6,000,000 shares of preferred stock (the
"Preferred Stock"), consisting of (i) 734,000 shares designated 12 1/4%
Senior Exchangeable Preferred Stock, Mandatorily Redeemable 2008 (the "Senior
PIK Preferred"), (ii) 500,000 shares designated 13 1/4% Senior Exchangeable
Preferred Stock Mandatory Redeemable 2009 (the "Exchangeable PIK Preferred
Stock"), (iii) 40,000 shares have been designated as Class E Preferred Stock
(the "Class E Preferred Stock"), and (iv) 4,726,000 shares as undesignated
preferred stock; and
(E) Each Stockholder is the registered owner of the respective
shares of Common Stock set forth opposite its name on Schedule II.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, conditions and agreements hereinafter
set forth, the parties agree, and the Existing Agreement is amended and
restated in its entirety, as follows:
ARTICLE 1.
<PAGE>
1.1 CERTAIN DEFINED TERMS. As used herein, the following terms
have the following meanings (unless indicated otherwise, all Section and
Article references are to Sections and Articles in this Agreement, and all
Schedule and Exhibit references are to Schedules and Exhibits to this
Agreement):
"AAA RULES" shall have the meaning set forth in Section 10.9.
"ADVICE" shall have the meaning set forth in Section 4(xvi).
"AFFILIATE" shall have the meaning given such term in Rule 501(b)
under the Securities Act, provided, that, Logix Communications will not be
deemed to be part of the Company or an Affiliate of the Company for purposes
of this Agreement, and neither ACC Acquisition LLC, a Delaware limited
liability company, nor any Subsidiary thereof will be deemed to be an
Affiliate of the Company for purposes of this Agreement.
"AFFILIATED SUCCESSOR" shall mean, with respect to any Person, an
Affiliate thereof that is a transferee or a successor in interest to any or
all of such Person's Company Stock and that is required to become a party to
this Agreement in accordance with the terms hereof; PROVIDED, HOWEVER, that,
for purposes of Article 3, with respect to any Stockholder, "Affiliated
Successor" shall also include partners, shareholders or members of such
Stockholder that are transferees of Common Stock pursuant to distributions in
accordance with the partnership agreement, shareholders agreement or
operating agreement of such Stockholder.
"ARBITRATION NOTICE" shall have the meaning set forth in Section 10.9
"AWS" shall mean AT&T Wireless Services, Inc., a Delaware corporation.
"BENEFICIALLY OWN" shall have the meaning set forth in Rule 13d-3 of
the Exchange Act (and correlative terms such as "Beneficial Ownership" shall
have correlative meanings).
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as duly constituted in accordance with this Agreement.
"BTA" shall mean a geographic area established by the Rand McNally
1992 Commercial Atlas & Marketing Guide, 123rd Edition, as modified by the
FCC to form the initial geographic area of license for the C, D, E and F
blocks of broadband PCS spectrum as defined in Section 24.202 of the FCC's
rules.
"CELLULAR SYSTEM" shall mean a mobile communication system
constructed and operated in an MSA or a RSA (or any successor territorial
designations or subdivision thereof authorized by the FCC) exclusively using
frequencies in the 800 MHz band, or portions thereof, pursuant to a License
therefor issued by the FCC.
-2-
<PAGE>
"CELLULAR TERRITORY" shall mean the cellular geographic service area
in an MSA or RSA in which the Company or its Subsidiaries has been granted a
license to operate a Cellular System by the FCC.
"CHANGE OF LAW" shall mean a change in a Law applicable to the
Company, AWS and/or any of their respective Affiliates or their respective
businesses, properties or assets which is adopted or occurs after September 17,
1999.
"CLASS A COMMON STOCK" shall have the meaning given such term in
recital (D) hereto.
"CLASS B COMMON STOCK" shall have the meaning given such term in
recital (D) hereto.
"CLASS C COMMON STOCK" shall have the meaning given to such term in
recital (D) hereto.
"CLASS D COMMON STOCK" shall have the meaning given to such term in
recital (D) hereto.
"CLASS D PREFERRED STOCK" shall have the meaning given to such term in
recital (D) hereto.
"CLASS E PREFERRED STOCK" shall have the meaning given to such term in
recital (D) hereto.
"CLOSING PRICE" shall mean, with respect to each share of any class or
series of capital stock for any day, (i) the last reported sale price regular
way or, in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case as reported on the
principal national securities exchange on which such class or series of
capital stock is listed or admitted for trading or (ii) if such class or
series of capital stock is not listed or admitted for trading on any national
securities exchange, the last reported sale price or, in case no such sale
takes place on such day, the average of the highest reported bid and the
lowest reported asked quotation for such class or series of capital stock, in
either case as reported on NASDAQ or a similar service if NASDAQ is no longer
reporting such information.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall collectively mean the Class A Common Stock, the
Class B Common Stock, the Class C Common Stock and the Class D Common Stock.
"COMPANY" shall have the meaning set forth in the preamble.
"COMPANY STOCK" shall mean the Preferred Stock and the Common Stock.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
5.1.
"CONTROL" (including the terms "controlling," "controlled by" and
"under common control with") shall mean the possession, direct or indirect,
of the power to direct or cause the direction
-3-
<PAGE>
of the management and policies of a Person, whether through the ownership of
Voting Securities, by contract, or otherwise.
"CREDIT AGREEMENTS" shall mean (i) the Amended, Restated and
Consolidated Revolving Credit and Term Loan Agreement, dated as of January
18, 2000, among Dobson Operating Co., LLC as Borrower, and Bank of America,
N.A, as Administrative Agent, and others as Lenders, as modified, amended or
restated from time to time and (ii) the Credit Agreement, dated December 23,
1998, between Sygnet Wireless, Inc., (as successor by merger to Dobson/Sygnet
Operating Company), as Borrower and Bank of America, N.A., as successor by
merger to NationsBank N.A., as Administrative Agent.
"CREDIT DOCUMENTS" shall mean, collectively, the Credit Agreements and
all documents and instruments evidencing or securing or guarantying
indebtedness thereunder.
"DISPUTE" shall have the meaning set forth in Section 10.9.
"DOBSON PARTNERSHIP" shall mean Dobson CC Limited Partnership, an
Oklahoma limited partnership.
"EQUITY SECURITIES" shall mean, with respect to any Person, any shares
of stock of, or partnership interest or other ownership or beneficial
interest in, such Person, in each case outstanding at any time.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGEABLE PIK PREFERRED STOCK" shall have the meaning given such
term in recital (D) hereto.
"FCC" shall mean the Federal Communications Commission or similar
regulatory authority established in replacement thereof.
"FCC CONFLICT" shall mean the existence or occurrence of any of the
following: (a) the FCC Order being withdrawn, reversed, superseded or
otherwise ceasing to be in full force and effect, including without
limitation as a result of a Change of Law or an application of existing law,
(b) the commencement of the 90 day cure period (as such period may be
modified) set forth in the FCC Order, (c) either AWS or the Company or any of
their respective Affiliates own an attributable interest in both Cellular
Systems or PCS Systems authorized to serve a Cellular Territory or PCS
Territory which violates any FCC rule or regulation prohibiting such
overlapping interests; or (d) either AWS, the Company or any of their
respective Affiliates holds an attributable interest in more licensed
broadband PCS, cellular, and SMR spectrum regulated as CMRS than is permitted
under any FCC spectrum cap regulation prohibiting such interest; or (e)
either AWS or the Company or any of their respective Affiliates holds any
other attributable interest or interests which violates any rule or
regulation of the FCC, for example, prohibitions
-4-
<PAGE>
on the ownership of certain interests in the telephone company and cable
television company serving the same market.
"FCC ORDER" shall mean the waiver of 47 CFR Section 22.942 granted to
the Company and AWS by the Chief of the Commercial Wireless Division,
Wireless Telecommunications Bureau, DA 99-1475 (released July 29, 1999).
"GAAP" shall mean U.S. generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" shall mean a Federal, state or local court,
legislature, governmental agency (including, without limitation, the United
States Department of Justice), commission or regulatory or administrative
authority or instrumentality.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section
4(e)(v).
"INDEMNIFIED STOCKHOLDER" shall have the meaning set forth in Section
4(e)(i).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section
4(e)(v).
"IPO" shall mean the initial public offering of Class A Common Stock
pursuant to a Registration Statement Number 333-23769 under the Securities
Act.
"IPO DATE" shall mean February __, 2000.
"JWC" AND "JWC GROUP STOCKHOLDERS" each mean J.W. Childs Equity
Partners II, L.P., a Delaware limited partnership, and its affiliated funds
and co-investors listed on Schedule I hereto.
"LAW" shall mean applicable common law and any statute, ordinance,
code or other law, rule, permit, permit condition, regulation, order, decree,
technical or other standard, requirement or procedure enacted, adopted,
promulgated, applied or followed by any Governmental Authority.
"LICENSE" shall mean a license, permit, certificate of authority,
waiver, approval, certificate of public convenience and necessity,
registration or other authorization, consent or clearance to construct or
operate a facility, including any emissions, discharges or releases
therefrom, or to transact an activity or business, to construct a tower or to
use an asset or process, in each case issued or granted by a Governmental
Authority.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, right of first refusal or right of others
therein or encumbrance of any nature whatsoever in respect of such asset.
-5-
<PAGE>
"LOGIX COMMUNICATIONS" shall mean Logix Communications Enterprises,
Inc., an Oklahoma corporation.
"MAJOR TELECOM COMPETITOR" shall mean any Person or group (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act and the
regulations thereunder) or Affiliate thereof (other than AWS and its
Affiliates) that (a) is one of the five largest providers of wireless
telecommunications services (based on revenue derived from the provision of
such wireless telecommunications services during the most recent fiscal year
preceding the applicable Transfer for which such information is available) in
the United States or a company whose annual gross revenues from wireless
telecommunications services (during the most recent fiscal year for which
such information is available) exceeds $2 billion or (b) provides wireless
communications services in areas in the United States covering more than five
million Pops.
"MINIMUM EQUITY OWNERSHIP" shall mean (a) with respect to JWC, the
Beneficial Ownership by JWC of at least 3,800,000 of the shares of Common
Stock (together with any shares of Common Stock issuable upon conversion
thereof, and any shares of Company Stock or other securities into which such
shares are subdivided, combined or otherwise converted or exchanged by the
Company) held by JWC on the day following the IPO Date and (b) with respect
to AWS, the Beneficial Ownership by AWS and its Affiliates of at least
3,800,000 of the shares of Common Stock (together with any shares of Common
Stock issuable upon conversion thereof, and any shares of Company Stock or
other securities into which such shares are subdivided, combined or otherwise
converted or exchanged by the Company) held by AWS on the day following the
IPO Date. The number of shares constituting the Minimum Equity Ownership
shall, in the event of any redemption or other acquisition of shares by the
Company, be reduced by the number of shares Beneficially Owned by JWC and/or
AWS that are redeemed or otherwise acquired.
"MSA" shall mean a Metropolitan Statistical Area, comprised of one or
more counties in the Unites States, as listed in Public Notice Report No.
CL-92-40, "Common Carrier Public Mobile Services Information, Cellular
MSA/RSA Markets and Counties," dated January 24, 1992. DA 92-109.
"MTA" shall mean a geographic area established by the Rand McNally
1992 Commercial Atlas & Marketing Guide, 123rd Edition, as modified by the
FCC to form the initial geographic area of license for the A and B blocks of
broadband PCS spectrum as defined in Section 24.202 of the FCC's rules.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers'
Automated Quotation System.
"PCS SYSTEM" shall mean a mobile communication system constructed and
operated in a BTA or a MTA (or any successor territorial designations or
subdivision thereof authorized by the
-6-
<PAGE>
FCC) exclusively using the 1850 MHZ to 1910 MHZ and 1930 MHZ to 1990 MHZ
frequencies, or portions thereof, pursuant to a License therefor issued by
the FCC.
"PCS TERRITORY" shall mean an MTA or BTA in which the Company or any
of its Subsidiaries has been granted a license to operate a PCS System by the
FCC.
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, association, joint stock company, Governmental Authority,
business trust or other legal entity.
"POPS" shall mean, with respect to any distinct geographic area, the
residents of such area based on the most recent publication by Equifax
Marketing Decision Systems, Inc.
"PREFERRED STOCK" shall mean the Senior PIK Preferred Stock and the
Exchangeable PIK Preferred Stock.
"PROSPECTUS" shall have the meaning set forth in Section 4(d)(ii).
"REGISTRABLE SECURITIES" shall mean (a) the Common Stock now owned or
hereafter acquired by any Stockholder or issuable upon conversion of any
Equity Security or exchange of Common Stock, and (b) all Common Stock issued
or issuable to any Stockholder upon conversion, exchange or exercise of any
Equity Security which is issued pursuant to a stock split, stock dividend or
other similar distribution or event with respect to Common Stock but with
respect to any Common Stock, only until such time as such Common Stock (i)
has been effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement covering it, (ii) has been sold to
the public pursuant to Rule 144 (or any similar provision then in force),
(iii) shall otherwise have been transferred, a new certificate evidencing
such Common Stock without a legend restricting further transfer shall have
been delivered by the Company, and subsequent public distribution of such
Common Stock shall neither require registration under the Securities Act nor
qualification (or any similar filing) under any state securities or "blue
sky" law then in effect, or (iv) shall have ceased to be issued and
outstanding.
"REGISTRATION" shall have the meaning set forth in Section 4(d).
"REGISTRATION EXPENSES" shall have the meaning set forth in Section
4(g).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
4(d)(i).
"REPRESENTATIVES" shall have the meaning set forth in Section 5.1(a).
"RESTATED BYLAWS" shall mean the Bylaws of the Company adopted as of
the IPO Date.
"RESTATED CERTIFICATE" shall mean the Amended and Restated Certificate
of Incorporation of the Company filed with the Oklahoma Secretary of State on
the IPO Date.
-7-
<PAGE>
"RSA" shall mean a Rural Statistical Area, comprised of one or more
counties in the United States, as listed in Public Notice Report No.
CL-92-40, "Common Carrier Public Mobile Services Information, Cellular
MSA/RSA Markets and Counties," dated January 24, 1992, DA 92-109.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act
(or any similar rule as may be in effect from time to time).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR PIK PREFERRED STOCK" shall have the meaning given to such term
in recital (D) hereto.
"STOCKHOLDERS" shall have the meaning set forth in the preamble.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof, or (ii) if a
partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
partnership, association, or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing general partner of
such partnership, association or other business entity.
"SUBSTANTIAL BENEFICIAL OWNERSHIP" shall mean, in respect of any
corporation, partnership or other business entity, possession of the power
and authority to vote or direct the voting of a majority of the voting power
of each class of Voting Securities, and to dispose or direct the disposition
of a majority of each class of equity ownership interest, in such
corporation, partnership or other business entity.
"TAXES" shall mean with respect to any Person a net income, gross
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, transfer,
occupation, premium, property or windfall profit tax, custom duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any jurisdiction or other taxing authority
(domestic or foreign) on such Person.
"TERRITORY" shall mean, collectively, all of the PCS Territories and
all of the Cellular Territories.
-8-
<PAGE>
"TRANSFER" shall have the meaning set forth in the Restated
Certificate.
"VOTING SECURITIES" shall mean Equity Securities (or other voting
interests) in a Person having the right to vote generally in the election of
the directors (or persons performing equivalent functions) of such Person.
1.2 OTHER DEFINITIONAL PROVISIONS. Each definition or pronoun
herein shall be deemed to refer to the singular, plural, masculine, feminine
or neuter as the context requires. Words such as "herein," "hereinafter,"
"hereof," "hereto" and "hereunder" refer to this Agreement as a whole, unless
the context otherwise requires. References to a document or agreement shall
be to such document or agreement, as the same may be amended, supplemented or
otherwise modified from time to time.
ARTICLE 2.
MANAGEMENT OF THE COMPANY
2.1 BOARD OF DIRECTORS.
(a) The Board of Directors shall, subject to the other provisions
hereof, consist of seven (7) directors; provided, however, that the number of
directors constituting the Board of Directors shall be reduced in the
circumstances set forth in this Section 2.1. Each of the Stockholders hereby
agrees that it will vote all of the shares of its Common Stock owned or held
of record by it (whether now owned or hereafter acquired), in person or by
proxy, for the election of directors and thereafter the continuation in
office of such directors as follows:
(i) one director selected by JWC, in its sole discretion,
until it no longer holds its Minimum Equity Ownership;
(ii) one director selected by AWS, in its sole discretion,
until it no longer holds its Minimum Equity Ownership;
(iii) four directors selected by the Dobson Partnership, in
its sole discretion; and
(iv) one director jointly selected by JWC, AWS (in the event
its designee is a member of the current Board of Directors) and the Dobson
Partnership, subject to Section 2.1(b). Subject to the other provisions of
this Section 2.1(a), AWS may exercise its right to designate a director at
any time and from time to time. In the event that AWS fails to exercise, or
shall have relinquished, and shall continue to relinquish, its right to
designate a director under Section 2.1(a)(ii) in accordance with Section
2.1(b), then the director jointly selected by JWC and the Dobson Partnership
pursuant to this clause (iv) must be reasonably acceptable to AWS, whose
consent shall not be unreasonably withheld.
-9-
<PAGE>
Each of JWC and AWS (in the event its designee is a member of the
current Board of Directors) shall have the right, so long as they hold their
respective Minimum Equity Ownership to, designate one director for the Board of
Directors of each Subsidiary of the Company.
If, for any reason, any director to be designated pursuant to
clause (iv) hereof is not designated within 90 days of the time when such
designation right arises, then such director will be selected by the Dobson
Partnership.
If JWC and/or AWS no longer holds its Minimum Equity Ownership,
the vacancy or vacancies thereby created shall not be filled and the number of
Directors constituting the Board of Directors shall be permanently reduced
appropriately. In addition, if JWC and/or AWS no longer holds its Minimum
Equity Ownership, all of its other rights under this Article 2 including its
rights to designate an observer and attend Board Committee meetings shall
terminate.
Any nomination or designation of directors and the acceptance
thereof pursuant to Section 2.1 shall be evidenced in writing.
(b) If, for any reason, AWS's director selected pursuant to
Section 2.1(a)(ii) above resigns or AWS determines that it no longer desires to
have director designation rights, including as a result of an FCC Conflict and
the related provisions herein, then AWS may, at its option, relinquish such
director designation rights, in which case, an additional director will be
designated pursuant to Section 2.1(a)(iv) and AWS will be entitled to observer
rights as provided in Section 2.1(c), PROVIDED, that if AWS subsequently
determines to reinstate such director designation rights, it may do so by
notifying the parties hereto, in which case, such observer rights will
terminate, AWS's director designation rights in Section 2.1(a)(ii) will be
reinstated, and the additional director designated pursuant to this Section
2.1(b) and Section 2.1(a)(iv) will concurrently resign or be removed.
The Stockholders acknowledge the rights of the holders of Senior
PIK Preferred Stock to designate an additional two (2) directors and the right
of the holders of Exchangeable PIK Preferred Stock to designate an additional
two (2) directors, in the event that the triggering events described in
paragraph (iii) of the Senior PIK Preferred Stock Certificate of Designation and
paragraph (iii) of the Exchangeable PIK Preferred Stock Certificate of
Designation, respectively occur.
(c) If AWS fails to exercise or relinquishes its director designation
rights pursuant to Section 2.1(b), then AWS will be entitled to designate an
observer in addition to its observer appointed under Section 2.4, who will be
entitled to attend all meetings of the Board of Directors and receive the same
notice and information provided to members of the Board of Directors. The
Company will reimburse the observer appointed pursuant to this Section in
connection with such person's role as observer for the reasonable and documented
out-of-pocket expenses and costs (including travel expenses), incurred by such
observer in connection with the performance of his
-10-
<PAGE>
service as an observer of the Board of Directors.
2.2 REMOVAL; FILLING OF VACANCIES. Except as set forth in Section
2.1, each Stockholder agrees it will not, and will not permit any Affiliated
Successor of such Stockholder to, vote any shares of Company Stock for the
removal without cause of any director designated by any other Stockholder in
accordance with Section 2.1. Any Stockholder or group of Stockholders who has
the right to designate any member(s) of the Board of Directors shall have the
right to replace any member(s) so designated by it (whether or not such member
is removed from the Board of Directors with or without cause or ceases to be a
member of the Board of Directors by reason of death, disability or for any other
reason) upon written notice to the other Stockholders, the Company and the
members of the Board of Directors which notice shall set forth the name of the
member(s) being replaced and the name of the new member(s). Each of the
Stockholders agree to vote, and to cause its Affiliated Successors to vote, its
shares of Company Stock for the election of any successor director designated by
any Stockholder pursuant to this Section 2.2.
2.3 DIRECTORS. In accordance with the Oklahoma General Corporation
Act and pursuant to the provisions of Section 2.1 of this Agreement, the
Stockholders hereby consent to the election of and do hereby elect in accordance
with Section 2.1 hereof the persons designated in Schedule II hereto as
directors of the Company. Such persons shall hold office until their successors
are duly elected and qualified, except as otherwise provided in this Agreement,
the Restated Certificate or the Restated By-Laws.
2.4 REIMBURSEMENT OF EXPENSES. For so long as JWC and AWS hold their
respective Minimum Equity Ownership, JWC and AWS shall each have the right to
have an observer present at all meetings of the Board of Directors and any
committees thereof (in addition to any directors appointed pursuant to Sections
2.1(a)(i) and (ii) above). The Company will reimburse the observers appointed
pursuant to this Section and each member of the Board of Directors for the
reasonable and documented out-of-pocket expenses and costs (including travel
expenses) incurred by such observers or such directors in connection with the
performance by each such person of his service as an observer or as a director
or as a member of any committee of the Board of Directors.
2.5 BUSINESS OF THE COMPANY. The business and affairs of the Company
shall be conducted by the officers of the Company under the supervision of the
Board of Directors. The Board of Directors of the Company shall meet at least
once per fiscal quarter.
2.6 REQUIRED VOTES. All actions of the Board of Directors of the
Company shall require the vote of at least a majority of the entire Board of
Directors, unless otherwise required by Law, the Restated Certificate, the
Restated By-Laws or this Agreement.
2.7 OTHER ACTIONS. The Company shall not, and shall not permit any of
its Subsidiaries to, take any of the following actions without the prior
approval of a majority of directors of the Board of Directors of the Company:
(i) register securities under the Securities
-11-
<PAGE>
Act or grant registration rights; (ii) except as otherwise provided herein,
change the size of the Board of Directors; (iii) change the Company's
independent public accountants; (iv) amend this Agreement, subject to Section
10.3; (v) adversely amend or alter any preferences, rights or powers of the
Class B Common Stock, whether such rights are set forth in the Restated
Certificate, the Restated By-Laws or this Agreement; or (vi) merge or
consolidate with or into another Person, or sell all or substantially all of
its assets or liquidate its assets or business. Nothing in this Section 2.7
is intended to imply that by virtue of the approval of the Board of Directors
pursuant to this Section 2.7 the Company can take any action (including any
action requiring separate or additional approval by the Stockholders herein)
that it is otherwise prohibited from taking.
ARTICLE 3.
TRANSFERS OF SHARES
3.1 TRANSFERS TO MAJOR TELECOM COMPETITORS. Notwithstanding
anything to the contrary contained in this Agreement, except in a registered
public offering not directed to a Major Telecom Competitor, the Dobson
Partnership shall not, nor shall it permit any of its Affiliates (other than
the Company) to, Transfer any shares of Company Stock to a Major Telecom
Competitor, unless such Major Telecom Competitor makes an irrevocable offer
to AWS and its Affiliates to purchase from them for cash, at the same price,
at the same time and otherwise on the same terms and conditions (except for
any non-compete, non-solicit or similar obligations) as the Transfer to such
Major Telecom Competitor by the Dobson Partnership or such Affiliate, all of
the shares of Company Stock then Beneficially Owned by AWS and its
Affiliates. AWS shall have 13 days to accept such offer as to all or any
portion of the Company Stock held by AWS and its Affiliates and, to the
extent AWS and its Affiliates so elect, the Transfer of all of the shares of
Company Stock in respect of which AWS accepted such offer shall be
consummated concurrently with the consummation of any such sale by the Dobson
Partnership or such Affiliate, PROVIDED, that if AWS's sale is subject to the
consent of the FCC or any public service or public utilities commission, such
sale shall be closed on the fifth business day after all such consents shall
have been obtained by Final Order. The provisions of this Section 3.1 shall
not apply to any transferees or assigns of AWS other than its Affiliates.
3.2 TRANSFER AND CONVERSION OF CLASS B COMMON STOCK. The provisions
of the Restated Certificate relating to Transfer and conversion of the Class B
Common Stock, together with related definitions and other terms, as in effect on
the date hereof, are hereby incorporated herein by reference, MUTATIS MUTANDIS,
as if set forth herein in full.
3.3 ADDITIONAL CONDITIONS TO PERMITTED TRANSFERS. As a condition to
any Transfer of Company Stock (other than to the public) permitted pursuant to
this Article 3, each transferee that is not a party hereto shall, prior to such
Transfer, agree in writing to be bound by all of the provisions of this
Agreement applicable to the Stockholders (and shall thereby become a Stockholder
for all purposes of this Agreement). Any transferee of shares of Class B Common
-12-
<PAGE>
Stock pursuant to any Transfer made in violation of this Article 3 shall have
no rights as a Stockholder of the Company and no other rights against or with
respect to the Company 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.
3.4 CAPITAL RAISING.
(a) If the Company or any Subsidiary in the future proposes to
raise private equity capital from any third party or parties, it shall provide
JWC and AWS with the terms of such proposal prior to approaching other potential
investors and shall grant JWC and AWS the initial opportunity to make any such
investment by written notice to JWC and AWS (the "Equity Notice"), PROVIDED that
nothing herein shall require the Company to enter into any agreement or sale
with JWC or AWS as to such private equity capital on terms less favorable than
the prevailing market terms and rates offered to comparable companies to the
Company. If JWC or AWS determines to provide such private equity capital, then
JWC or AWS shall notify the Company and AWS or JWC, as applicable, within 10
days of receipt of the Equity Notice. In the event JWC or AWS fail to provide
such notification prior to the expiration of such period, its rights to provide
such private equity capital shall lapse; if both JWC and AWS fail to provide
such notice, the Company shall have the right for 180 days following the
expiration of such period to issue and sell such equity to a third party at a
price and on other terms no more favorable to such third party than the terms
offered to JWC and AWS. In the event JWC and AWS elect to purchase such equity,
each of JWC and AWS will be entitled to provide its pro rata portion thereof,
determined by reference to their respective holdings of Common Stock then
Beneficially Owned by them on substantially the same terms and conditions. In
the event either JWC or AWS does not elect to purchase its pro rata portion of
such equity, either JWC or AWS, respectively, shall have the right to purchase
all of such equity. The rights of JWC and AWS under this Section shall not be
assignable to any other Person.
(b) The rights provided to JWC and AWS in this Section 3.3
shall terminate (a) in the case of JWC, if JWC ceases to Beneficially Own at
least 1,425,000 shares of Common Stock (as adjusted for stock splits, stock
dividends and similar distributions and events) (the "Private Equity Minimum
Ownership Requirement") and (b) in the case of AWS, if AWS ceases to
Beneficially Own at least the Private Equity Minimum Ownership Requirement. The
number of shares constituting the Private Equity Minimum Ownership Requirement
shall, in the event of any redemption or other acquisition of shares by the
Company, be reduced by the number of shares Beneficially Owned by JWC and/or AWS
that are redeemed or otherwise acquired.
ARTICLE 4.
REGISTRATION RIGHTS
The Company will not grant registration rights for Company Stock to a
Person other than the Stockholders on terms senior to or more favorable than
those granted to the Stockholders.
-13-
<PAGE>
4.1 (a) DEMAND REGISTRATION RIGHTS.
(i) RIGHT TO DEMAND REGISTRATION. At any time following 180 days
after the IPO Date (or such longer period as may be reasonably required by the
managing underwriters of the Company's IPO) (A) the Dobson Partnership shall
have the right to make one written request, (B) JWC shall have the right to make
two written requests and (C) AWS shall have the right to make one written
request (each, a "Demanding Stockholder" and, collectively, the "Demanding
Stockholders") to the Company for registration with the Commission, under and in
accordance with the provisions of the Securities Act, of all or part of their
Registrable Securities pursuant to an underwritten offering (a "Demand
Registration"), which request shall specify the number of Registrable Securities
proposed to be sold in the offering; PROVIDED, HOWEVER, that the Company need
not effect a Demand Registration unless the sale of the Registrable Securities
proposed to be sold by the Demanding Stockholder shall reasonably be expected to
result in aggregate gross proceeds of at least $20.0 million. A Demand
Registration shall not be deemed a Demand Registration hereunder until such
Demand Registration has been declared effective by the Commission (without
interference by any stop order, injunction or other order or requirement of the
Commission or other governmental agency, for any reason), and maintained
continuously effective for a period of at least six (6) months or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such Demand Registration. A Demanding Stockholder may make a
written request for a Demand Registration in accordance with the foregoing in
respect of Company Stock that it intends to convert into shares of Common Stock
upon the effectiveness of the Registration Statement prepared in connection with
such demand, and the Company shall fulfill its obligations under this Article 4
in a manner that permits such Demanding Stockholder to exercise its conversion
rights in respect of such Company Stock and substantially contemporaneously sell
the shares of Common Stock issuable upon such conversion under such Registration
Statement.
(ii) SHELF REGISTRATION. In addition to the rights set forth in
the preceding paragraph, each of JWC, AWS and the Dobson Partnership shall have
the right to demand on one occasion that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for an offering of
Registrable Securities in which at least $15.0 million of gross proceeds are
reasonably expected therefrom, PROVIDED that the Company is not obligated to
participate in any "road-show" or exceptional marketing, diligence or other
efforts in connection with such offering and, PROVIDED, FURTHER, that each such
Stockholder shall only be permitted to make sales of Registrable Securities
under such registration statement during (A) the twenty business days beginning
on the second business day following the date on which the Company files a
Quarterly Report on Form 10-Q or its Annual Report on Form 10-K ("Normal Selling
Periods") and (B) any period during which a registration statement covering
sales by other securityholders of the Company is effective and such other
securityholders are making sales thereunder or are entitled to make sales
thereunder without obtaining the prior consent of the Company ("Additional
Selling Periods") and together with Normal Selling Periods, "Selling Periods").
The Company shall not be required to monitor or advise the Stockholders of the
existence of Additional Selling Periods, PROVIDED that the Company shall
promptly respond to
-14-
<PAGE>
any inquiry from any such Stockholder as to whether an Additional Selling
Period is in effect as of the date of such inquiry and the following ten
business days and, if no Additional Selling Period is in effect on the date
of such inquiry, but an Additional Selling Period becomes effective within
ten business days following the date of such inquiry, the Company shall
promptly notify such Stockholders thereof. This additional demand
registration provided by this paragraph will be a "shelf-registration" under
Rule 415 of the Securities Act to be kept effective for an aggregate period
of one year (a "Shelf Registration"), unless otherwise requested by the
Stockholder demanding such registration. The aggregate one year effective
period for such Shelf Registration shall not run during any period during
which the Stockholder is subject to a lock-up or market standoff agreement
for the benefit of the Company. The procedures and limitations for effecting
the registration of the Registrable Securities on Form S-3 (or any successor
form to Form S-3), including the procedure used for any underwriting
limitation, if sales of Registrable Securities under the Shelf Registration
are pursuant to an underwritten offering, shall be as set forth in this
Article 4 with respect to Demand Registrations and Shelf Registrations will
be considered Demand Registrations for such purposes unless otherwise
specifically provided.
(iii) NOTICE. Within ten (10) days after receipt of the request
for a Demand Registration, the Company will send written notice (the "Demand
Notice") of such Registration request and its intention to comply therewith to
all Stockholders who are holders of Registrable Securities and, subject to
Section 4(a)(iv), the Company will include in such Demand Registration all
Registrable Securities of such Stockholders with respect to which the Company
has received written requests for inclusion therein within twenty (20) days
after the last date such Demand Notice was deemed to have been given pursuant to
Section 4(a).
(iv) PRIORITY ON REGISTRATION. If the managing underwriter or
underwriters advise the Company and the holders of the Registrable Securities to
be registered in writing that in its or their opinion the number of Registrable
Securities proposed to be sold in any Registration under this Section 4(a) and
any other securities of the Company requested or proposed to be included in such
Registration exceeds the number that can be sold in such offering without (A)
creating a substantial risk that the proceeds or price per share that will be
derived from such Registration will be materially reduced or that the number of
Registrable Securities to be registered is too large a number to be reasonably
sold, or (B) materially and adversely affecting such Registration in any other
respect, the Company will (x) include in such Registration the aggregate number
of Registrable Securities recommended by the managing underwriter on the
following basis: FIRST, the Registrable Securities requested to be registered
on behalf of the demanding stockholder, unless the demanding stockholder is the
Dobson Partnership, under this Section 4(a) or (b); SECOND, the Registrable
Securities requested to be registered on behalf of the other Stockholders (other
than the demanding stockholder and the Dobson Partnership) under this Section
4(a); and THIRD, any securities requested to be registered on behalf of the
Dobson Partnership under this Section 4(a); and (y) not allow any securities
other than Registrable Securities to be included in such Registration unless all
Registrable Securities requested to be included shall have been included
therein, and then only to the extent recommended by the managing underwriter or
determined by the Company after consultation with an investment banker of
nationally
-15-
<PAGE>
recognized standing (notification of which number shall be given by the
Company to the holders of Registrable Securities).
(v) SELECTION OF UNDERWRITERS. The offering of such Registrable
Securities pursuant to such Demand Registration (other than a Shelf
Registration) shall be in the form of an underwritten offering. The Demanding
Stockholder that initiated such Demand Registration or Shelf Registration, if
applicable, will select a managing underwriter or underwriters of recognized
national standing to administer the offering, which managing underwriter or
underwriters shall be reasonably acceptable to the Company.
(vi) RIGHT TO PREEMPT. Notwithstanding any other provision of
this Agreement to the contrary, the Company shall have the right to preempt any
Demand Registration (including a Shelf-Registration) upon notice to any
Demanding Stockholders stating that the Company intends to effect a registration
of securities for its own account within the succeeding thirty (30) days, in
which case the Company shall be under no obligation to effect such Demand
Registration at that time. The Company shall have the right to preempt a Demand
Registration not more than once in any twelve month period. A Demand
Registration that is preempted pursuant to this paragraph shall not count as a
Demand Registration for purposes of Section 4(a).
(vii) RIGHT TO DEFER. Notwithstanding anything set forth in this
Agreement to the contrary, no more frequently than once in any calendar year,
the Company shall have the right to delay the filing of a registration statement
pursuant to this Section 4(a) and to suspend the effectiveness of any such
registration statement for a reasonable period of time (not exceeding ninety
(90) days) if the Company furnishes to JWC and AWS a certificate signed by the
Chairman of the Board or the President of the Company stating that the Company
has determined in good faith that effecting such registration at such time would
adversely affect a material financing, acquisition, disposition of assets or
stock, merger or other comparable transaction or would require the Company to
make public disclosure of information the public disclosure of which would have
a material adverse effect upon the Company.
(b) PIGGYBACK REGISTRATION RIGHTS.
(i) RIGHT TO PIGGYBACK. If the Company proposes to register any
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) with the Commission under the Securities Act (other than a
registration on Form S-4 or Form S-8, or any successor forms), and the
registration form to be used may be used for the registration of the Registrable
Securities (a "Piggyback Registration"), the Company will give written notice (a
"Piggyback Notice") to all Stockholders, at least thirty (30) days prior to the
anticipated filing date, of its intention to effect such a Registration, which
notice will specify the proposed offering price (if determined at that time),
the kind and number of securities proposed to be registered, the distribution
arrangements and will, include in such Piggyback Registration, subject to
Section 4(b)(ii) below, all Registrable Securities with respect to which the
Company has received written requests (which requests have not been withdrawn)
for inclusion therein within twenty (20) days after the last date such Piggyback
Notice was deemed to have been given pursuant to Section
-16-
<PAGE>
10.2. If at any time after giving the Piggyback Notice and prior to the
effective date of the Registration Statement filed in connection with such
Registration, the Company determines for any reason not to register or to
delay Registration, the Company may, at its election, give written notice of
such determination to each holder of Registrable Securities that has
requested inclusion of Registrable Securities in such Registration and (A) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
Registration, and (B) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities for the
same period as the delay in registering such other securities.
(ii) PRIORITY ON REGISTRATION. If the managing underwriter or
underwriters advise the Company and the holders of the Registrable Securities to
be registered that in its or their opinion the number of Registrable Securities
proposed to be sold in any Registration under this Section 4(b) and any other
securities of the Company requested or proposed to be included in such
Registration exceeds the number that can be sold in such offering without (A)
creating a substantial risk that the proceeds or price per share that will be
derived from such Registration will be materially reduced or that the number of
Registrable Securities to be registered is too large a number to be reasonably
sold, or (B) materially and adversely affecting such Registration in any other
respect, the Company will include in such Registration the aggregate number of
Registrable Securities recommended by the managing underwriter on the following
basis:
(A) If a Piggyback Registration is on a Demand Registration under
Section 4(a), the Company shall include, Registrable Securities in accordance
with the priorities set forth in Section 4(a)(iv); and
(B) If a Piggyback Registration is on an underwritten primary
registration on behalf of the Company, the Company shall include, FIRST the
securities proposed to be sold by the Company for its own account; SECOND, the
Registrable Securities to be registered on behalf of JWC and AWS; and THIRD, any
securities to be registered on behalf of the Dobson Partnership and any other
Stockholder, in each case PRO RATA based on the amount of Registrable Securities
of the Stockholders requested to be included in such Registration.
The Company will not allow any securities other than Registrable Securities to
be included in such Registration unless all Registrable Securities requested to
be included shall have been included therein, and then only to the extent
recommended by the managing underwriter or determined by the Company after
consultation with an investment banker of nationally recognized standing
(notification of which number shall be given by the Company to the holders of
Registrable Securities).
(c) SELECTION OF UNDERWRITERS. Except as set forth in Section
4.1(a)(iv), the Company (by action of the Board of Directors) will select the
managing underwriter or underwriters to administer offerings of its Company
Stock, which managing underwriter or underwriters will be of nationally
recognized standing.
-17-
<PAGE>
(d) REGISTRATION PROCEDURES. With respect to any Demand Registration
(including a Shelf Registration) or Piggyback Registration (each, a
"Registration"), the Company shall, subject to Sections 4(a)(i) and (4)(a)(iv)
and Section 4(b)(i), as expeditiously as practicable:
(i) prepare and file with the Commission, as promptly as
reasonably practicable (but in no event more than forty-five (45) days) after
the receipt of the Registration requests under Sections 4(a) or 4(b), a
registration statement or registration statements (each, a "Registration
Statement") relating to the applicable Registration on any appropriate form
under the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof; cooperate and assist in any filings required to be made
with the NASD; and use its commercially reasonable efforts to cause such
Registration Statement to become and (to the extent provided herein) remain
effective; provided, however, that before filing a Registration Statement or
prospectus related thereto ("Prospectus") or any amendment or supplement
thereto, the Company shall furnish to the holders of the Registrable Securities
covered by such Registration Statement a copy of the information to be included
therein which relates specifically to such holder (i.e., its name, address and
number of Registrable Securities proposed to be sold) and its intended method of
distribution.
(ii) prepare and file with the Commission such amendments
and supplements to the Registration Statement as may be necessary to keep each
Registration Statement effective for six (6) months (twelve (12) months or such
longer period as is necessary to comply with the provisions of Section 4(a)(ii)
in the case of any Shelf Registration requested by a Stockholder pursuant to
this Article 4) or such shorter period that will terminate when all Registrable
Securities covered by such Registration Statement have been sold; cause each
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to the
Prospectus;
(iii) promptly notify the selling holders of Registrable
Securities and the managing underwriters, if any (and, if requested by any such
Person or entity, confirm such advice in writing), (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (B) of any request by the Commission for amendments
or supplements to the Registration Statement or the Prospectus or for additional
information; (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (D) if at any time the representations and
warranties of the Company contemplated by subsection (xiv) of this subsection
(d) below cease to be true and correct; (E) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or
-18-
<PAGE>
threatening of any proceeding for such purpose; and (F) of the happening of
any event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the
Prospectus or any document incorporated therein by reference in order to make
the statements therein not misleading;
(iv) use its commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of (I) the Registration
Statement, or (II) the qualification of the Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction at the earliest
possible time;
(v) if requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in connection with
an underwritten offering, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority of the Registrable Securities being sold agree should be
included therein relating to the plan of distribution with respect to such
Registrable Securities, including, without limitation, information with respect
to the number of Registrable Securities being sold to such underwriters, the
purchase price being paid therefor by such underwriters and any other terms of
the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(vi) furnish to each selling holder of Registrable
Securities and each managing underwriter, without charge, at least one signed
copy of the Registration Statement and any amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(vii) deliver to each selling holder of Registrable
Securities and the underwriters, if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such selling holder of Registrable Securities underwriters
may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such selling holder;
(viii) prior to any public offering of Registrable
Securities, use its reasonable best efforts to register or qualify or cooperate
with the selling holders of Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the Registration or
qualification of such Registrable Securities for offer and sale under the
securities or "blue sky" laws of such jurisdictions in the United States as any
seller or underwriter reasonably requests in writing, use its reasonable best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement; PROVIDED, HOWEVER,
that the Company will not be required to qualify generally to do business in any
jurisdiction where it is
-19-
<PAGE>
not then so qualified or to take any action that would subject it to taxation
or general service of process in any such jurisdiction where it is not then
so subject;
(ix) cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends and to be in such denominations
and registered in such names as the managing underwriters may request at least
two (2) business days prior to any sale of Registrable Securities to the
underwriters;
(x) use its reasonable best efforts to cooperate with any
selling holder to cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary to
enable the seller or sellers thereof or the underwriters, if any, to consummate
the disposition of such Registrable Securities;
(xi) upon the occurrence of any event contemplated by
subsection (iii)(F) above, promptly prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(xii) cause all Registrable Securities covered by any
Registration Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed, or, if not so listed, cause
such Registrable Securities to be authorized for trading on the NASDAQ National
Market System if any similar securities issued by the Company are then so
authorized, if requested by the holders of a majority of such Registrable
Securities or the managing underwriters, if any;
(xi) not later than the effective date of the applicable
Registration, provide a CUSIP number for all Registrable Securities;
(xii) enter into such customary agreements (including in
the case of a Demand Registration that is an underwritten offering, an
underwriting agreement in customary form) and take all such other actions
reasonably required in connection therewith in order to expedite or facilitate
the disposition of such Registrable Securities and in such connection, whether
or not an underwriting agreement is entered into and whether or not the
Registration is an underwritten Registration, (A) make such representations and
warranties to the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten offerings;
(B) use reasonable best efforts to obtain opinions of counsel to the Company and
updates thereof (which opinions of counsel shall be in form, scope and substance
reasonably satisfactory to the managing underwriters, if any, addressed to the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders
-20-
<PAGE>
and underwriters; (C) use reasonable best efforts to obtain "cold comfort"
letters and updates thereof from the Company's independent certified public
accountants addressed to the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with primary underwritten
offerings; and (D) deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with subsection (xi) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company. All the above in this Section 4(d)(xiv) shall be done at each
closing under each underwriting or similar agreement or as and to the extent
required thereunder;
(xiii) make available for inspection by a representative of
each Demanding Stockholder or selling holder, any underwriter participating in
any disposition pursuant to such Registration, and any attorney or accountant
retained by the sellers or underwriter, copies or extracts of all financial and
other records, pertinent corporate documents and properties of the Company as
shall be reasonably necessary, in the opinion of the holders' or underwriter's
counsel, to enable them to fulfill their due diligence responsibilities; and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement; PROVIDED, HOWEVER,
that the Company shall not be required to comply with this paragraph (xv) unless
such Person executes confidentiality agreements whereby such Person agrees that
any records, information or documents that are designated by the Company in
writing as confidential shall be kept confidential by such Persons and used only
in connection with the proposed Registration unless disclosure of such records,
information or documents is required by court or administrative order or any
regulatory body having jurisdiction; and each seller of Registrable Securities
agrees that it will, upon learning that disclosure of such records, information
or documents is sought in a court of competent jurisdiction or by a governmental
agency, give notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of any records,
information or documents deemed confidential; PROVIDED FURTHER, HOWEVER,
notwithstanding any designation of confidentiality by the Company, confidential
information shall not include information which (i) becomes generally available
to the public other than as a result of a disclosure by or on behalf of any such
Person, or (ii) becomes available to any such Person on a non-confidential basis
from a source other than the Company or its advisors, PROVIDED that such source
is not to such Person's knowledge bound by a confidentiality agreement with or
other obligations of secrecy to the Company or another party with respect to
such information; and
(xvi) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make generally
available to its security holders, earnings statements satisfying the provisions
of Section 11(a) of the Securities Act, no later than forty-five (45) days after
the end of any twelve (12)-month period (or ninety (90) days, if such period is
a fiscal year) (A) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm or best efforts
underwritten offering, or (B) if not sold to underwriters in such an offering,
beginning with the first month of the
-21-
<PAGE>
Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said twelve (12)-month
periods.
The Company may require each seller of Registrable Securities as
to which any Registration is being effected to furnish to the Company such
information regarding the proposed distribution of such securities as the
Company may from time to time reasonably request in writing. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 4(d)(xi), such holder shall forthwith
discontinue disposition of Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
4(d)(xi), or until it is advised in writing (the "Advice") by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus; and, if so directed by the Company, such holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such seller's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company gives any such notice, the time periods regarding the maintenance of the
effectiveness of any Registration Statement in Section 4(d)(ii) shall be
extended by the number of days during the period from and including the date of
the receipt of such notice pursuant to Section 4(d)(iii)(F) hereof to and
including the date when each seller of Registrable Securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended prospectuses contemplated by Section 4(d)(xi) or the Advice.
(e) INDEMNIFICATION.
(i) In the event of the Registration or qualification of any
Registrable Securities under the Securities Act or any other applicable
securities laws pursuant to the provisions of this Article 4, the Company agrees
to indemnify and hold harmless each Stockholder thereby offering such
Registrable Securities for sale (an "Indemnified Stockholder"), underwriter,
broker or dealer, if any, of such Registrable Securities, and each other Person,
if any, who controls any such Indemnified Stockholder, underwriter, broker or
dealer within the meaning of the Securities Act or any other applicable
securities laws, from and against any and all losses, claims, damages, expenses
or liabilities (or actions in respect thereof), joint or several, to which such
Indemnified Stockholder, underwriter, broker or dealer or controlling person may
become subject under the Securities Act or any other applicable federal or state
securities laws or otherwise, insofar as such losses, claims, damages, expenses
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement under which such Registrable Securities were
registered or qualified under the Securities Act or any other applicable
securities laws, any preliminary Prospectus or final Prospectus relating to such
Registrable Securities, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of any rule or regulation under
the Securities Act or any other applicable federal or state securities laws
applicable to the Company or relating to any action or
-22-
<PAGE>
inaction required by the Company in connection with any such Registration or
qualification, and will reimburse each such Indemnified Stockholder,
underwriter, broker or dealer and each such controlling person for any legal
or other expenses reasonably incurred by such Indemnified Stockholder,
underwriter, broker or dealer or controlling person in connection with
investigating or defending any such loss, claim, damage, expense, liability
or action; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, expense or liability
arises out of or is based upon an untrue statement or omission contained in
such Registration Statement, such preliminary Prospectus, such final
Prospectus or such amendment or supplement thereto, made in reliance upon and
in conformity with written information furnished to the Company by such
Indemnified Stockholder, underwriter, broker, dealer or controlling person
specifically and expressly for use in the preparation thereof or by the
failure of such Indemnified Stockholder, underwriter, broker or dealer, or
controlling person to deliver a copy of the Registration Statement, such
preliminary Prospectus, such final Prospectus or such amendment or supplement
thereto after the Company has furnished such party with a sufficient number
of copies of the same and such party failed to deliver or otherwise provide a
copy of the final Prospectus to the Person asserting an untrue statement or
omission or alleged untrue statement or omission at or prior to the written
confirmation of the sale of securities to such person, if such statement or
omission was in fact corrected in such final Prospectus.
(ii) In the case of an underwritten offering in which the
Registration Statement covers Registrable Securities, the Company agrees to
enter into an underwriting agreement in customary form and substance with such
underwriters and to indemnify the underwriters, their officers and directors, if
any, and each person, if any, who controls such underwriters within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act, to the
same extent as provided in the preceding paragraph with respect to the
indemnification of the holders of Registrable Securities; PROVIDED, HOWEVER, the
Company shall not be required to indemnify any such underwriter, or any officer
or director of such underwriter or any person who controls such underwriter
within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act, to the extent that the loss, claim, damage, expense or liability
(or actions in respect thereof) for which indemnification is sought results from
such underwriter's failure to deliver or otherwise provide a copy of the final
Prospectus to the Person asserting an untrue statement or omission or alleged
untrue statement or omission at or prior to the written confirmation of the sale
of securities to such Person, if such statement or omission was in fact
corrected in such final Prospectus.
(iii) In the event of the Registration or qualification of any
Registrable Securities of the Stockholders under the Securities Act or any other
applicable federal or state securities laws for sale pursuant to the provisions
hereof, each Indemnified Stockholder agrees severally, and not jointly, to
indemnify and hold harmless the Company, each Person who controls the Company
within the meaning of the Securities Act, and each officer and director of the
Company from and against any losses, claims, damages, expenses or liabilities
(or actions in respect thereof), joint or several, to which the Company, such
controlling person or any such officer or director may become subject under the
Securities Act or any other applicable securities laws or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
-23-
<PAGE>
thereof) arise out of or are based upon any untrue statement of any material
fact contained in any Registration Statement under which such Registrable
Securities were registered or qualified under the Securities Act or any other
applicable securities laws, any preliminary Prospectus or final prospectus
relating to such Registrable Securities, or any amendment or supplement thereto,
or arise out of or are based upon an untrue statement therein or the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, which untrue statement or omission was
made therein in reliance upon and in conformity with written information
furnished to the Company by such Indemnified Stockholder specifically and
expressly for use in connection with the preparation thereof, and will reimburse
the Company, such controlling person and each such officer or director for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, expense, liability or
action; provided, however, an Indemnified Stockholder's liability under this
Section 4(e)(iii) shall not exceed he net proceeds received by such Indemnified
Stockholder with respect to the sale of any Registrable Securities.
(iv) In the case of an underwritten offering of Registrable
Securities, each holder of a Registrable Security included in a Registration
Statement shall agree to enter into an underwriting agreement in customary form
and substance with such underwriters, and to indemnify such underwriters, their
officers and directors, if any, and each person, if any, who controls such
underwriters within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act, to the same extent as provided in the preceding
paragraph with respect to indemnification by such holder of the Company, but
subject to the same limitation as provided in Section 4(e)(ii) with respect to
indemnification by the Company of such underwriters, officers, directors and
control persons.
(v) Promptly after receipt by a person entitled to
indemnification under this Section 4(e) (an "Indemnified Party") of notice of
the commencement of any action or claim relating to any Registration Statement
filed under this Article 4 as to which indemnity may be sought hereunder, such
Indemnified Party will, if a claim for indemnification hereunder in respect
thereof is to be made against any other party hereto (an "Indemnifying Party"),
give written notice to each such Indemnifying Party of the commencement of such
action or claim, but the omission to so notify each such Indemnifying Party will
not relieve any such Indemnifying Party from any liability which it may have to
any Indemnified Party otherwise than pursuant to the provisions of this Section
4(e) and shall also not relieve any such Indemnifying Party of its obligations
under this Section 4(e) except to the extent that any such Indemnifying Party is
actually prejudiced thereby. In case any such action is brought against an
Indemnified Party, and such Indemnified Party notifies an Indemnifying Party of
the commencement thereof, such Indemnifying Party will be entitled (at its own
expense) to participate in and, to the extent that it may wish, jointly with any
other Indemnifying Party similarly notified, to assume the defense, with counsel
reasonably satisfactory to such Indemnified Party, of such action and/or to
settle such action and, after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party will not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof, other than the reasonable cost of investigation;
-24-
<PAGE>
PROVIDED, HOWEVER, that no Indemnifying Party shall consent to the entry of any
judgment or enter into any settlement agreement without the prior written
consent of the Indemnified Party unless such Indemnified Party is fully released
and discharged from any such liability, and no Indemnified Party shall consent
to the entry of any judgment or enter into any settlement of any such action the
defense of which has been assumed by an Indemnifying Party without the consent
of each Indemnifying Party. Notwithstanding the foregoing, the Indemnified Party
shall have the right to employ its own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (a) the employment of such counsel shall have been authorized in writing
by the Indemnifying Party in connection with the defense of such suit, action,
claim or proceeding; (b) the Indemnifying Party shall not have employed counsel
(reasonably satisfactory to the Indemnified Party) to take charge of the defense
of such action, suit, claim or proceeding; or (c) such Indemnified Party shall
have reasonably concluded, based upon the advice of counsel, that there may be
defenses available to it which are different from or additional to those
available to the Indemnifying Party which, if the Indemnifying Party and the
Indemnified Party were to be represented by the same counsel, could result in a
conflict of interest for such counsel or materially prejudice the prosecution of
the defenses available to such Indemnified Party. If any of the events specified
in clause (a), (b) or (c) of the preceding sentence shall have occurred or shall
otherwise be applicable, then the fees and expenses of one counsel or firm of
counsel selected by a majority in interest of the Indemnified Parties (and
reasonably acceptable to the Indemnifying Party) shall be borne by the
Indemnifying Party. If, in any such case, the Indemnified Party employs separate
counsel, the Indemnifying Party shall not have the right to direct the defense
of such action, sut, claim or proceeding on behalf of the Indemnified Party and
the Indemnified Party shall assume such defense and/or settle such action;
PROVIDED, HOWEVER, that an Indemnifying Party shall not be liable for the
settlement of any action, suit, claim or proceeding effected without its prior
written consent, which consent shall not be unreasonably withheld.
The provisions of this Section 4(e) shall be in addition to any
liability which any party may have to any other party and shall survive any
termination of this Agreement.
(f) CONTRIBUTION. If for any reason the indemnification provided
for in Section 4(e)(i) or 4(e)(iii) is unavailable to an Indemnified Party as
contemplated therein, then the Indemnifying Party, in lieu of indemnification
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such loss, claim, damage, expense or liability (or action in respect
thereof) in such proportion as is appropriate to reflect not only the relative
benefits received by the Indemnified Party and the Indemnifying Party, but also
the relative fault of the Indemnified Party and the Indemnifying Party, as well
as any other relevant equitable considerations, PROVIDED that no Stockholder
shall be required to contribute in an amount greater than the net proceeds
received by such Stockholder with respect to the sale of any Registrable
Securities less all amounts already contributed by such Stockholder with respect
to such claims, including amounts paid for any legal or other fees or expenses
incurred by such Stockholder. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of any such
fraudulent misrepresentation. The relative fault of such Indemnifying Party and
Indemnified
-25-
<PAGE>
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
(g) REGISTRATION EXPENSES. Except as hereinafter provided, all
expenses incident to the Company's performance of or compliance with this
Article 4 will be borne by the Company, including, without limitation, all
Registration and filing fees under the Securities Act and the Exchange Act, the
fees and expenses of the counsel and accountants for the Company (including the
expenses of any "cold comfort" letters and special audits required by or
incident to the performance of such persons), all other costs and expenses of
the Company incident to the preparation, printing and filing under the
Securities Act of the Registration Statement (and all amendments and supplements
thereto), and furnishing copies thereof and of the Prospectus included therein,
all out-of-pocket expenses of underwriters customarily paid for by issuers to
the extent provided for in any underwriting agreement, the costs and expenses
incurred by the Company in connection with the qualification of the Registrable
Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD, the costs and expenses of listing the Registrable Securities
for trading on a national securities exchange or authorizing them for trading on
NASDAQ and all other costs and expenses incurred by the Company in connection
with any Registration hereunder. In addition, the Company shall pay or
reimburse the sellers of Registrable Securities the reasonable fees and expenses
of one law firm to such sellers incurred in connection with a registration
(collectively, with the expenses referred to in the immediately preceding
sentence, the "Registration Expenses"). Except as provided in the immediately
preceding sentence, each Stockholder shall bear the costs and expenses of any
underwriters' discounts and commissions, brokerage fees or transfer taxes
relating to the Registrable Securities sold by such Stockholder and the fees and
expenses of any attorneys, accountants or other representatives retained by the
Stockholder.
(h) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Stockholder
may participate in any underwritten Registration hereunder unless such
Stockholder (i) agrees to sell its Registrable Securities on the basis provided
in any customary and reasonable underwriting arrangements approved by the
persons entitled hereunder to select the underwriter, and (ii) accurately
completes in a timely manner and executes all questionnaires, powers of
attorney, underwriting agreements, indemnities and other documents customarily
required under the terms of such underwriting arrangements.
(i) HOLDBACK AGREEMENTS.
(i) Each holder of Registrable Securities whose securities
are included in a Registration Statement agrees not to effect any sale, transfer
or other disposition of Company Stock or any securities convertible into
Company Stock or other interest in the Company, including through any hedging or
derivative transaction or to effect any distribution of the issue
-26-
<PAGE>
being registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 or Rule 144A under the Securities Act,
during the fifteen (15) days prior to, and during the one hundred eighty
(180)-day period (or such longer period as reasonably requested by the
managing underwriter or underwriters in the case of an underwritten public
offering) beginning on, the effective date of such Registration Statement
(except as part of such Registration), if and to the extent requested by the
managing underwriter or underwriters in an underwritten public offering.
(ii) The Company agrees not to effect any public sale or
distribution of the issue being registered or a similar security of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities (other than any such sale or distribution of such securities in
connection with any merger or consolidation by the Company or any Subsidiary or
the acquisition by the Company or any Subsidiary of the capital stock or
substantially all of the assets of any other Person), during the fifteen (15)
days prior to, and during the ninety (90)-day period beginning on, the effective
date of each Demand Registration.
(j) PUBLIC INFORMATION REPORTING. (i) The Company hereby
covenants and agrees to and with the Stockholders that at all times following
the IPO Date it shall provide and file such financial and other information
concerning the Company as may from time to time be required by the Commission
and any other Governmental Authority having jurisdiction, so as to comply with
all reporting requirements under the Exchange Act, and shall, upon request,
state in writing that it has complied with all such requirements, and further
agrees that, for so long as (following the IPO Date) the Company is not subject
to Section 13 or 15(d) of the Exchange Act, the Company shall comply in all
respects with paragraph (c)(2) of Rule 144.
(ii) If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements. Upon the request
of a holder of Registrable Securities, the Company covenants and agrees to
provide the information required by Rule 144A(d)(4) under the Securities Act.
ARTICLE 5.
-27-
<PAGE>
ADDITIONAL RIGHTS AND COVENANTS
5.1 CONFIDENTIALITY.
(a) Each party shall, and shall cause each of its Affiliates,
and its and their respective stockholders, members, managers, directors,
officers, employees and agents (collectively, "Representatives") to, keep
secret and retain in strictest confidence any and all information relating to
the Company or any other party that is either a trade secret or material,
non-public information or is designated in writing by the party providing
such information or the Company as confidential (other than, in each case,
such information as is otherwise or becomes publicly available (other than in
violation of this Agreement or other applicable confidentiality agreements
among the parties), or has been or is independently developed or obtained
from a person in a manner not in violation of this Agreement or, to its
knowledge, any other confidentiality agreement) ("Confidential Information")
and shall not disclose such information, and shall cause its Representatives
not to disclose such information, to anyone except such Affiliates,
Representatives or any other Person that agrees in writing to keep in
confidence all such information in accordance with the terms of this Section
5.1. Each party agrees to use such information received from another party
or the Company only in connection with its ownership interest in the Company
but not for any other purpose. All such information furnished pursuant to
this Agreement shall be returned promptly to the party to whom it belongs
upon request by such party.
(b) To the fullest extent permitted by law, if a party or any
of its Affiliates or Representatives breaches, or threatens to commit a
breach of, this Section 5.1, the party whose Confidential Information shall
be disclosed, or threatened to be disclosed, shall have the right and remedy
to have this Section 5.1 specifically enforced by any court having
jurisdiction, it being acknowledged and agreed that money damages will not
provide an adequate remedy to such party. Nothing in this Section 5.1 shall
be construed to limit the right of any party to collect money damages in the
event of breach of this Section 5.1.
(c) Anything else in this Agreement notwithstanding, each
party shall have the right to disclose any information, including
Confidential Information of the other party or such other party's Affiliates,
in any filing with any regulatory agency, court or other authority or any
disclosure to a trustee of public debt of a party to the extent that the
disclosing party determines in good faith that it is required by Law,
regulation or the terms of such debt to do so; PROVIDED, HOWEVER, that any
such disclosure shall be as limited in scope as possible and shall be made
only after giving the other party as much notice as practicable of such
required disclosure and an opportunity to contest such disclosure if possible.
5.2 POOLING OF INTERESTS. In the event that the Company is sold in
a transaction involving a "pooling of interests" transaction, for a period of
not more than 90 days following consummation of such transaction, no
Stockholder shall sell, transfer or otherwise dispose of any Company Stock,
securities convertible into Company Stock or any other interest in the
-28-
<PAGE>
Company, if any such sale, transfer or other disposition would limit or deny
the applicability of the treatment of such pooling of interests.
5.3 INSPECTION OF PROPERTIES AND BOOKS. Subject to the provisions
of Section 5.5 below, each of the Company and the Subsidiaries shall permit
each of AWS or JWC, or any of their designated representatives, at the
Company's cost, to visit and inspect any of its properties, to examine its
books of account (and to make copies thereof and extracts therefrom), and,
upon reasonable notice, to discuss its affairs, finances and accounts with,
and to be advised as to the same by, officers or partners of such Persons,
all at such times and intervals during normal business hours and after
reasonable notice as AWS or JWC may reasonably request, PROVIDED, that in no
event shall any such visit, inspection, examination, discussion or advice
interfere in any material respect in the business or other operations of the
Company or any of its employees, representatives or officers.
5.4 INFORMATION COVENANTS. Subject to the provisions of Section
5.5 below, the Company hereby agrees that it will comply with, and it will
cause each Subsidiary to comply with, the following provisions:
5.4.1 ANNUAL STATEMENTS. (a) As soon as available to the
public (or, if the Company ceases to make such information available to the
public, within 90 days) after the close of each fiscal year of the Company,
the Company will deliver to each of AWS and JWC, audited consolidated and
unaudited consolidating balance sheets and statements of income and retained
earnings and of cash flows of the Company audited by Arthur Andersen, L.L.P.
or any other public accounting firm selected by the Company and reasonably
acceptable to AWS and JWC, showing the financial condition of the Company as
of the close of such fiscal year and the results of the Company's operations
during such fiscal year, all on a consolidated basis.
(b) Each of the financial statements delivered pursuant to
this SECTION 5.4.1 shall be certified without qualification by the applicable
accounting firm to have been prepared in accordance with GAAP consistently
applied.
5.4.2 QUARTERLY STATEMENTS. As soon as available to the
public (or, if the Company ceases to make such information available to the
public, within 45 days after the end of each fiscal quarter), the Company
will deliver to each of AWS and JWC consolidated and consolidating unaudited
balance sheets and statements of income and retained earnings and of cash
flows of the Company as of the end of each such quarter and for the period of
the then current fiscal year to the end of such month, and presenting on a
comparative basis the corresponding figures for such period in the preceding
fiscal year and the then current Budget (as defined below), in each case by
region, certified by the Chief Financial Officer of the Company to be true
and correct and to have been prepared in accordance with GAAP subject to
normal year-end adjustments described in reasonable detail.
5.4.3 BUDGETS AND OTHER REPORTS. (a) The Company will
deliver to each of AWS and JWC, prior to the commencement of each fiscal year
projected spending and capital budgets
-29-
<PAGE>
for the succeeding fiscal year, projected monthly statements of income and
cash flow for such fiscal year (the "Budget"), projected quarterly balance
sheets for such fiscal year and as soon as practical after preparation
thereof, complete and correct copies of all quarterly (if any) or annual
budgetary analyses or forecasts of the Company and the Subsidiaries in the
form customarily prepared by management for its own internal use or the use
of the Company.
(b) The Company shall also furnish to each of AWS and
JWC (i) within five (5) days of the Company's receipt thereof, copies of all
management letters of the Company's accountants; (ii) within five (5) days of
the Company's receipt thereof, notice with respect to any material pending or
threatened litigation to which the Company or any Subsidiary is or may become
a party; (iii) within five (5) days of the Company's receipt thereof, notice
of any default or event of default with respect to any material agreement to
which the Company or any Subsidiary is a party; (iv) within five (5) days of
the filing thereof, copies of all material filings made by or on behalf of
the Company or any Subsidiary with any governmental regulatory agency; and
(v) such other information as either AWS or JWC may reasonably request from
time to time.
(c) Within thirty (30) days after the end of each
calendar month, the Company will deliver to each of AWS and JWC monthly and
year-to-date summaries, in a form and to the same extent prepared by the
Company management on a consolidated basis broken down for each market in
which the Company or any Subsidiary operates any Cellular System or PCS
System compared on a monthly and year-to-date basis to the Company's Budget,
of the following: (a) number of POPs, (b) number of subscribers, (c) gross
activations, (d) net activations, (e) deactivations (and setting forth the
reason therefor), (f) acquisition cost per gross activation, (g) average
monthly revenue per subscriber, (h) total number of roaming minutes, (i)
total roaming revenue and (j) any other reasonable information which either
AWS or JWC may reasonably request from time to time.
5.4.4. FORMAT. All information and reports required to be
provided to AWS and JWC by this Section 5.4 may be provided to AWS and JWC in
the format such information and reports are provided to the financial
institutions which are parties to the Credit Agreement.
5.5 TERMINATION OF CERTAIN RIGHTS. In the event AWS and/or JWC is
no longer the Beneficial Owner of the Minimum Equity Ownership, the rights
set forth in Sections 5.3 and 5.4 shall terminate as to AWS and/or JWC, as
applicable.
ARTICLE 6.
EXCLUSIVITY
6.1 EXCLUSIVITY. Prior to the earlier of December 23, 2003 or the
date on which the relevant Stockholder Beneficially Owns less than 50% of the
Common Stock it Beneficially Owned as of September 17, 1999 on an "as-if
converted" basis, none of the Stockholders or their respective Affiliates will
provide or resell, or act as the agent for any Person offering, within the
-30-
<PAGE>
Territory, mobile wireless telecommunications services that compete with
those provided by the Company using wireless technologies and frequencies
licensed by the FCC without the Company's prior written consent. Nothing in
this Section 6.1 shall (i) prohibit JWC or its Affiliates from providing such
services in any part of the Territory in which the Company did not provide
such services at the time that JWC or its Affiliates initially began
providing them or (ii) restrict the ability of limited partners of any of JWC
or its Affiliates to invest in Persons engaged, directly or indirectly, in
the mobile wireless telecommunications industry. Anything to the contrary
herein, the terms of this Section 6.1 shall not apply to AWS and its
Affiliates (but nothing in this proviso shall relieve AWS's assigns and
transferees that are not Affiliates of AWS from the operation of this Section
6.1).
ARTICLE 7.
AFTER-ACQUIRED SHARES; RECAPITALIZATION
7.1 AFTER-ACQUIRED SHARES; RECAPITALIZATION.
(a) Except as expressly set forth herein, all of the
provisions of this Agreement shall apply to all of the shares of Company
Stock now owned or hereafter issued or transferred to a Stockholder or to
his, her or its Affiliated Successors as a consequence of any additional
issuance, conversion, purchase, exchange or reclassification of shares of
Company Stock, corporate reorganization, or any other form of
recapitalization, or consolidation, or merger, or share split, or share
dividend, or which are acquired by a Stockholder or its Affiliated Successors
in any other manner.
(b) Whenever the number of outstanding shares of Company Stock
is changed by reason of a stock dividend or a subdivision or combination of
shares effected by a reclassification of shares, each specified number of
shares referred to in this Agreement shall be adjusted accordingly.
ARTICLE 8.
SHARE CERTIFICATES
8.1 RESTRICTIVE ENDORSEMENTS; REPLACEMENT CERTIFICATES. (a) Each
certificate representing the shares of Company Stock now or hereafter held by
a Stockholder (including any such certificate delivered upon conversion of
the Preferred Stock) or delivered in substitution or exchange for any of the
foregoing certificates shall be stamped with legends in substantially the
following form:
The shares represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act
of 1933, as amended (the
-31-
<PAGE>
"Act"), or under any state securities or "Blue Sky" laws. Said
securities may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, unless and until registered under the Act and
the rules and regulations thereunder and all applicable state
securities or "Blue Sky" laws or exempted therefrom under the Act and
all applicable state securities or "Blue Sky" laws.
The shares represented by this Certificate are also subject to a
Stockholder and Investor Rights Agreement, a copy of which is on file
at the offices of the Company and will be furnished by the Company to
the holder hereof upon written request. Such Stockholder and Investor
Rights Agreement provides, among other things, for the granting of
certain restrictions on the sale, transfer, hypothecation or other
disposition of the shares represented by this Certificate. By
acceptance of this Certificate, each holder hereof agrees to be bound
by the provisions of such Stockholder and Investor Rights Agreement.
The Company reserves the rights to refuse to transfer the shares
represented by this Certificate unless and until the conditions to
transfer set forth in such Stockholder and Investor Rights Agreement
have been fulfilled.
Each Stockholder agrees that he, she or it will deliver all
certificates for shares of Company Stock owned by him, her or it to the
Company for the purpose of affixing such legends thereto.
(b) Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificate
representing shares of Company Stock subject to this Agreement and of a bond
or other indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender of such certificate, if mutilated, the Company will make and
deliver a new certificate of like tenor in lieu of such lost, stolen,
destroyed or mutilated certificate.
ARTICLE 9.
MISCELLANEOUS
9.1 JWC GROUP STOCKHOLDER REPRESENTATIVE. (a) Each JWC Group
Stockholder hereby designates and irrevocably appoints Dana L. Schmaltz, as
his Attorney-in-fact with full power of substitution (the "JWC Group
Stockholder Representative"), to serve as the representative of each such JWC
Group Stockholder to (i) perform all such acts as are required, authorized or
contemplated by this Agreement to be performed by such JWC Group Stockholder
and (ii) exercise such rights, power and authority as are incidental to this
Agreement and hereby acknowledges that the JWC Group Stockholder Representative
shall be the only person authorized to take any action so required, authorized
or contemplated by this Agreement by each such person. Any such actions
taken, exercises of rights, power or authority and any decision or
-32-
<PAGE>
determination made by the JWC Group Stockholder Representative consistent
therewith, shall be absolutely and irrevocably binding on each JWC Group
Stockholder as if such JWC Group Stockholder personally had taken such
action, exercised such rights, power or authority or made such decision or
determination in such Stockholder's individual capacity. Each such JWC Group
Stockholder further acknowledges that the foregoing appointment and designation
shall be deemed to be coupled with an interest and shall survive the death or
incapacity of such JWC Group Stockholder. The other parties hereto are and
will be entitled to rely on any action taken or any notice given by the JWC
Group Stockholder Representative and are and will be entitled and authorized
to give notices only to the JWC Group Stockholder Representative for any
notice contemplated by this Agreement to be given to any such person. A
successor to the JWC Group Stockholder Representative may be chosen by a
majority in interest of the JWC Group Stockholders, PROVIDED that notice
thereof is given by the new JWC Group Stockholder Representative to the
Company.
(b) The JWC Group Stockholder Representative shall not be
liable to the JWC Group Stockholders for the performance of any act or the
failure to act under or in connection with this Agreement so long as he acted
or failed to act in good faith in what he believed to be the scope of his
authority and for a purpose which he believed to be in the best interests of
the JWC Group Stockholders. Each of the JWC Group Stockholders will
indemnify the JWC Group Stockholder Representative, from and against any
loss, liability, damage, deficiency, cost and expense (including without
limitation reasonable expenses of investigation and reasonable Attorney's
fees incurred in connection with any claim, suit or proceeding brought
against him) incurred or sustained by him as a result of his individual acts
or omissions in connection with this Agreement, so long as he acted or failed
to act in good faith.
9.2 NOTICES. All notices or other communications hereunder shall
be in writing and shall be given (and shall be deemed to have been duly given
upon receipt) by delivery in person, by facsimile transmission, or by
registered or certified mail (return receipt requested), postage prepaid,
with an acknowledgment of receipt signed by the addressee or an authorized
representative thereof, addressed as follows (or to such other address for a
party as shall be specified by like notice; PROVIDED that notice of a change
of address shall be effective only upon receipt thereof:
If to JWC, to:
J. W. Childs Associates, L.P.
One Federal Street
Twenty-First Floor
Boston, MA 02110
Telephone: (617) 753-1100
Facsimile: (617) 753-1101
Attention: Dana L. Schmaltz
-33-
<PAGE>
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Facsimile: (617) 573-4822
Telephone: (617) 573-4800
Attention: Louis Goodman, Esq.
If to AWS, to:
AT&T Wireless Services, Inc.
7277 164th Ave., N.E.
Redmond, WA 98052
Facsimile: (425) 580-8405
Telephone: (425) 580-8416
Attention: William W. Hague
With a copy to:
AT&T Wireless Services, Inc.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Facsimile:
Telephone: (908) 221-2000
Attention: General Counsel
With a copy to:
Friedman Kaplan & Seiler, LLP
875 Third Avenue
New York, New York 10022-6225
Telephone: (212) 833-1100
Facsimile: (212) 355-6401
Attention: Matthew S. Haiken, Esq.
-34-
<PAGE>
If to the Company, to it:
Dobson Communications Corporation
13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114
Facsimile: (405) 529-8515
Telephone: (405) 529-8305
Attention: Everett R. Dobson, President
With a copy to the Company at the same address to:
Attention: Ronald L. Ripley, Senior Corporate Counsel
Facsimile: (405) 529-8765
Telephone: (405) 529-8376
With a further copy to:
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, RI 02903
Telephone: (401) 276-6586
Facsimile: (401) 276-6602
Attention: David K. Duffell, Esq.
9.3 ENTIRE AGREEMENT; AMENDMENTS; CONSENTS.
(a) This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, among the parties
or any of them with respect to the subject matter hereof, including, without
limitation, the Existing Agreement.
(b) No change or modification of this Agreement shall be
valid, binding or enforceable unless the same shall be in writing and signed
by the Company, the Dobson Partnership, and by each of JWC and AWS so long as
such party holds its Minimum Ownership Amount; PROVIDED, HOWEVER, that no
change or modification that adversely affects JWC or AWS shall be made
without the prior written consent of JWC or AWS, as the case may be; and
provided, further, that in the event any party hereto shall cease to own any
shares of Company Stock such party hereto shall cease to be a party to this
Agreement and, except as expressly provided herein, the rights and
obligations of such party hereunder shall terminate.
(c) Whenever in this Agreement the consent or approval of a
Stockholder is required, except as expressly provided herein, such consent or
approval may be given or withheld in the sole and absolute discretion of each
Stockholder.
-35-
<PAGE>
9.4 TERMINATION.
This Agreement shall terminate if all the parties hereto consent in
writing or if one Stockholder shall Beneficially Own all of the Common Stock;
provided, that (x) the termination of this Agreement shall not impair any
rights or obligations of any party hereto arising prior to the time of
termination, or which may arise by an event causing the termination of this
Agreement, (y) the provisions of Sections 5.1 and this Article 9 shall
survive any termination of this Agreement and (z) the provisions of Article 4
shall survive any termination of this Agreement and shall continue in full
force and effect until December 21, 2018.
9.5 WAIVER. No failure or delay on the part of any Stockholder in
exercising any right, power or privilege hereunder, nor any course of dealing
between the Company and any Stockholder shall operate as a waiver thereof nor
shall any single or partial exercise of any right, power or privilege
hereunder preclude the simultaneous or later exercise of any other right,
power or privilege. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights and remedies which any Stockholder
would otherwise have. No notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Stockholders
or any of them to take any other or further action in any circumstances
without notice or demand.
9.6 OBLIGATIONS SEVERAL. The obligations of each Stockholder under
this Agreement shall be several with respect to each such Stockholder.
9.7 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the law of the State of New York without reference to the
conflicts of law principles thereof.
9.8 DISPUTE RESOLUTION; WAIVER OF JURY TRIAL.
(a) The parties shall use and strictly adhere to the following
dispute resolution processes, except as otherwise expressly provided in this
Section 10.9, to resolve any and all disputes, controversies or claims,
whether based on contract, tort, statute, fraud, misrepresentation or any
other legal or equitable theory (hereinafter, "Dispute(s)"), arising out of
or relating to this Agreement (and any prior agreement this Agreement
supersedes), including without limitation, its making, termination,
non-renewal, its alleged breach and the subject matter of this Agreement
(E.G., products or services furnished hereunder or those related to those
furnished):
(b) The parties shall first attempt to settle each Dispute
through good faith negotiations. The aggrieved party shall initiate such
negotiations by giving the other party(ies) written notice of the existence
and nature of the Dispute. The other party(ies) shall in a writing to the
aggrieved party acknowledge such notice of Dispute within ten (10) business
days. Such acknowledgment may also set forth any Dispute that the
acknowledging party desires to have resolved in accordance with this Section.
-36-
<PAGE>
(c) Thereafter, if any Dispute is not resolved by the parties
through negotiation within thirty (30) calendar days of the date of the notice
of acknowledgment, either party may terminate informal negotiations with respect
to that Dispute and have the right, by delivery of written notice thereof (the
"Arbitration Notice") to the other party, to submit the matter to be finally
settled by arbitration in accordance with the Commercial Arbitration Rules then
in effect of the American Arbitration Association, as modified herein (the "AAA
Rules"). The place of arbitration shall be Oklahoma City, Oklahoma. All
matters so submitted to arbitration shall be settled by three arbitrators. The
disputing party and the Company shall each designate one arbitrator within 20
days of the delivery of the Arbitration Notice. If either the disputing party
or the Company fails so to timely designate an arbitrator, the matter shall be
resolved by the one arbitrator timely designated. The disputing party and the
Company shall cause the designated arbitrators to mutually agree upon and to
designate a third arbitrator, PROVIDED, HOWEVER, that failing such agreement
within 45 days of delivery of the Arbitration Notice, the third arbitrator shall
be appointed in accordance with the AAA Rules. The disputing party and the
Company, shall be responsible for the payment of the fees and expenses of their
respectively designated arbitrators and shall bear equally the fees and expenses
of the third arbitrator. The disputing party and the Company, shall cause the
arbitrators to decide the matter to be arbitrated pursuant hereto within 60 days
after the appointment of the last arbitrator. The arbitral tribunal is not
empowered to award damages in excess of compensatory damages and each party
hereby irrevocably waives any right to recover punitive, exemplary or similar
damages with respect to any Dispute. The final decision of the majority of the
arbitrators shall be furnished to the disputing party and the Company and each
of the Stockholders in writing and shall constitute a conclusive determination
of the matter in question, binding upon JWC, the Company and the Stockholders
and shall not be contested by any of them. Such decision may be used in a court
of law only for the purpose of seeking enforcement of the arbitrators' award.
Any arbitration proceeding, decision or award rendered hereunder and the
validity, effect and interpretation of this arbitration agreement shall be
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16, and judgment
upon any award may be entered in any court of competent jurisdiction.
(d) EACH OF THE PARTIES HERETO, AFTER CONSULTING WITH COUNSEL
WAIVE THEIR RIGHTS, IF ANY, TO JURY TRIAL IN RESPECT TO ANY DISPUTE OR CLAIMS
BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS
AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY
COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION ANY CLAIM UNDER THE SECURITIES ACT, THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, ANY OTHER STATE OR FEDERAL LAW RELATING TO
SECURITIES OR FRAUD OR BOTH, THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
ACT, AS AMENDED, OR FEDERAL OR STATE COMMON LAW.
9.9 BENEFIT AND BINDING EFFECT; SEVERABILITY. This Agreement shall be
binding upon and shall inure to the benefit of the Company, its successors and
assigns, and each of the
-37-
<PAGE>
Stockholders and their respective executors, administrators and personal
representatives and heirs and permitted assigns, and the Indemnified Parties.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any law or public policy or any listing
requirement applicable to the Common Stock, all other terms and provisions of
this Agreement shall nevertheless remain in full force and effect. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto affected by such
determination in any material respect shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner in order that the provisions hereof are
given effect as originally contemplated to the greatest extent possible.
9.10 FCC AND REGULATORY APPROVALS. Notwithstanding anything contained
in this Agreement to the contrary, no transaction or action contemplated herein
shall be consummated and no interests or rights transferred, converted or
exchanged prior to receiving FCC approvals with respect thereto to the extent
such FCC approvals are necessary.
9.11 EXPENSES. Except as otherwise provided herein, all attorneys'
fees incurred by the Stockholders in connection with this Agreement (including,
without limitation, in the preparation of notices (and responses thereto) and
consents) shall be borne by the Stockholder(s) incurring such fees.
9.12 ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
9.13 HEADINGS. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
9.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.15 FCC CONFLICT. In the event of an FCC Conflict, the party whose
action or inaction gave rise to the FCC Conflict shall be required to take the
actions necessary so that the FCC Conflict no longer exists.
9.16 EFFECTIVE DATE. This Agreement shall be effective on the IPO
Date.
IN WITNESS WHEREOF, each of the parties has executed or caused this
Agreement to be executed by its duly authorized officers as of the date first
written above.
-38-
<PAGE>
STOCKHOLDERS:
DOBSON CC LIMITED PARTNERSHIP
By: RLD, Inc., its General Partner
By: /s/ Everett Dobson
--------------------------------------
Name: Everett Dobson
Title: President
J.W. CHILDS EQUITY PARTNERS II, L.P.
By: J.W. Childs Advisors II, L.P.,
its general partner
By: J.W. Childs Associates, L.P.,
its general partner
By: J.W. Childs Associates, Inc.,
its general partner
By: /s/ Dana L. Schmaltz
--------------------------------------
Name: Dana L. Schmaltz
Title: Vice President
/s/ Dana L. Schmaltz
---------------------------------------------
Dana L. Schmaltz, as agent and Attorney-in-
fact for the JWC Group Stockholders under
Purchaser Appointment of Agent and Power of
Attorney and not in his individual capacity
AT&T WIRELESS SERVICES, INC.
By: /s/ Michael Schwarez
--------------------------------------
Name: Michael Schwarez
Title: Vice President and Assistant
Secretary
-39-
<PAGE>
COMPANY:
DOBSON COMMUNICATIONS CORPORATION
By: /s/ Everett Dobson
--------------------------------------
Name: Everett Dobson
Title: CEO and Chairman
-40-
<PAGE>
Schedule I
STOCKHOLDERS:
Dobson CC Limited Partnership
c/o Dobson Communications Corporation
13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114
Telephone: (405) 391-8500
Attention: Everett R. Dobson
J.W. Childs Equity Partners II, L.P.
One Federal Street
Twenty-First Floor
Boston, MA 02110
Telephone: (617) 753-1100
Attention: Dana Schmaltz
JWC Group Stockholders:
(See Attached sheet)
AT&T Wireless Services, Inc.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Telephone: (908) 221-2000
Attention: General Counsel
COMPANY
Dobson Communications Corporation
13439 N. Broadway Extension
Suite 200
Oklahoma City, OK 73114
Telephone: (405) 391-8500
Attention: Everett R. Dobson
-41-
<PAGE>
Schedule II
CAPITALIZATION
-42-
<PAGE>
Schedule III
NEW DIRECTORS
-43-
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made this ___ day of January, 2000,
between DOBSON COMMUNICATIONS CORPORATION, an Oklahoma corporation (the
"Corporation") and ___________________________ (the "Director").
WITNESSETH THAT:
WHEREAS, the Director has agreed to serve as a director of the
Corporation; and
WHEREAS, the Director will be performing a valuable service for the
Corporation; and
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers, agents
and employees of the Corporation to the maximum extent authorized by Section
1031 of the Oklahoma General Corporation Act, as amended (the "State Statute");
and
WHEREAS, the Bylaws and the State Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Corporation and the members of its Board of Directors with respect
to indemnification; and
WHEREAS, recent developments with respect to the application, amendment
and enforcement of statutory and by-law indemnification provisions generally
have raised questions concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby induce the
Director to serve and to continue to serve as a member of the Board of Directors
of the Corporation, the Corporation has determined and agreed to enter into this
contract with the Director;
NOW, THEREFORE, in consideration of the Director's willingness to serve
and continue to serve as a director, the parties have entered into this
agreement.
1. INDEMNITY OF DIRECTOR. The Corporation hereby agrees to hold
harmless and indemnify the Director to the fullest extent authorized or
permitted by the provisions of the State Statute, or by any amendment thereof,
or any other statutory provisions authorizing or permitting such indemnification
presently in existence or which may be adopted after the date hereof. In this
regard, the Corporation agrees to indemnify the Director and to hold the
Director harmless from and against any and all actual or threatened claims,
investigations, actions, appeals and other
<PAGE>
proceedings, whether civil, criminal, administrative or otherwise (any such
claim, threat, investigation, action, appeal or other proceeding hereinafter
referred to as an "Action"), damages, judgments, penalties, fines, losses,
liabilities, settlement amounts, costs and expenses (including, without
limitation, reasonable legal fees, costs and disbursements) (collectively,
"Losses") incurred, suffered or expended by or on behalf of, or threatened
against, the Director with respect to any action or inaction taken in the
course of (a) the Director's nomination and standing for election as a
director of the Corporation, (b) if elected a director of the Corporation,
the Director's duties as a director of the Corporation and any of its
subsidiaries, including without limitation any such Action or Loss to which
the Director may become subject under the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any state securities, takeover or corporate law, or any
other federal or state law or regulation or at common law, (c) the Director's
duties as an officer, employee or agent of the Corporation and any of its
subsidiaries (if he serves in such capacities) and (d) the Director's duties
as a director, officer, employee, or agent of any subsidiary of the
Corporation, or of another corporation, partnership, joint venture, trust or
other enterprise if serving in such capacities at the request of the
Corporation. If th Director is entitled under any provision of this Agreement
to indemnification by the Corporation for some or a portion of any Losses in
respect of an Action but not, however, for the total amount thereof, the
Corporation will nevertheless indemnify the Director for the portion thereof
to which the Director is entitled. Payment of any indemnification pursuant
to this Section 1 shall be made within thirty (30) business days after
request by the Director therefor. If requested by the Director, payment of
indemnification for any Losses shall be made as the same are incurred
notwithstanding that the Action in respect of which the Losses were incurred
has not been finally determined.
2. LIMITATIONS ON INDEMNITY. No indemnity pursuant to Section 1
hereof shall be paid by the Corporation:
2.1 In respect to remuneration paid to the Director if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
2.2 On account of any suit in which judgment is rendered
against the Director for an accounting of profits made from the purchase or sale
by the Director of securities of the Corporation pursuant to the provisions of
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder or similar provisions of any federal, state or local statutory law;
2.3 On account of the Director's conduct which is finally
adjudged to have been knowingly fraudulent, deliberately dishonest, grossly
negligent or to constitute willful misconduct; or
2.4 If a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful;
-2-
<PAGE>
provided, however, notwithstanding any other provision of this agreement to the
contrary, to the extent the Director has been successful on the merits or
otherwise in defense of any or all actions relating in whole or in part to an
Action for which indemnification may be provided under this Agreement or in
defense of any issue or matter therein, including dismissal without prejudice,
the Director will be indemnified against all Losses incurred in connection
therewith.
3. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period the Director is or
was serving as a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, and shall continue thereafter so long as the Director shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that the Director was a director of the Corporation or serving in any other
capacity referred to herein.
4. NOTIFICATION AND DEFENSE OF CLAIM. As soon as practicable after
receipt by the Director of notice of the commencement of any Action, the
Director will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the failure so to notify the Corporation will not relieve it from
any liability which it may have to the Director under this Agreement or
otherwise, except to the extent the Corporation is materially and adversely
prejudiced or affected by such failure. With respect to any such Action as to
which the Director notifies the Corporation of the commencement thereof:
4.1 The Corporation and its subsidiaries will be entitled to
participate therein at their own expense; and
4.2 Except as otherwise provided below, to the extent that it
may wish, the Corporation jointly with any other indemnifying party similarly
notified, if aplicable, will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to the Director. After notice from the
Corporation to the Director of its election so to assume the defense thereof,
the Corporation will not be liable to the Director under this Agreement for any
legal or other expenses subsequently incurred by the Director in connection with
the defense thereof other than reasonable costs of investigation or as otherwise
provided below. The Director shall have the right to employ its own separate
counsel in such Action but the fees and expenses of such counsel incurred after
notice from the Corporation of its assumption of the defense thereof shall be at
the expense of the Director unless (i) the employment of counsel by the Director
has been authorized by the Corporation, (ii) the Director shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
the Director in the conduct of the defense of such Action or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such Action, in each of which cases the reasonable fees and expenses of such
counsel shall be at the expense of the Corporation. The Corporation shall not
be entitled to assume the defense of any Action brought by or on behalf of the
Corporation or as to which the Director shall have made the conclusion provided
for in (ii) above.
-3-
<PAGE>
4.3 The Corporation shall not be liable to indemnify the
Director under this Agreement for any amounts paid in settlement of any Action
effected without its written consent. The Corporation shall not settle any
Action in any manner which would impose any penalty or liability on the Director
without the Director's written consent. Neither the Corporation nor the
Director will unreasonably withhold its consent to any proposed settlement.
5. ADVANCEMENT OF EXPENSES. The provisions of Section 1 of this
Agreement notwithstanding, the Corporation agrees to reimburse the Director
within ten (10) business days after request therefor, and in advance of the
final determination of any matter for which a claim for indemnification may be
made pursuant to this Agreement, to the fullest extent permitted by law for any
reasonable legal or other expenses incurred by the Director either in connection
with investigating, preparing to defend or defending, or providing evidence in
or preparing to serve or serving as a witness with respect to, any Action
arising in any manner out of or in connection with serving or acting as a
director of the Corporation including, without limitation, as described in
Sections 1(a) through 1(d), and in connection with the enforcement of this
Agreement and the indemnification obligations set forth herein. In addition, if
requested by the Director, the Corporation shall, within ten (10) business days
after request therefor, advance to the Director any such reasonable legal or
other expenses which the Director reasonably anticipates he will incur.
6. REPAYMENT OF EXPENSES. The Director agrees that the Director will
promptly, upon demand, reimburse the Corporation for all reasonable expenses
paid by the Corporation pursuant to Section 5 hereof in defending any Action
against the Director in the event and to the extent that it shall be ultimately
determined that the Director is not entitled to be indemnified by or receive
contribution from the Corporation for such expenses under the provisions of the
State Statute, the Bylaws, this Agreement or otherwise.
7. CONTRIBUTION. If indemnification is not available to the Director
under the provisions of this Agreement for any reason, the Director shall
nevertheless be entitled to contribution toward Losses. Such contribution shall
be (i) in such proportion as is appropriate to reflect the relative benefits
received by the Director and the Corporation resulting from the Director serving
as a director of the Corporation 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 Director on the one hand and the
Corporation on the other, in connection with the Action or other action, event
or omission which resulted in such Losses, as well as any other relevant
equitable considerations. The Director and the Corporation agree that it would
not be equitable if the amount of such contribution were determined by pro rata
or per capital allocation. The determination of relative benefits and, if
applicable, relative faults as set forth above shall be made by the Corporation
in good faith.
8. ENFORCEMENT.
8.1 The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby in order to induce the Director to serve and continue to
serve as a director of the Corporation and any of its
-4-
<PAGE>
subsidiaries, and acknowledges that the Director is relying upon this
Agreement. In connection with any determination as to whether the Director
is entitled to be indemnified under this Agreement, the burden of proof will
be on the Corporation to establish that the Director is not so entitled.
8.2 In the event the Director is required to bring any action
to enforce rights or to collect monies due under this Agreement and is
successful in such action, the Corporation shall reimburse the Director for all
of the Director's reasonable fees and expenses in bringing and pursuing such
action.
9. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
10. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION.
10.1 This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Oklahoma.
10.2 This Agreement shall be binding upon the Director and upon
the Corporation, its successors and assigns, and shall inure to the benefit of
the Director, his estate, heirs, personal representatives and assigns and to the
benefit of the Corporation, its successors and assigns.
10.3 The terms of this Agreement may be amended or modified only
an instrument in writing signed by the parties hereto.
11. NO PRESUMPTION. For purposes of this Agreement, the termination
of any Action by judgment, order, settlement (whether with or without court
approval), or conviction, or upon a plea of nolo contendere or its equivalent,
will not create a presumption that the Director did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
12. LIABILITY INSURANCE. To the extent the Corporation maintains an
insurance policy or policies providing directors' liability insurance, the
Corporation will use its best efforts to cause the Director to be covered by
such policy or policies, in accordance with its or their terms, to the maximum
extent of the coverage available for any Director of the Corporation.
13. RESERVATION OF RIGHTS. The indemnification provided by this
Agreement shall not be deemed exclusive of any other rights to indemnification
to which the Director may be entitled under any statute, certificate or articles
of incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise, and shall continue after the Director has ceased to be a
director or failed to be elected a director.
-5-
<PAGE>
14. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Corporation against
the Director or the Director's spouse, estate, heirs, executors or personal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of actin of the Corporation shall
be extinguished and deemed released unless asserted by the timely filing o f a
legal action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
14. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests, or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five (5) calendar days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or one business day after having been sent
for next-day delivery by a nationally recognized overnight courier service such
as Federal Express, UPS, DHL or Airborne, addressed to the Corporation (to the
attention of the President or the Secretary of the Corporation) at its address
set forth below and to the Director at his address set forth below, or to such
other address as either party may have furnished to the other in writing and in
accordance herewith, except that the notices of changes of address will be
effective only upon receipt.
15. WAIVER, ETC. No waiver or discharge of any provision of this
Agreement or a breach of any provision of this Agreement shall be effective
unless such waiver or discharge is agreed to in writing and signed by the party
to be charged. Any waiver on the part of any party hereto of any right or
interest under this Agreement shall not constitute the waiver of any other right
or interest or any subsequent waiver of such right or interest. The failure of
any party at any time to require performance of any provision of this Agreement
shall not affect the right of such party to require full performance thereof at
any time thereafter. Any waiver of any party of a breach of any provision of
this Agreement shall not constitute a waiver of any subsequent breach thereof
and shall not nullify the effectiveness of such provision. The failure by any
party to give notice of a breach of any provision of this Agreement shall not
constitute a waiver of such breach.
16. CAPTIONS; REFERENCES. The captions throughout this Agreement are
for convenience only and are not intended to limit or be used in the
interpretation of the provisions of this Agreement. References in this
Agreement to sections are references to Sections of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
-6-
<PAGE>
CORPORATION: DOBSON COMMUNICATIONS CORPORATION
By
-------------------------------
President
13439 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telephone: (405) 529-3500
Facsimile: (405) 529-8515
DIRECTOR:
---------------------------------
Director
---------------------------------
Address
---------------------------------
City State Zip
Telephone:
Facsimile:
-7-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AND CORPORATION SEPARATION
This AGREEMENT is made this 24th day of January, 2000 between Dobson
Communications Corporation, an Oklahoma corporation ("DOBSON"), and Logix
Communications Enterprises, Inc., an Oklahoma corporation ("LOGIX").
WHEREAS, Dobson owns all of the issued and outstanding capital stock
of Logix ("Logix Stock"); and
WHEREAS, it is the desire of Dobson to separate the business of Logix
and its subsidiaries, Logix Communications Corporation, Dobson Telephone
Company, Inc. (also known as McCloud Telephone Company), Dobson FIBER/FORTE
of Colorado, Inc., from the business of Dobson; and
WHEREAS, it is the parties' intention that, effective upon the Closing
(as hereinafter defined), (i) Dobson shall assume and accept or retain
responsibility for the Dobson Liabilities (as hereinafter defined), and (ii)
Logix shall assume and accept or retain responsibility for the Logix
Liabilities (as hereinafter defined), in each case except as otherwise
provided in that certain Agreement by and between Dobson and the shareholders
of Dobson dated as of the date hereof regarding possible tax liabilities
incurred by Dobson under Section 355(e) of the Internal Revenue Code of 1986,
as amended (the "TAX AGREEMENT");
NOW THEREFORE, in consideration of the mutual covenants herein set
forth, the parties agree as follows:
1. DISTRIBUTION OF LOGIX STOCK. Dobson will distribute all Logix
Stock, which shall constitute all such stock outstanding, to the holders of
Dobson Class A common stock, Dobson Class B common stock and Class D
preferred stock (collectively, the "Eligible STOCK"). Each holder of Logix
Stock will receive a percentage of the total outstanding shares of Logix
Stock equal to the percentage determined by dividing the total number of
shares of Dobson's Class A common stock, Class B common stock and Class D
preferred stock (which, for this purpose, will be treated as if they Class D
preferred stock had been fully converted into shares of Class A common stock
and Class E preferred stock, owned by such shareholder by the total
outstanding shares of Eligible Stock.
2. CLOSING. The closing shall take place at Dobson's principal
executive offices at 10:00 a.m., Oklahoma City time on January 24, 2000 (the
"CLOSING").
3. INDEMNIFICATION.
(a) CERTAIN DEFINITIONS.
"DOBSON BUSINESSES" means all of the businesses,
operations and assets of Dobson and its subsidiaries, including all of the
businesses, operations and assets that were previously conducted, owned or
used by any business or operation of Dobson (or any predecessor to such
business or operation), notwithstanding the fact that prior to the Closing (i)
<PAGE>
any such business or operation was closed, wound up or otherwise terminated,
(ii) such asset ceased to be used in connection with such business or
operation, or (iii) any such business, operation or asset was sold or
otherwise disposed of to any person or entity other than Logix and its
subsidiaries; PROVIDED, HOWEVER, that Dobson Businesses do not include the
Logix Businesses. For the purpose of the definition of "Dobson Businesses",
the term "Dobson" includes all direct and indirect subsidiaries of Dobson and
any partnerships in which it or any of its subsidiaries owns or at any time
in the past owned an interest.
"DOBSON LIABILITIES" means, except as otherwise
expressly provided for in this Agreement and except for potential tax
liabilities which are addressed in the Tax Agreement, any and all of the
obligations, liabilities and expenses incurred by Dobson, Logix or any of
their respective affiliates or subsidiaries or affiliates of such
subsidiaries arising out of or associated with, or any Litigation and Claims
alleged to arise out of or be associated with, the Dobson Businesses, whether
or not in the ordinary course of business, in each case whether matured or
unmatured, liquidated or unliquidated, fixed or contingent, known or unknown,
and whether arising out of circumstances existing prior to, on or subsequent
to the Closing and regardless of where or against whom such obligations,
liabilities and expenses are asserted or determined or whether asserted or
determined prior to, on or subsequent to the Closing, and regardless of
whether arising from or alleged to arise from negligence, recklessness,
violation of law, fraud, or misrepresentation by any of the Logix Parties,
and including, without limitation, the following items:
(i) all obligations, liabilities and expenses with
respect to health, safety, personal injury, property damage, employment,
benefits, compensation, pension rights, claims arising out of contracts,
intellectual property rights, product liability, warranty, merchantability or
fitness for any particular purpose of goods, conformity of goods to
contractual requirements, deceptive trade practice, misrepresentation, fraud
or any other alleged or actual breach or violation of any obligation or
requirement arising out of, or associated with, the Dobson Businesses;
(ii) all Litigation and Claims pending as of the
Closing against Logix or Dobson and/or any of their respective affiliates or
subsidiaries or affiliates of such subsidiaries ("PENDING DOBSON LITIGATION")
and all Litigation and Claims brought, threatened or alleged against Logix or
Dobson and/or any of their respective affiliates or subsidiaries or
affiliates of such subsidiaries after the Closing ("NEW DOBSON LITIGATION"),
in each case if and solely to the extent that such Litigation and Claims (in
whole or in part) arise out of or are associated with or are alleged
(regardless of the party named in the allegation or complaint) to arise out
of or to be associated with the Dobson Businesses;
(iii) all obligations, liabilities and expenses
(including, without limitation, all fines or penalties or costs of closure,
investigation and feasibility studies, attorneys' or consultants' fees or
remediation costs) of Logix, Dobson or any of their respective affiliates or
subsidiaries or affiliates of such subsidiaries arising under any federal,
state, local or foreign statutes, laws (including common law), codes, rules,
regulations, policies or guidelines or any administrative or judicial
interpretations thereof relating to the environment, natural resources and
public or employee health and safety arising out of or relating to, or
alleged to arise out of or relate to, the Dobson Businesses;
<PAGE>
(iv) any Litigation and Claims brought after the
Closing against Logix or its affiliates or subsidiaries or affiliates of such
subsidiaries by employees of Logix or Dobson or any of their respective
subsidiaries and affiliates claiming that they suffered personal injuries of
any kind, whether prior to, on or subsequent to, the Closing, arising or
alleged to arise from the Dobson Businesses;
(v) all obligations, liabilities and expenses (other
than those arising solely due to joint and several liability under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) with
respect to any employee benefit plan (within the meaning of Section 3(3) of
ERISA), including any multiemployer plan (within the meaning of Section 3(37)
of ERISA), maintained by, contributed to, or obligated to contribute to, at
any time, by Dobson ,or any of its subsidiaries or any trade or business
under common control or treated as a single employer with Dobson under
Section 414(b,-C-,(m) or (o) of the Code, other than Logix or any of its
subsidiaries; and
(vi) all obligations, liabilities and expenses with
respect to the employment or termination of employment, including a
constructive termination, of any individual by (A) Dobson or any Dobson
Business, or (B) any officer, director, employee or agent of Dobson or any
Dobson Business attributable to any actions or inactions by Dobson or any
Dobson Business.
"DOBSON PARTIES" means Dobson and any direct or indirect
subsidiary or affiliate of Dobson, other than Logix and any of its
subsidiaries, and any of their respective directors, shareholders, officers,
employees, agents, consultants, customers, representatives, successors,
transferees or assignees.
"LITIGATION AND CLAIMS" means litigation pending or
threatened or claims alleged against Logix Parties and/or Dobson Parties,
including, without limitation, civil and criminal actions, workers'
compensation proceedings, administrative and regulatory proceedings,
investigations, audits, inquiries, demands, claims (including any title
claims relating to real properties) and threatened actions.
"LOGIX BUSINESSES" means all of the businesses,
operations and assets of Logix and its subsidiaries, or any predecessor to
such business or operation, notwithstanding the fact that prior to the
Closing (i) any such business or operation was closed, wound up or otherwise
terminated, (ii) such asset ceased to be used in connection with such
business or operation, or (iii) any such business, operation or asset was
sold or otherwise disposed of to any person or entity except Dobson or its
subsidiaries or affiliates. For the purpose of the definition of "Logix
Businesses", the term "Logix" includes all direct and indirect subsidiaries
of Logix and any partnerships in which it or any of its subsidiaries owns or
at any time in the past owned an interest.
"LOGIX LIABILITIES" means, except as otherwise expressly
provided for in this Agreement and except for potential tax liabilities
addressed in the Tax Agreement, any and all of the obligations, liabilities
and expenses incurred by Dobson, Logix or any of their respective affiliates
or subsidiaries or affiliates of such subsidiaries arising out of or
associated with, or any Litigation and Claims alleged to arise out of or be
associated with the Logix
<PAGE>
Businesses, which or not in the ordinary course of business, in each case
whether matured or unmatured, liquidated or unliquidated, fixed or
contingent, known or unknown, and whether arising out of circumstances
existing prior to, on or subsequent to the Closing, and regardless of where
or against whom such obligations, liabilities and expenses are asserted or
determined or whether asserted or determined prior to, on or subsequent to
the Closing, and regardless of whether arising from or alleged to arise from
negligence, recklessness, violation of law, fraud or misrepresentation by any
of the Dobson Parties, and including, without limitation, the following items:
(i) all obligations, liabilities and expenses with
respect to health, safety, personal injury, property damage, employment,
benefits, compensation, pension rights, claims arising out of contracts,
intellectual property rights, product liability, warranty, merchantability or
fitness for any particular purpose of goods, conformity of goods to
contractual requirements, deceptive trade practice, misrepresentation, fraud
or any other alleged or actual breach or violation of any obligation or
requirement arising out of, or associated with, the Logix Businesses;
(ii) all Litigation and Claims pending as of the
Closing against Logix or Dobson and/or any of their respective affiliates or
subsidiaries or affiliates of such subsidiaries ("PENDING LOGIX LITIGATION")
and all Litigation and Claims brought, threatened or alleged against Logix or
Dobson and/or any of their respective affiliates or subsidiaries or
affiliates of such subsidiaries after the Closing ("NEW LOGIX LITIGATION"),
in each case if and solely to the extent that such Litigation and Claims (in
whole or in part) arise out of or are associated with or are alleged
(regardless of the party named in the allegation or complaint) to arise out
of or to be associated with the Logix Businesses;
(iii) all obligations, liabilities and expenses
(including, without limitation, all fines or penalties or costs of closure,
investigation and feasibility studies, attorney or consultant fees or
remediation costs) of Logix, Dobson or any of their respective affiliates or
subsidiaries or affiliates of such subsidiaries arising under any federal,
state, local or foreign statutes, laws (including common law), codes, rules,
regulations, policies or guidelines or any administrative or judicial
interpretations thereof relating to the environment, natural resources and
public or employee health and safety arising out of or relating to, or
alleged to arise out of or relate to the Logix Businesses;
(iv) any Litigation and Claims brought after the
Closing against Dobson or its affiliates or subsidiaries or affiliates of
such subsidiaries by employees of Dobson or Logix or any of their respective
subsidiaries and affiliates claiming that they suffered personal injuries of
any kind, whether prior to, on or subsequent to the Closing, arising out of,
or alleged to arise out of, the Logix Businesses;
(v) all obligations, liabilities and expenses (other
than those arising solely due to joint and several liability under ERISA)
with respect to any employee benefit plan (within the meaning of Section 3(3)
of ERISA), including any multiemployer plan (within the meaning of Section
3(37) of ERISA), maintained by, contributed to, or obligated to contribute
to, at any time, by Logix or any of its subsidiaries; and
<PAGE>
(vi) all obligations, liabilities and expenses with
respect to the employment or termination of employment, including a
constructive termination, of any individual by (A) Logix or any of the Logix
Businesses, or (B) any officer, director, employee or agent of Logix or any
of the Logix Businesses attributable to any actions or inactions by Logix or
any of the Logix Businesses.
"LOGIX PARTIES" means Logix and any direct or indirect
subsidiary or affiliate of Logix, and any of their respective directors,
shareholders, officers, employees, agents, consultants, customers,
representatives, successors, transferees or assignees.
(b) EXCULPATION AND INDEMNIFICATION BY DOBSON.
Subject to the provisions of Section 3(d) hereof, upon,
from and after the Closing, Dobson shall, without any further responsibility
or liability of, or recourse to, any of the Logix Parties, absolutely and
irrevocably assume and be solely liable and responsible for the Dobson
Liabilities. None of the Logix Parties shall be liable to any of the Dobson
Parties for any reason whatsoever on account of any Dobson Liabilities.
Dobson shall indemnify, defend, save and hold harmless
each of the Logix Parties from and against all claims, liabilities,
obligations, losses, costs, costs of defense (as and when incurred, and
including reasonable outside attorneys' and consultants' fees), expenses,
fines, charges, penalties, allegations, demands, damages (including but not
limited to actual, punitive or consequential, foreseen or unforeseen, known
or unknown), settlements, awards or judgments of any kind or nature
whatsoever, arising out of (i) the Dobson Liabilities, and (ii) the breach by
any of the Dobson Parties of any of their obligations under this Agreement
(all of which are hereinafter collectively referred to as the "LOGIX
DAMAGES").
Logix Damages with respect to which, but only to the
extent that, any proceeds are received by, or on behalf of, Logix or by any
of its subsidiaries or affiliates, from any third party insurance policy (and
are non-reimbursable by Logix or any of its subsidiaries or affiliates under
any self-insurance policy), shall not be the subject of indemnification under
this Agreement.
(c) GENERAL INDEMNIFICATION BY LOGIX.
Subject to the provisions of Section 3(d) hereof, upon,
from and after the Closing, Logix shall, without any further responsibility
or liability of, or recourse to, any of the Dobson Parties, absolutely and
irrevocably assume and be solely liable and responsible for the Logix
Liabilities. None of the Dobson Parties shall be liable to any of the Logix
Parties for any reason whatsoever on account of any Logix Liabilities.
Logix shall indemnify, defend, save and hold harmless
each of the Dobson Parties from and against all claims, liabilities,
obligations, losses, costs, costs of defense (as and when incurred, and
including reasonable outside attorneys' and consultants' fees), expenses,
fines, charges, penalties, allegations, demands, damages (including but not
limited to actual, punitive or consequential, foreseen or unforeseen, known
or unknown), settlements, awards or judgments of any kind or nature
whatsoever, arising out of (i) the Logix Liabilities, and (ii) the
<PAGE>
breach by any of the Logix Parties of any of their obligations under this
Agreement (all of which are hereinafter collectively referred to as the
"DOBSON DAMAGES").
Dobson Damages with respect to which, but only to the
extent that, any proceeds are received by, or on behalf of, Dobson or by any
of its subsidiaries or affiliates, from any third party insurance policy (and
are non-reimbursable by Dobson or any of its subsidiaries or affiliates under
any self-insurance policy), shall not be the subject of indemnification under
this Agreement.
(d) SPECIFIC INDEMNIFICATION ISSUES.
(i) In the event a claim, demand, action or
proceeding is brought by a third party in which the liability as between
Dobson and Logix is determined after trial in any judgment, award or decree
to be joint or concurrent or in which the entitlement to indemnification
hereunder is not readily determinable, the parties shall negotiate in good
faith in an effort to agree, as between Dobson and Logix, on the proper
allocation of liability or entitlement to indemnification, as well as the
proper allocation of the costs of any joint defense or settlement pursuant to
Section 3(f)(iv), all in accordance with the provisions of, and the
principles set forth in, this Agreement. In the absence of any such
agreement, such allocation of liability, entitlement to indemnification and
allocation of costs shall be subject to ultimate resolution between Dobson
and Logix pursuant to Section 4(h).
(ii) It is acknowledged that after the Closing the
parties will have arms length negotiated business relationships, which
relationships will be described in contracts, agreements and other documents
entered into in the normal course of business. Such documents may include
agreements by the parties and their affiliates and subsidiaries to supply
after the Closing, materials, products, services and leases. Such business
relationships shall not be subject to the indemnity provisions hereof, unless
the parties expressly agree to the contrary in the agreements governing such
relationships.
(e) NOTICE AND PAYMENT OF CLAIMS.
(i) If any person entitled to a defense and/or
indemnification under this Agreement (the "INDEMNIFIED PARTY") determines
that it is or may be entitled to a defense or indemnification by Logix or
Dobson, as the case may be (the "INDEMNIFYING PARTY"), under this Agreement:
(1) The Indemnified Party shall deliver
promptly to the Indemnifying Party a written notice and demand for a defense
or indemnification, specifying the basis for the claim or defense and/or
indemnification, the nature of the claim, and if known, the amount for which
the Indemnified Party reasonably believes it is entitled to be indemnified.
Nothing in this subparagraph shall be interpreted to invalidate any claim by
the Indemnified Party to be entitled to indemnification, unless the
Indemnifying Party can show that the failure of the Indemnified Party to
deliver such notice was intentional.
(2) The Indemnifying Party shall have 30 days
from receipt of the notice requesting indemnification within which to either:
(A) assume the defense of such litigation or claim; (B) pay the claim in
immediately available funds; (C) reserve its rights
<PAGE>
pending negotiations under Section 3(f)(iv); or (D) object in accordance with
Section 3(e)(ii). This 30-day period may be extended by agreement of the
parties. Nothing in this subparagraph shall be interpreted to abrogate or
delay a party's obligation to provide the other with a defense under this
Agreement.
(ii) The Indemnifying Party may object to the claim
for defense and/or indemnification set forth in any notice; PROVIDED,
HOWEVER, that if the Indemnifying Party does not give the Indemnified Party
written notice setting forth its objection to such claim (or the amount
thereof) and the grounds therefor within the same 30-day period (or any
extended period) referred to in Section 3(e)(i) above, the Indemnifying Party
shall be deemed to have acknowledged its liability to provide a defense or
for the amount of such claim and the Indemnified Party may exercise any and
all of its rights under applicable law to collect such amount or obtain such
defense. Any objection to a claim for a defense or indemnification shall be
resolved in accordance with Section 3(h)(viii).
(iii) The right to a defense or indemnification under
this Agreement applies only insofar as defense and indemnification are not
provided for by insurance from any third party insurance policy (and are
non-reimbursable by the Indemnified Party or any of its affiliates or
subsidiaries or affiliates of such subsidiaries under any self-insurance
policy). Nevertheless, the potential availability of insurance coverage to
Dobson or Logix shall not relieve the other party of its obligations for
defense or indemnification hereunder, or delay either party's obligation to
the other to assume a defense or pay any sums due hereunder.
(iv) Payments due to be made under this Agreement
shall carry interest from the date on which the Indemnified Party became
entitled to indemnification until the date of actual payment (whether before
or after judgment) at the prime rate charged by Chase Manhattan Bank, N.A. to
its corporate customers in effect during such period.
(v) Payments due to be made under this Agreement
shall be free and clear of all deductions, withholdings, set-offs or
counterclaims whatsoever, except as may be required by law. If any
deductions or withholdings are required by law the Indemnifying Party shall
be obliged to pay such sum as will, after such deduction, withholding,
set-off or counterclaim has been made, leave the Indemnified Party with the
same amount as it would have been entitled to receive in the absence of any
such requirement to make a deduction or withholding.
(vi) Payments due to be made under this Agreement
shall be reduced by the amount by which any taxes for which the Indemnified
Party would have been accountable or liable to be assessed are either (i)
actually reduced prior to payment falling due hereunder or (ii) likely to be
reduced subsequent to payment falling due hereunder in the reasonable opinion
of the Indemnified Party acting in good faith in the light of the
circumstances prevailing at the time of delivery of written notice in
accordance with Section 3(e)(i). The reductions of any payments to be made
in accordance with this Section 3(e)(vi) for tax benefits which will likely
be recognized within one year after the date on which the Indemnified Party
receives indemnification under this Agreement shall be made without regard to
the time value of money. The reduction of any payments to be made in
accordance with this Section 3(e)(vi) for tax benefits which will not likely
be recognized within one year after the date on which the
<PAGE>
Indemnified Party receives indemnification under this Agreement shall take
into account the time value of money from the time the applicable payment is
received until the date of such tax benefits are likely to be recognized,
using as the discount rate the prime rate charged by Chase Manhattan Bank,
N.A. to its corporate customers at the time the payment is received.
(vii) The parties to this Agreement may enter into
agreements or other arrangements providing for the set-off of payments due to
be made by way of indemnification to both Dobson and Logix.
(f) DEFENSE OF THIRD-PARTY CLAIMS.
(i) If the Indemnified Party's claim for
indemnification is based, under this Agreement, on a claim, demand,
investigation, action or proceeding, judicial or otherwise, brought by a
third party, and the Indemnifying Party does not object under Section
3(e)(ii) hereof, the Indemnifying Party shall, within the 30-day period (or
any extended period) referred to in Section 3(e)(i) above, assume the defense
of such third-party claim at its sole cost and expense and shall thereafter
be designated as the "Case Handler." Any such defense shall be conducted by
attorneys employed by the Indemnifying Party. The Indemnified Party may
retain attorneys of its own choosing to participate in such defense at the
Indemnified Party's sole cost and expense.
(ii) If the Indemnifying Party assumes the defense of
any such third-party claim, the Indemnifying Party may settle or compromise
the claim without the prior consent of the Indemnified Party so long as all
present and future claims relating to the compromised claim against the
Indemnified Party are irrevocably and unconditionally released in full.
(iii) The Indemnifying Party shall pay to the
Indemnified Party in immediately available funds the amount for which the
Indemnified Party is entitled to be indemnified within 30 days after the
settlement or compromise of such third-party claim or the judgment of a court
of competent jurisdiction (or within such longer period as agreed to by the
parties). If the Indemnifying Party does not assume the defense of any such
third-party claim, the Indemnifying Party shall be bound by the result
obtained with respect thereto by the Indemnified Party, except that the
Indemnifying Party has the right to contest that it is obligated to the
Indemnified Party under the terms of this Agreement, provided the
Indemnifying Party shall have raised its objection in a timely manner under
Section 3(e)(ii).
(iv) In the event a claim, demand, action or
proceeding is brought by a third party in which the liability as between
Logix and Dobson is alleged to be joint or in which the entitlement to
indemnification hereunder is not readily determinable, the parties shall
cooperate in a joint defense. Such joint defense shall be under the general
management and supervision of the party which is expected to bear the greater
share of the liability, and which will be considered the Case Handler, unless
otherwise agreed; PROVIDED, HOWEVER, that neither party shall settle or
compromise any such joint defense matter without the consent of the other.
The costs of such joint defense, any settlement and any award or judgment
(unless the award or judgment specifies otherwise) shall be borne as the
parties may agree; or in the absence of such
<PAGE>
agreement, such costs shall be borne by the party incurring such costs,
subject to ultimate resolution between Logix and Dobson pursuant to
Section 4(h).
(g) COOPERATION AND PRESERVATION OF RECORDS.
(i) Logix Parties and Dobson Parties shall cooperate
with one another fully and in a timely manner in connection with the defense
of any Pending Logix Litigation, New Logix Litigation, Pending Dobson
Litigation, New Dobson Litigation or any other actual or threatened claim.
(ii) Such cooperation shall include, without
limitation, making available to the other party, during normal business hours
and upon reasonable notice, all books, records and information ("LITIGATION
RECORDS"), officers and employees (without substantial interruption of
employment) necessary or useful in connection with any actual or threatened
claim, investigation, audit or proceeding.
(iii) Each party shall continue in force, or at the
request of the other party, shall issue, notices exempting from destruction
any Litigation Records which the requesting party represents may be necessary
to the defense of, or required to be produced in discovery in connection
with, any such claim, investigation, audit, action or proceeding and shall
refrain from destroying any such Litigation Records until authorized by the
requesting party. The requesting party shall notify the other party promptly
when the Litigation Records are no longer required to be maintained.
(iv) The party requesting access to Litigation Records
or officers and employees pursuant to Section 3(g)(ii) or preservation of
Litigation Records under Section 3(g)(iii) shall bear all reasonable
out-of-pocket expenses (except reimbursement of salaries, employee benefits
and general overhead) incurred by the other party in connection with
providing such Litigation Records or officers and employees.
(v) The party providing Litigation Records under this
Section 3(g) may elect, upon a reasonable basis and within a reasonable time,
to designate all or a portion of the Litigation Records as confidential or
proprietary. If Litigation Records are so designated, the party receiving
them will treat them as it would its own confidential or proprietary
information and will take all reasonable steps to protect and safeguard the
Litigation Records while in its own custody and will attempt to shield such
information from disclosure by motions to quash, motions for a protective
order, redaction or other appropriate actions.
4. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Oklahoma.
(b) This Agreement may be amended, modified or supplemented
only by a written agreement of the parties.
(c) Except as provided in this Section 4(c), this Agreement
shall be personal to the parties to it and may not be assigned without the
prior written consent of the other parties.
<PAGE>
Notwithstanding the foregoing, Dobson and Logix acknowledge and agree that
any party may assign its rights and delegate its obligations under this
Agreement, to one or more of its respective subsidiaries or affiliates,
provided that such an assignment shall have no effect on, and shall not be
deemed to constitute a release of such party from, its obligations under this
Agreement.
(d) This Agreement is solely for the benefit of the Dobson
Parties and the Logix Parties and is not intended to confer upon any other
person except such parties any rights or remedies hereunder. There are no
third party beneficiaries to this Agreement other than the Dobson Parties and
the Logix Parties.
(e) This Agreement may be entered into in any number of
counterparts and by the parties to it on separate counterparts, each of which
when so executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same instrument.
(f) If any term or provision of this Agreement shall be held
to be illegal or unenforceable, in whole or in part, under any enactment or
rule of law, such term or provision or part shall to that extent be deemed
not to form part of this Agreement but the enforceability of the remainder of
this Agreement shall not be affected. Subject thereto, should any term or
provision of this Agreement be or become ineffective, in whole or in part,
for reasons beyond the control of the parties hereto, the parties shall use
reasonable efforts to agree upon a new provision which shall as nearly as
possible have the same commercial effect as the ineffective term or provision
or part hereof.
(g) Any notice, claim or demand requiring to be served under
or in connection with this Agreement shall be in writing and shall be
sufficiently given or served if delivered addressed as follows:
If to Dobson or any other Dobson Party, to:
Dobson Communications Corporation
13439 North Broadway Extension, Suite 200
Oklahoma City, Oklahoma 73114
Attention: Ronald L. Ripley, Esq.
If to Logix or any other Logix Party, to:
Logix Communications Enterprises, Inc.
3555 N.W. 58th Street, 10th Floor
Oklahoma City, Oklahoma 73112
Attention: Geoffrey M. Boyd
Any such notice shall be delivered by hand or sent by first class post or
overnight courier. Any such notice shall take effect, in the case of hand
delivery, at the time of delivery, or, in the case of first class post,
forty-eight hours after posting.
<PAGE>
(h) Resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, statute or
otherwise, including, but not limited to, disputes over arbitration and
disputes in connection with claims by third parties (collectively,
"DISPUTES") shall be exclusively governed by and settled in accordance with
the provisions of this Section 4(h); PROVIDED, HOWEVER, that nothing
contained herein shall preclude either party from seeking or obtaining
(a) injunctive relief or (b) equitable or other judicial relief to enforce the
provisions hereof or, pending resolution of Disputes hereunder, to preserve
the status quo. Dobson or Logix (each a "PARTY") may commence proceedings
hereunder by delivering a written notice to the other Party providing
reasonable description of the Dispute to the other and expressly requesting
arbitration hereunder. The Parties hereby agree to submit all Disputes to
arbitration under the terms hereof, which arbitration shall be final,
conclusive and binding upon the Parties, their successors and assigns. The
arbitration shall be conducted in Oklahoma City by three arbitrators acting
by majority vote (the "PANEL") selected by agreement of the Parties not later
than ten (10) days after delivery of the demand or, failing such agreement,
appointed pursuant to the commercial arbitration rules of the American
Arbitration Association, as amended from time to time (the "AAA RULES"). If
an arbitrator so selected becomes unable to serve, his or her successor shall
be similarly selected or appointed. The arbitration shall be conducted
pursuant to the Federal Arbitration Act and such procedures as the Parties
may agree, or, in the absence of or failing such agreement, pursuant to the
AAA Rules. Notwithstanding the foregoing: (i) each Party shall have the right
to audit the books and records of the other Party that are reasonably related
to the Dispute; (ii) each Party shall provide to the other, reasonably in
advance of any hearing, copies of all documents which a Party intends to
present in such hearing; and (iii) each Party shall be allowed to conduct
reasonable discovery through written requests for information, document
requests, requests for stipulation of fact and depositions, the nature and
extent of which discovery shall be determined by the Panel, taking into
account the needs of the Parties and the desirability of making discovery
expeditious and cost effective. All hearings shall be conducted on an
expedited schedule, and all proceedings shall be confidential. Either Party
may at its expense make a stenographic record thereof. The Panel shall
complete all hearings not later than ninety (90) days after its selection or
appointment, and shall make a final award not later than thirty (30) days
thereafter. The award shall be in writing and shall specify the factual and
legal basis for the award. The Panel shall apportion all costs and expenses
of arbitration, including the Panel's fees and expenses and fees and expenses
of experts, between the prevailing and non-prevailing Party as the Panel
deems fair and reasonable. Notwithstanding the foregoing, in no event may
the Panel award multiple, punitive or exemplary damages. Any arbitration
award shall be binding and enforceable against the Parties hereto and
judgment may be entered thereon in any court of competent jurisdiction.
(i) Neither of the parties hereto shall impeach this
Agreement on the grounds that any of the Directors of Dobson stand in any
fiduciary position to Logix or that any of the Directors of Logix stand in
any fiduciary position to Dobson or that the Directors of either party do not
constitute an independent Board.
<PAGE>
IN WITNESS WHEREOF, Dobson and Logix have caused this Agreement
to be signed and delivered by their respective officers thereunto duly
authorized, all as of the date first written above.
DOBSON COMMUNICATIONS CORPORATION
/s/ Ronald L. Ripley
By-------------------------------
Ronald L. Ripley, Vice President
LOGIX COMMUNICATIONS ENTERPRISES, INC.
/s/ Albert H. Pharis Jr.
By-------------------------------
Albert H. Pharis Jr.
Name:--------------------------
CEO
Title:-------------------------
<PAGE>
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 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 such taxable income plus penalties or interest
thereon; or
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 the Code solely
<PAGE>
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, plus penalties or interest
thereon, 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. DCCLP shall promptly notify Dobson of a pending Prohibited Action
known to DCCLP.
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 prior agreements, understandings, and
representations (oral, written, implied, or expressed), with respect to such
subject matter.
6. 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.
<PAGE>
DATED the day and year first above written.
DOBSON: DOBSON COMMUNICATIONS CORPORATION,
an Oklahoma corporation
/s/ Ronald L. Ripley
By--------------------------------------------
Ronald L. Ripley, Vice President
DCCLP: DOBSON CC LIMITED PARTNERSHIP
By: RLD, INC., General Partner
/s/ Ronald L. Ripley
By-----------------------------------
Ronald L. Ripley, Attorney-in-fact
<PAGE>
===============================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
of
ACC ACQUISITION LLC
between
AT&T WIRELESS SERVICES JV CO.
and
DOBSON JV COMPANY
Dated as of January 31, 2000
===============================================================================
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, dated as
of January 31, 2000, by and between AT&T Wireless Services JV Co., a Delaware
corporation ("AWS Sub") and a 100% Subsidiary of AWS Wireless Services, Inc.,
a Delaware corporation ("AWS"), and Dobson JV Company, an Oklahoma
corporation ("DCC Sub") and a 100% Subsidiary of Dobson Communications
Corporation, an Oklahoma corporation ("DCC").
WHEREAS, AWS Sub and DCC Sub are party to the Operating Agreement
of ACC Acquisition LLC dated as of October 4, 1999 (the "Original
Agreement"); and
WHEREAS, AWS Sub and DCC Sub desire to amend and restate the
Original Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, it is hereby agreed, and the Original Agreement
is hereby amended and restated, as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement without other definition
shall, unless expressly stated otherwise, have the meanings specified in this
Article 1.
"80% Subsidiary" of a Person or group (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act and the regulations thereunder)
means any Subsidiary that is controlled by such Person or group, and at least
80% of whose voting power and at least 80% of whose economic interests are
owned directly by such Person or group or by an 80% Subsidiary of such Person
or group.
"100% Subsidiary" of a Person or group (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act and the regulations thereunder)
means any Subsidiary that is controlled by such Person or group, and 100% of
whose voting power and 100% of whose economic interests are owned directly by
such Person or group or by a 100% Subsidiary of such Person or group.
"Act" means the Delaware Limited Liability Company Act, as amended
from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:
<PAGE>
(i) such Capital Account shall be deemed to be increased by
any amounts which such Member is obligated to restore to the Company
(pursuant to this Agreement or otherwise) or is deemed to be obligated to
restore pursuant to the second to last sentence of Treasury Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5) (relating to allocations
attributable to nonrecourse debt); and
(ii) such Capital Account shall be deemed to be decreased by
the items described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)
(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied consistently
therewith.
"Adopted Service Features" means the Core Service Features and
additional service features that are adopted by the Company in accordance
with the terms of this Agreement.
"Affiliate" means, with respect to any Person, any other Person
that, either directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such Person.
"Affiliate Group" means each of the AWS Affiliate Group and the DCC
Affiliate Group.
"Agents" is defined in Section 8.9(a).
"Agreement" means this Amended and Restated Limited Liability
Company Agreement, as amended, modified, supplemented or restated from time
to time.
"Appraiser" is defined in Section 9.7.
"AT&T" means AT&T Corp.
"AT&T PCS" means AT&T Wireless PCS, LLC.
"AWS" is defined in the first paragraph hereof.
"AWS Affiliate Group" means (a) AWS Sub, so long as AWS Sub is an
80% Subsidiary of AWS, (b) AWS and any Subsidiary of AWS so long as such
Subsidiary is an 80% Subsidiary of AWS and (c) AT&T and any Subsidiary of
AT&T so long as such Subsidiary is an 80% Subsidiary of AT&T.
"AWS Member Group" means Members that are members of the AWS
Affiliate Group and their Private Transferees.
2
<PAGE>
"AWS Sub" is defined in the first paragraph hereof.
"Book Value" means, with respect to any asset of the Company, the
asset's adjusted basis as of the relevant date for federal income tax
purposes except as follows:
(i) the initial Book Value of any asset contributed by a Member to
the Company shall be the Fair Market Value of such asset, as determined by
the contributing Member and the Company with the concurrence of the
Management Committee;
(ii) the Book Values of all Company assets (including intangible
assets such as goodwill) shall be adjusted to equal their respective Fair
Market Values as of the following times:
(A) the acquisition of an additional Interest by any new or
existing Member in exchange for more than a de minimis capital
contribution;
(B) the distribution by the Company to a Member of more than
a de minimis amount of Company property other than money in exchange
for a Member's Interest in the Company, whether in liquidation of the
Company or otherwise, or a distribution in complete liquidation of the
Interest of a Member; provided that in connection with a distribution
other than in liquidation of the Company, only the Book Value of the
distributed asset shall be adjusted if the Management Committee
determines that such adjustment will be sufficient to reflect the
relative Interests of the Members; and
(C) the termination of the Company for federal income tax
purposes pursuant to Section 708(b) of the Code;
(iii) the Book Value of any Company asset distributed to any Member
shall be the Fair Market Value of such asset on the date of distribution;
and
(iv) if the Book Value of an asset has been determined or adjusted
pursuant to clause (i) or clause (ii) above, such Book Value shall
thereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Profits and Losses, and other items
allocated pursuant to Section 4.3.
The foregoing definition of Book Value is intended to comply with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(iv) and shall be
interpreted and applied consistently therewith.
"Business" means the business of (a) owning, constructing and
operating systems to provide Company Communications Services, solely within
the Territory, (b) providing to end-users and resellers Company
Communications Services available on such systems, (c) providing in
connection with such Company Communications Services, solely
3
<PAGE>
within the Territory, the Adopted Service Features and (subject to the
immediately following sentence) Telecommunications Services incidental or
ancillary to such Company Communications Services provided to end-users of
such Company Communications Services (including, by way of example, bundling
additional Telecommunications Services with Company Communications Services),
and (d) marketing and offering the services and features described in clauses
(b) and (c) within the Territory, including advertising such services and
features using broadcast and other media, so long as such advertising extends
beyond the Territory only when and to the extent necessary to reach customers
and potential customers in the Territory. The activities described in
clauses (a) and (b) shall be the indispensable requisite, and primary
business, of the Company and, to the extent the Company provides
Telecommunications Services incidental or ancillary thereto, the Company and
its Subsidiaries shall be only the agent or reseller for the provider thereof
and shall not own or lease the facilities used to provide such services,
except that the Company may own or lease facilities that, in the aggregate,
do not have a purchase price to the Company and its Subsidiaries in excess of
$10 million, and the Company may be a facilities-based provider of services
using such facilities.
"Buyers" is defined in Section 9.2(a).
"Buy-Sell Procedure" is defined in Section 9.9(a).
"Capital Account" is defined in Section 3.1(a).
"Cellular System" means a wireless communications system constructed
and operated in a Metropolitan Statistical Area or Rural Statistical Area as
defined by the FCC (or any territorial designations or subdivision thereof
authorized by the FCC) exclusively using frequencies in the 800 MHz band
allocated for the Cellular Radiotelephone Service under Part 22 of the FCC
Rules, pursuant to a License therefor issued by the FCC.
"Change of Control of DCC" means:
(i) at any time as Voting Securities of DCC (excluding shares of
Class B Common Stock owned beneficially by members of the Dobson Group)
having at least a majority of the voting power of the Voting Securities of
DCC then outstanding (on a fully diluted basis, treating Equity Interests
of DCC issuable upon the conversion, exchange or exercise of convertible or
exchangeable securities, or other rights to acquire Equity Interests, as
issued and outstanding) are not listed for trading on a national securities
exchange or quoted on the NASDAQ National Market System, any circumstance,
event or transaction following which
(A) the members of the Dobson Group cease to be the
exclusive "beneficial owners" (as such term is used in Rules 13d-3,
13d-5 or 16a-1 under the Exchange Act), of at least a majority of the
outstanding Equity Interests of DCC (on a fully diluted basis,
treating Equity Interests of DCC issuable upon the conversion,
exchange or exercise of convertible or
4
<PAGE>
exchangeable securities, or other rights to acquire Equity Interests,
as issued and outstanding) or
(B) Everett R. Dobson or (in the event of the death or
Disability of Everett R. Dobson) the members of the Dobson Group cease
to have, directly or indirectly, the exclusive right to vote Voting
Securities of DCC having at least a majority of the voting power of
the Voting Securities of DCC then outstanding;
(ii) so long as Voting Securities of DCC (excluding shares of Class
B Common Stock owned beneficially by members of the Dobson Group) having at
least a majority of the voting power of the Voting Securities of DCC then
outstanding (on a fully diluted basis, treating Equity Interests of DCC
issuable upon the conversion, exchange or exercise of convertible or
exchangeable securities, or other rights to acquire Equity Interests, as
issued and outstanding) are listed for trading on a national securities
exchange or quoted on the NASDAQ National Market System, any circumstance,
event or transaction following which
(A) the members of the Dobson Group cease to be the
exclusive "beneficial owners" (as such term is used in Rules 13d-3,
13d-5 or 16a-1 under the Exchange Act) of at least 35% of the
outstanding Equity Interests of DCC (on a fully diluted basis,
treating Equity Interests of DCC issuable upon the conversion,
exchange or exercise of convertible or exchangeable securities, or
other rights to acquire Equity Interests, as issued and outstanding)
or
(B) Everett R. Dobson or (in the event of the death or
Disability of Everett R. Dobson) the members of the Dobson Group,
cease to have, directly or indirectly, the exclusive right to vote
Voting Securities of DCC having at least 35% of the voting power of
the Voting Securities of DCC then outstanding, or
(C) another Person or group (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act and the regulations
thereunder) is the "beneficial owner" (as such term is used in Rules
13d-3, 13d-5 or 16a-1 under the Exchange Act) of at least 35% of the
Voting Securities of DCC or 35% of the outstanding Equity Interests of
DCC (on a fully diluted basis, treating Equity Interests of DCC
issuable upon the conversion, exchange or exercise of convertible or
exchangeable securities, or other rights to acquire Equity Interests,
as issued and outstanding) or otherwise has the power, acting alone,
to control DCC; or
(iii) the sale of all or substantially all of DCC's stock, business
or assets (including through a merger or otherwise).
5
<PAGE>
"Claim" is defined in Section 11.3(a).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Company" means ACC Acquisition LLC.
"Company Communications Services" means Commercial Mobile Radio
Services regulated under FCC Rules Subpart H of Part 22, Subpart E of Part 24,
and Part 20 in effect as of the Effective Date.
"Company Minimum Gain" means the aggregate of the amounts of gain, if
any, determined for each nonrecourse liability of the Company, that would be
realized by the Company for federal income tax purposes if it disposed of the
Company property subject to such liability in a taxable transaction in full
satisfaction thereof and for no other consideration. To the extent the
foregoing is inconsistent with Treasury Regulation Section 1.704-2(d) or
incomplete with respect to such regulation, Company Minimum Gain shall be
computed in accordance with such regulation.
"Confidential Information" means all documents and information
(including without limitation, commercial information and information with
respect to customers and proprietary technologies or processes and the design
and development of new products or services) concerning the Company, the
Cellular Systems and PCS Systems in which the Company has an ownership interest,
the Members or their Affiliates furnished to a Member or any of its Affiliates
in connection with the transactions leading up to and contemplated by this
Agreement and the other Related Agreements and the operation of the Company
which is (i) not otherwise in the public domain, (ii) not otherwise in the
rightful possession of such Member (or Affiliate) from third parties having no
obligation of confidentiality to the other Member or the Company and (iii) not
required to be disclosed by such Member, its Affiliates or Agents pursuant to
federal, state or local law.
"control," "controlled" and "controlling" shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of Voting
Securities, by contract or otherwise.
"Core Service Features" means the service features set forth on
Schedule I.
"Corporation" is defined in Section 8.10(a).
"DCC" is defined in the first paragraph hereof.
"DCC Affiliate Group" means (a) DCC Sub so long as it is an 80%
Subsidiary of DCC and DCC is a member of the DCC Affiliate Group, (b) any
Parent of DCC Sub so long as such Parent is an 80% Subsidiary of DCC and DCC
is a member of the DCC Affiliate Group, (c) DCC so long as a Change of
Control of DCC has not occurred, (d) any Parent of
6
<PAGE>
DCC so long as such Parent is an 80% Subsidiary of the Dobson Group and (e)
the Dobson Group. Logix Communications is not a member of the DCC Affiliate
Group.
"DCCLP" means Dobson CC Limited Partnership, an Oklahoma limited
partnership.
"DCC Member Group" means Members that are members of the DCC
Affiliate Group and their Private Transferees.
"DCC Sub" is defined in the first paragraph hereof.
"Depreciation" means, for each fiscal year or part thereof, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable for federal income tax purposes with respect to an asset
for such year or other period, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes at the
beginning of such year, Depreciation shall be an amount which bears the same
ratio to such Book Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year bears to such adjusted tax
basis; provided that if the federal income tax depreciation, amortization or
other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such Book Value using any reasonable method
selected by the Management Committee, subject to any applicable legal
regulations.
"Disability" means, with respect to Everett R. Dobson, that he is
disabled in accordance with the provisions of the long-term disability
insurance policies of DCC applicable to him or, in the absence of any such
policies, that he is unable, for 180 consecutive days, or 270 total days, in
any 360-day period, to exercise his material duties as Chief Executive
Officer of DCC.
"Dispute" is defined in Section 8.11(a).
"Dispute Notice" is defined in Section 8.11(c).
"Disqualifying Transaction" means a merger, consolidation, asset
acquisition or disposition, or other business combination involving AT&T (or
its Affiliates) and another Person, which other Person (together with its
Affiliates but before giving effect to such merger, consolidation, asset
acquisition or disposition or other business combination) (a) derives annual
aggregate revenues in excess of $5 billion from the provision of
Telecommunication Services (based on its most recently ended fiscal year for
which such information is available), (b) derives less than one-third of its
annual aggregate revenues from the provision of wireless Telecommunications
Services (based on its most recently ended fiscal year for which such
information is available), (c) owns Licenses issued by the FCC which
authorize it to offer (and does offer) Mobile Wireless Services serving more
than 25% of the Pops within the Territory, and (d) with respect to which AWS
Sub has given written notice to the Company and the other Members specifying
that such merger, consolidation, asset acquisition or disposition or other
business combination shall be a
7
<PAGE>
Disqualifying Transaction for purposes of this Agreement and the transactions
contemplated hereby.
"Distributable Cash" means, as of the end of any fiscal period, the
amount of the cash and cash equivalents held by the Company and its
Subsidiaries available for distribution to the Members, as determined by the
Management Committee in accordance with sound business practice.
"Dobson Family" means, collectively, the Immediate Families of
Russell L. Dobson, Everett R. Dobson, Stephen T. Dobson and Robin Dobson.
"Dobson Group" means, collectively, the Persons set forth on
Schedule II and members of the Dobson Family.
"Dobson IPO" means an initial public offering of common stock of
DCC pursuant to an effective registration statement under the Securities Act,
the aggregate gross proceeds from which public offering equals or exceeds
$50.0 million.
"Economic Interest" means the percentage interest of a Member (or a
permitted assignee of a Member pursuant to Article 9 which has not been
admitted as a Member of the Company) in Company distributions, and
allocations of Profits, Losses, income, gain, loss, deduction or credit or
any similar item, and all other rights and interests of a Member of the
Company that are not Voting Interests. The term "Economic Interest"
specifically excludes a Voting Interest.
"Effective Date" means the Closing Date under the Agreement and
Plan of Merger, dated as of October 5, 1999, among the Company, ACC
Acquisition Co. and American Cellular Corporation.
"Equity Interests" means capital stock, partnership interests,
limited liability company interests or other ownership or beneficial
interests of any Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset, as of the
date of determination, the cash price at which a willing seller would sell
and a willing buyer would buy such asset in a transaction negotiated at arm's
length, each being apprised of and considering all relevant facts,
circumstances and factors, and neither acting under compulsion, with the
parties being unaffiliated third parties acting without time constraints.
"FCC" means the Federal Communications Commission or any successor
agency or entity performing substantially the same functions.
8
<PAGE>
"FCC Rules" means the rules and regulations established by the FCC
codified in Section 47 of the Code of Federal Regulations, as the same may be
modified or amended from time to time hereafter.
"Final Order" means an action by the FCC or any state regulatory
agency granting its approval for the transfer of control of the Company as to
which (i) no request for stay by the FCC or state regulatory action is
pending, no such stay is in effect, and, if any deadline for filing any such
request is designated by statute, rule or regulation, such deadline has
passed; (ii) no petition for rehearing or reconsideration or application for
review of the action is pending before the FCC or any state regulatory
agency, and the time for filing any such petitions or applications has
passed; (iii) neither the FCC nor any state regulatory agency has 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 action of the FCC or state regulatory agency is pending or in effect,
and, if any deadline for filing any such appeal or request is designated by
statute, rule or regulation, it has passed.
"GAAP" means generally accepted accounting principles as used by
the Financial Accounting Standards Board and/or the American Institute of
Certified Public Accountants.
"Governmental Authority" means a national, state, provincial,
county, city, local or other governmental or regulatory body or authority,
whether domestic or foreign.
"Immediate Family" means, with respect to any Person, such Person's
spouse, parents, spouse's parents, siblings, children, stepchildren, adopted
children and grandchildren.
"Included Interests" is defined in Section 9.3(a).
"Indemnified Person" is defined in Section 11.1(b).
"Indirect Transfer" means, with respect to Interests in the Company
owned by a Member that is a member of an Affiliate Group, a Transfer of
Equity Interests in a Person that owns directly or indirectly Equity
Interests in such Member.
"Initial Economic Interests" means the Economic Interests acquired
by AWS Sub and DCC Sub on the Effective Date.
"Interest" means the Economic Interest and the Voting Interest of a
Member, and includes the entire legal and equitable ownership interest of a
Member in the Company.
"IPO" means the initial underwritten public offering of the
Company's equity securities pursuant to an effective registration statement
under the Securities Act.
9
<PAGE>
"License" means, with respect to a PCS System or Cellular System,
all permits, licenses, waivers, and authorizations (including, without
limitation, licenses issued by the FCC) that are necessary to conduct the
operations of such system in the manner in which such operations are
currently contemplated, or may in the future be contemplated by the licensee
to be conducted.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, right of first refusal or right of others
therein, or encumbrance of any nature whatsoever in respect of such asset.
"Liquidator" is defined in Section 10.3(b).
"Logix Communications" means Logix Communications Enterprises, Inc.
"Management Agreement" means the Management Agreement, dated as of
the date hereof, between the Company and Dobson Cellular Systems, Inc., as
the same may be amended in accordance herewith and therewith.
"Management Committee" is defined in Section 7.1.
"Member" means, initially, AWS Sub and DCC Sub as long as they have
not ceased to be Members hereunder, and any Person who, at the time of the
reference thereto, has been admitted to the Company as a Member in accordance
with the terms of this Agreement and has not ceased to be a Member hereunder,
in such Person's capacity as a member (within the meaning of the Act) of the
Company.
"Member Group" means each of the AWS Member Group and the DCC
Member Group.
"Member Minimum Gain" means an amount, with respect to each Member
nonrecourse debt, equal to the Company Minimum Gain that would result if such
Member nonrecourse debt were treated as a nonrecourse liability, determined
in accordance with Treasury Regulation Section 1.704-2(i).
"Member Nonrecourse Debt" has the meaning ascribed to the term
"partner nonrecourse debt" in Treasury Regulation Section 1.704-2(b)(4), and
generally means any nonrecourse debt of the Company for which any Member
bears the economic risk of loss (such as a nonrecourse loan to the Company by
a Member or certain Affiliates of a Member).
"Member Nonrecourse Deduction" has the meaning ascribed to the term
"partner nonrecourse deduction" in Treasury Regulation Section 1.704-2(i)(2).
The amount of the Member Nonrecourse Deductions with respect to a Member
Nonrecourse Debt for a Company fiscal year equals the net increase, if any,
in the amount of Member Minimum Gain attributable to such Member Nonrecourse
Debt during that fiscal year, reduced (but not below zero) by the aggregate
amount of any distributions during that fiscal year to the
10
<PAGE>
Member that bears the economic risk of loss for such Member Nonrecourse Debt
to the extent such distributions are from the proceeds of such Member
Nonrecourse Debt and are allocable to an increase in Member Minimum Gain
attributable to such Member Nonrecourse Debt.
"Mobile Wireless Services" shall mean mobile wireless Company
Communications Services (including the transmission of voice, data, image or
other messages or content) provided solely within the Territory, initiated or
terminated using TDMA or analog cellular technology and on frequencies in the
800 MHz band authorized for the Cellular Radiotelephone Service under Part 22
of the FCC Rules or in the 1900 MHz band authorized for the Personal
Communications Services under Part 24 of the FCC Rules, to or from subscriber
equipment that is capable of usage during routine movement throughout the
area covered by a cell site and routine handing-off between cell sites, and
is either intended for such usage or is temporarily fixed to a specific
location on a short-term basis (e.g., a bank of wireless telephones
temporarily installed during a special event of limited duration). Without
limiting the foregoing, Mobile Wireless Services shall include wireless
office services if such services comply with this definition. Mobile Wireless
Services shall also include the transmissions between the Company's cell
sites and the Company's switch or switches in the Territory, the handing-off
of transmissions at the Company's switch or switches for termination by other
carriers, and the receiving of transmissions for the Company's customers
handed-off at the Company's switch or switches which were originated on the
system or systems of other carriers, in each case for the purpose of
facilitating Mobile Wireless Services described in the first sentence.
"Nonrecourse Deductions" has the meaning set forth in Treasury
Regulation Section 1.704-2(c). The amount of Nonrecourse Deductions for a
fiscal year equals the net increase, if any, in the amount of Company Minimum
Gain during that fiscal year, reduced (but not below zero) by any Nonrecourse
Distributions during such year.
"Nonrecourse Distributions" means the aggregate amount, as
determined in accordance with Treasury Regulation Section 1.704-2(c), of any
distributions during the fiscal year of proceeds of a nonrecourse liability,
as defined in Treasury Regulation Section 1.704(b)(3), that are allocable to
an increase in Company Minimum Gain.
"Offer" is defined in Section 9.2(a).
"Offer Notice" is defined in Section 9.2(a).
"Offered Interests" is defined in Section 9.2(a).
"Offeror" is defined in Section 9.2(a).
"Operating Agreement" means the Operating Agreement, dated as of
the date hereof, among the Company, AWS and DCC, as the same may be amended
in accordance herewith and therewith.
11
<PAGE>
"Parent" means, with respect to a specified entity, a Person or
group of which the specified entity is a Subsidiary.
"PCS" means the Personal Communications Services regulated under
Part 24 of the FCC Rules.
"PCS System" means a wireless communications system constructed and
operated in a Basic Trading Area or Major Trading Area as defined by
Rand-McNally and modified by the FCC (or any territorial designations or
subdivision thereof authorized by the FCC) exclusively using frequencies in
the 1900 MHz band allocated for the broadband Personal Communications Service
under Part 24 of the FCC Rules, pursuant to a License therefor issued by the
FCC.
"Person" means any individual, corporation, partnership, firm,
joint venture, limited liability company, limited liability partnership,
association, joint stock company, trust, estate, incorporated or
unincorporated organization, Governmental Authority or other entity.
"Pops" means with respect to any licensed area, the residents of
such area based on the most recent publication by Equifax Marketing Decision
Systems, Inc. or any other publication as determined by the Management
Committee.
"Private Transferee" means a Person that acquires Economic
Interests from a Member in compliance with this Agreement, other than
pursuant to a broadly distributed underwritten registered public offering or
Rule 144 under the Securities Act, and that is not a member of an Affiliate
Group immediately prior to such acquisition.
"Profits and Losses" means, for each fiscal year or part thereof,
the Company's taxable income or loss for such year determined in accordance
with Section 703(a) of the Code (for this purpose, all items of income, gain,
loss and deduction required to be stated separately pursuant to Section
703(a)(1) of the Code shall be included in taxable income or loss) with the
following adjustments:
(i) any income of the Company that is exempt from federal
income tax shall be added to such taxable income or loss;
(ii) any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as such pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(i) shall be subtracted from such taxable income
or loss in determining Profits or Losses;
(iii) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, Depreciation for such fiscal year shall be taken into account in
determining Profits or Losses;
12
<PAGE>
(iv) if the Book Value of any Company asset is adjusted
pursuant to clause (ii) or clause (iii) of the definition of Book Value,
the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset in determining Profits or Losses; and
(v) in no event shall adjustments made solely by reason of
Section 3.1(c)(iii), Section 4.3, Section 4.4, Section 4.5 or Section 4.6
be taken into account in determining Profits or Losses.
"Prohibited Transferee" means any Person or group (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act and the regulations
thereunder) or Affiliate thereof (other than AWS and its Affiliates) that (a)
is one of the five largest providers of wireless Telecommunications Services
(based on revenue derived from the provision of such wireless
Telecommunications Services during the most recent fiscal year preceding the
applicable Transfer for which such information is available) in the United
States or a company whose annual gross revenues from Telecommunications
Services (during the most recent fiscal year for which such information is
available) exceed $2 billion or (b) provides Company Communications Services
in service areas in the United States covering more than five million Pops.
"Qualified Member" means each of (i) the members of the AWS Member
Group that are members of the AWS Affiliate Group, so long as the AWS Member
Group is a Qualified Member Group and (ii) the members of the DCC Member
Group that are members of the DCC Affiliate Group, so long as the DCC Member
Group is a Qualified Member Group.
"Qualified Member Group" means each of (i) the AWS Member Group as
long as members of the AWS Affiliate Group that are members of the AWS Member
Group retain in the aggregate 100% of the Voting Interests, and at least 80%
of the Economic Interests, that AWS Sub acquired on the Effective Date and
(ii) the DCC Member Group as long as members of the DCC Affiliate Group that
are members of the DCC Member Group retain in the aggregate 100% of the
Voting Interests, and at least 80% of the Economic Interests, that DCC Sub
acquired on the Effective Date.
"Related Agreements" means the Long Distance Agreement, the
Operating Agreement, any Resale Agreement and the Management Agreement.
"Representative" is defined in Section 7.1(a).
"Resale Agreement" means a Resale Agreement, if any, entered into
between the Company and DCC pursuant to Section 8.1(a).
"Response" is defined in Section 8.11(c).
"RoFR Closing" is defined in Section 9.2(b).
13
<PAGE>
"Section 9.9(a) Notice" is defined in Section 9.9(a).
"Section 9.9(b) Notice" is defined in Section 9.9(b).
"Section 9.9(c) Notice" is defined in Section 9.9(c).
"Section 9.10 Election" is defined in Section 9.10.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" is defined in Section 9.2(a).
"Selling Group" is defined in Section 9.2(a).
"Senior Party Representatives" is defined in Section 8.11(b).
"Significant Matter" means, subject to Section 9.8(a)(iii), any of the
following:
(1) The sale, transfer, assignment or other disposition of any
material portion of the assets of the Company or any of its Subsidiaries
other than in the ordinary course of business;
(2) The merger, combination or consolidation of the Company or any
of its Subsidiaries with or into any entity other than the Company or a
wholly owned Subsidiary of the Company, regardless of whether the Company
or any such Subsidiary is the surviving entity in any such merger,
combination or consolidation; the acquisition of any businesses or assets
for consideration in excess of $1,000,000 by the Company; the formation of
any partnership or joint venture involving the Company; or the liquidation,
dissolution or winding up of the Company or any of its Subsidiaries (other
than the liquidation of a Subsidiary of the Company into the Company or
another Subsidiary of the Company);
(3) Any offering or issuance of securities or ownership interests
in the Company or any of its Subsidiaries, including, without limitation,
warrants, options or other rights convertible into or exchangeable for
securities or ownership interests in the Company or any of its
Subsidiaries, or the declaration of any dividends thereon;
(4) The repurchase by the Company or any of its Subsidiaries of any
securities or ownership interests in the Company or any of its
Subsidiaries, including, without limitation, warrants, options or other
rights convertible into or exchangeable for securities or ownership
interests in the Company or any of its Subsidiaries;
14
<PAGE>
(5) The authorization or adoption of any amendment to the
certificate of formation, limited liability company agreement or any other
constituent document of the Company or any of its Subsidiaries, or the
conversion of the Company to a corporation (other than pursuant to an
election to effect an IPO in accordance with Section 8.10);
(6) If the Company is not managed by an Affiliate of DCC, the
hiring or termination of any executive officer of the Company;
(7) The approval of, or material amendment to, the initial
three-year budget, and any annual or other operating or capital budget, of
the Company or any of its Subsidiaries;
(8) The incurrence by the Company or any of its Subsidiaries,
whether directly or indirectly, of any indebtedness for borrowed money or
capital leases in any calendar quarter in excess of $1,000,000 unless
specifically provided for in any budget approved by the Management
Committee;
(9) Any agreement or arrangement, written or oral, to pay any
director, officer, agent or employee of the Company or any of its
Subsidiaries $200,000 or more on an annual basis; or any loan, lease,
contract or other transaction with any employee of the Company or any of
its Subsidiaries with an annual salary in excess of $200,000, or with any
Representative or officer of the Company or any member of any such Person's
Immediate Family, unless specifically provided for in any budget approved
by the Management Committee;
(10) The making of, or commitment to make, any capital expenditures
involving a payment or liability in any one year of $1,000,000 or more in
the aggregate by the Company or any of its Subsidiaries, in each case other
than as provided for in any budget approved by the Management Committee;
(11) The initiation of any bankruptcy proceeding, dissolution or
liquidation of the Company or any of its Subsidiaries;
(12) Any agreement or commitment by the Company or any of its
Subsidiaries (w) not to compete with any other Person, (x) not to solicit
any other Person's business or customers, (y) not to solicit or hire any
other Person's employees, or (z) to use any other Person's trademarks or
services marks in its business, or to license or otherwise make available
any of its trademarks or service marks to any other Person for any purpose;
(13) The provision by the Company or any of its Subsidiaries of
Company Communications Services that are not Mobile Wireless Services;
15
<PAGE>
(14) The assertion by the Company of a position with respect to any
material matter, or the disagreement by the Company with a position taken
with respect to any material matter by a Member or any other Person, before
the FCC or any other Governmental Authority, a self-regulatory body, any
industry organization or in any other public forum;
(15) The acquisition or disposition of any License issued by the
FCC;
(16) Except as otherwise provided herein or therein, any amendment,
modification, renewal or termination of any of the Related Agreements; and
(17) The entering into any contract, agreement or commitment to do
any of the foregoing.
"Specified Restrictions" is defined in Section 9.4.
"Subsidiary" means, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power of the Voting
Securities or equity interests is owned, directly or indirectly, by such
Person.
"Tax Matters Partner" is defined in Section 6.5(d).
"TDMA" means the North American Time Division Multiple Access
standard set by the Telecommunications Industry Association, IS-54/136, and
any standard that is based upon, or is an upgrade from, or is a successor to,
such standard, and is adopted by AWS Sub and its Affiliates in a majority of
their network nodes.
"TDMA Quality Standards" means the quality standards applicable to
PCS Systems and Cellular Systems that utilize TDMA and that are owned and
operated by AT&T and its Affiliates, which will be set forth in a schedule to
the Operating Agreement, as the same may be amended from time to time,
provided any such amended standards shall become effective 120 days after
notice thereof is given to the Company and DCC.
"Telecommunications Services" means the offering of
telecommunications services for a fee directly to the public, or to such
classes of users as to be effectively available directly to the public,
regardless of the facilities used. The term "telecommunications" means the
transmission, between or among points specified by the user of information of
the user's choosing.
"Territory" means, subject to Section 8.12, the geographic
territory set forth on Schedule III hereto.
"Transfer" means assign, bequeath, convey, create or suffer to
exist a Lien upon, encumber, gift, grant, hypothecate, issue, mortgage, place
in trust, pledge, sell, transfer or otherwise dispose of, in each case
whether directly or indirectly, voluntarily or
16
<PAGE>
involuntarily (including by testamentary or intestate succession), by
operation of law or otherwise.
"Treasury Regulations" means regulations issued by the Treasury
Department pursuant to the Code.
"Voting Interest" means the right of a Member to exercise
governance rights with regard to the Company (including the right to appoint
Representatives to the Member Committee). The term "Voting Interest"
specifically excludes Economic Interest.
"Voting Securities" means equity securities of a Person having the
right to vote generally in the election of the directors (or persons
performing equivalent functions) of such Person.
ARTICLE 2
ORGANIZATION
2.1 NAME. The name of the Company shall be ACC Acquisition LLC.
The name of the Company may be changed from time to time by the Management
Committee with notice to the Members.
2.2 PRINCIPAL PLACE OF BUSINESS. The Company's principal office
and place of business shall be located in Oklahoma City, Oklahoma. The
principal office and place of business may be changed from time to time, and
other offices and places of business may be established from time to time,
both within and without the State of Delaware, by the Management Committee
with notice to the Members.
2.3 REGISTERED OFFICE; REGISTERED AGENT. The address of the
registered office of the Company in the State of Oklahoma shall be 13439
North Broadway Extension, Oklahoma City, Oklahoma 73114 or such other address
as the Management Committee may determine. The registered agent for service
of process on the Company in the State of Oklahoma shall be Everett R.
Dobson, or such other agent as the Management Committee may determine. The
name and address of the registered agent for service of process on the
Company in the State of Delaware shall be Corporation Service Company, 1013
Centre Road, Wilmington, Delaware 19805.
2.4 TERM. The term of the Company commenced on September 15, 1999
and, unless terminated in accordance with this Agreement, shall be perpetual.
2.5 PURPOSE AND POWERS.
(a) The purposes of the Company are to (i) establish and conduct
the Business; (ii) enter into the Related Agreements to which the Company is a
party; and (iii) do any and all things reasonably necessary or advisable in
connection with the foregoing. The
17
<PAGE>
Company shall have the power and authority to take any and all actions
necessary or advisable to or for the furtherance of said purposes.
(b) The foregoing provisions of this Section 2.5 shall not be
construed to authorize the Company to, and the Company shall not, and the
Members agree that the Company shall not, engage in any activities other than
the foregoing (and in particular expand or change the scope of the Business
beyond that contemplated by the definition thereof) without the consent of
the Management Committee.
2.6 FILINGS. The Management Committee shall cause to be
executed, filed and published all such certificates, notices, statements or
other instruments, and amendments thereto under the laws of the State of
Delaware and other applicable jurisdictions as the Management Committee may
deem necessary or advisable for the operation of the Company.
2.7 SOLE AGREEMENT. The parties intend that their obligations
to each other with respect to the Company and the scope of their joint
enterprise be as set forth in this Agreement and the Related Agreements, and
that no further authority to bind the other or the Company or any liabilities
to each other or any third party be inferred from the relationships described
in such agreements.
ARTICLE 3
CAPITALIZATION
3.1 CAPITAL ACCOUNTS.
(a) ESTABLISHMENT. A separate capital account ("Capital
Account") is hereby established for each Member as of the Effective Date.
(b) GENERAL RULES FOR ADJUSTMENT OF CAPITAL ACCOUNTS. The
Capital Account of each Member shall be:
(i) increased by:
(A) the aggregate amount of such Member's cash contributions
to the Company;
(B) the initial Book Value of property contributed by such
Member to the Company, net of liabilities secured by
such property that the Company is considered to assume
or take subject to Code Section 752 of the Code and the
Treasury Regulations promulgated thereunder; and
18
<PAGE>
(C) such Member's distributive share of Profits and items of
income and gain allocated to such Member pursuant to
Section 3.1(c)(iii) or Section 4.3; and
(ii) decreased by:
(A) cash distributions to such Member from the Company;
(B) the Book Value of property distributed in kind to such
Member, net of liabilities secured by such property that
such Member is deemed to assume or take subject to
Section 752 of the Code and the Treasury Regulations
promulgated thereunder; and
(C) such Member's distributive share of Losses and items of
loss or deduction allocated to such Member pursuant to
Section 3.1(c)(iii) or Section 4.3.
(c) SPECIAL RULES.
(i) TIME OF ADJUSTMENT FOR CAPITAL CONTRIBUTIONS. For purposes of
computing the balance in a Member's Capital Account, no credit shall be
given for any capital contribution which such Member is obligated to make
until such contribution is actually made.
(ii) CAPITAL ACCOUNT FOR TRANSFERRED INTEREST. If any Interest in
the Company or part thereof is Transferred in accordance with the terms of
this Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the Transferred Interest.
(iii) INTENT TO COMPLY WITH TREASURY REGULATIONS. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury
Regulation Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such regulation. To the extent the provisions of
this Agreement are inconsistent with such regulation or are incomplete with
respect thereto, the Capital Accounts of the Members shall be maintained in
accordance with such regulation except to the extent that doing so would
materially distort the timing or amount of an allocation or distribution to
a Member.
3.2 CAPITAL CONTRIBUTIONS.
(a) On the Effective Date, each of AWS Sub and DCC Sub shall
contribute $372.5 million in cash to the capital of the Company, and the Company
shall accept such capital contributions. After giving effect to such capital
contributions, AWS Sub
19
<PAGE>
and DCC Sub shall each own 50% of the Economic Interests and 50% of the
Voting Interests.
(b) No Member shall be required or permitted to make any
additional capital contributions to the Company without the unanimous
approval of the Management Committee.
3.3 NO WITHDRAWALS. Except as expressly set forth herein, no
Member shall be entitled to withdraw any portion of its capital contribution
or Capital Account balance.
3.4 NO INTEREST. Except as expressly set forth herein, no
Member shall be entitled to receive any interest on its capital contribution
or Capital Account balance.
ARTICLE 4
PROFITS AND LOSSES
4.1 PROFITS. Except as provided in Sections 4.2 through 4.4,
Profits and Losses with respect to any fiscal year shall be allocated to the
Members in accordance with their respective Economic Interests.
4.2 LIMITATION ON LOSSES. Losses allocated to any Member
pursuant to Section 4.1 with respect to any fiscal year shall not exceed the
maximum amount of Losses that may be so allocated without causing such Member
to have an Adjusted Capital Account Deficit at the end of such fiscal year.
All Losses in excess of the limitation set forth in this Section 4.2 shall be
allocated: first, to the Members that will not be subject to this limitation,
ratably based on the aggregate of their Economic Interests, to the extent
possible until such Members become subject to this limitation; and any
remaining amount, to the Members, ratably based on their Economic Interests,
unless otherwise required by the Code or Treasury Regulations. To the extent
that any Member receives an allocation of Losses pursuant to this Section
4.2, such Member shall receive a priority allocation of Profits (prior to an
allocation of Profit made pursuant to Section 4.1) in the reverse order of
such Loss allocations in order to reverse the effect of this Section 4.2.
4.3 SPECIAL ALLOCATIONS. The following special allocations
shall be made for any fiscal year of the Company in the following order of
priority:
(a) MINIMUM GAIN CHARGEBACK. Notwithstanding any other
provision of this Article 3, if there is a net decrease in Company Minimum
Gain during any fiscal year, each Member shall, subject to the exceptions
provided in Treasury Regulation Section 1.704-2(f), be specially allocated
items of income and gain for such fiscal year (and, if necessary, subsequent
fiscal years) equal to such Member's share of the net decrease in Company
Minimum Gain within the meaning of Treasury Regulation Section 1.704-2(g)(2).
20
<PAGE>
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Treasury Regulation Sections 1.704-2(6) and 1.704-2(i)(2). To the extent
that this Section 4.3(a) is inconsistent with Treasury Regulation Section
1.704-2(f), the Minimum Gain Chargeback provided for herein shall be applied
and interpreted in accordance with such Treasury Regulation.
(b) MEMBER MINIMUM GAIN CHARGEBACK. If there is a net decrease
in Member Minimum Gain attributable to a Member Nonrecourse Debt during any
Company fiscal year, within the meaning of Treasury Regulation Sections
1.704-2(i)(3) and 1.704-2(k), each Member that, as of the beginning of such
year, has a share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulation Section
1.704-2(i)(5), shall be specially allocated items of income and gain for such
fiscal year (and, if necessary, subsequent fiscal years) in an amount equal
to such Member's share of the net decrease in Member Nonrecourse Debt
determined in accordance with Treasury Regulation Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(i)(2). To the extent
that this Section 4.3(b) is inconsistent with Treasury Regulation Section
1.704-2(i), the Member Minimum Gain chargeback provided for herein shall be
applied and interpreted in accordance with such regulation.
(c) QUALIFIED INCOME OFFSET. Subject to Section 4.3(a) and
Section 4.3(b), notwithstanding anything herein to the contrary, but only if
required by Treasury Regulation Section 1.704-1(b) in order for the
allocations provided for herein to be considered to have substantial economic
effect or to be deemed to be in accordance with the Member's Interests, if,
for any fiscal year, a Member unexpectedly receives an adjustment, allocation
or distribution described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such adjustment, allocation or
distribution causes or increases an Adjusted Capital Account Deficit with
respect to such Member, such Member shall be allocated items of income and
gain (consisting of a pro rata portion of each item of Company income,
including gross income and gain) in the amount and manner sufficient to
eliminate such Adjusted Capital Account Deficit as quickly as possible. This
Section 4.3(a) is intended to comply with Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be
allocated to the Members in accordance with their respective Economic
Interests.
(e) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse
Deductions for any fiscal year or other period shall be allocated to the
Member that bears the economic risk of loss with respect to the Member
Nonrecourse Debt which such Member Nonrecourse Deductions are attributable in
accordance with Treasury Regulation Section 1.704-2(i).
21
<PAGE>
4.4 CURATIVE ALLOCATIONS. The allocations set forth in Sections
4.3(a) through 4.3(e) are intended to comply with certain regulatory
requirements under Section 704(b) of the Code. The Members intend that, to
the extent possible, all allocations made pursuant to such Sections will,
over the term of the Company, be offset either with other allocations
pursuant to Section 4.3 or with special allocations of other items of Company
income, gain, loss, or deduction pursuant to this Section 4.4. Accordingly,
the Management Committee is hereby authorized and directed to make offsetting
allocations of Company income, gain, loss or deduction under this Section 4.4
in whatever manner the Management Committee determines is appropriate so that
after such offsetting special allocations are made (and taking into account
the reasonably anticipated future allocations of income and gain pursuant to
Section 4.3(a) and Section 4.3(b)) the Capital Accounts of the Members are,
to the extent possible, equal to the Capital Accounts each would have if the
provisions of Section 4.3 were not contained in this Agreement and all
income, gain, loss and deduction of the Company were instead allocated
pursuant to Section 4.1 and Section 4.2.
4.5 ALLOCATION OF CREDITS. All tax credits shall be allocated
among the Members in accordance with their respective Interests or in
accordance with applicable provisions of the Code or Treasury Regulations to
the extent any such provision is inconsistent with such allocation.
4.6 TAX ALLOCATIONS.
(a) CONTRIBUTED PROPERTY. In the event any property is
contributed to the capital of the Company, income, gain, loss and deduction
with respect to such property shall be allocated solely for tax purposes
among the Members in accordance with Section 704(c) of the Code and Treasury
Regulation Section 1.704-3 so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax
purposes and its Book Value. Prior to the contribution of any property to the
Company that has a Fair Market Value that differs from its adjusted tax basis
in the hands of the contributing Member on the date of contribution, the
contributing Member and the Management Committee shall agree upon the
allocation method to be applied with respect to that property under Treasury
Regulation Section 1.704-3, which allocation method shall be set forth on
attached Schedule 4.6, as amended from time to time.
(b) REVALUED PROPERTY. If the Company assets are revalued as
set forth in the definition of "Book Value," subsequent allocations of
income, gain, loss and deduction with respect to revalued Company assets
shall take into account any variation between the adjusted basis of such
assets for federal income tax purposes and their adjusted value in the same
manner as under Section 704(c) of the Code and in compliance with Treasury
Regulation Section 1.704-3. All decisions regarding the choice of allocation
method under Treasury Regulation Section 1.704-3 with respect to revalued
Company assets shall be made by the Management Committee.
4.7 CHANGE IN MEMBER'S INTERESTS. In the event there is any
change in the Members' respective Economic Interests during any fiscal year,
Profits, Losses, Nonrecourse
22
<PAGE>
Deductions and other items shall be allocated among the Members in accordance
with their respective Economic Interests from time to time during such fiscal
year in accordance with Section 706 of the Code, using any convention
permitted by law and selected by the Management Committee.
ARTICLE 5
DISTRIBUTIONS
5.1 DISTRIBUTABLE CASH. It shall be the policy of the Company,
and the Members shall direct their respective Representatives on the
Management Committee to cause the Company, to distribute Distributable Cash
to the Members quarterly. Any distributions of such Distributable Cash shall
be made to the Members in accordance with their respective Economic
Interests. Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, the Company, and the Members, Management Committee
and Representatives on behalf of the Company, shall not be required to make
any distribution to any Member on account of such Member's interest in the
Company if such distribution would violate the Act or other applicable law.
5.2 LIQUIDATING DISTRIBUTIONS. Distributions to the Members of
cash or property in connection with a dissolution of the Company shall be
made in accordance with the Capital Account balances of the Members, as
provided in Section 10.3(d)(ii).
5.3 OTHER DISTRIBUTIONS. No Member shall be entitled to receive
any distribution from the Company without the consent of the Management
Committee or as otherwise provided in Section 5.1 or 10.3(d).
ARTICLE 6
ACCOUNTING AND RECORDS
6.1 FISCAL YEAR. The fiscal year of the Company shall be the
year ending December 31.
6.2 METHOD OF ACCOUNTING. Unless otherwise provided herein, the
Company books of account shall be maintained in accordance with GAAP;
provided that for purposes of making allocations with respect to items of
Company income, gain, deduction, loss and credit to the Members, such items
shall be allocated to the Members' Capital Accounts pursuant to Article 4 and
as required by Section 704 of the Code and the Treasury Regulations
promulgated thereunder.
23
<PAGE>
6.3 BOOKS AND RECORDS; INSPECTION.
(a) BOOKS OF ACCOUNT AND RECORDS. Proper and complete records
and books of accounts of the Company business for tax and financial purposes,
including all such transactions and other matters as are usually entered into
records and books of account maintained by Persons engaged in businesses of
like character or as are required by law, shall be kept by the Company at the
Company's principal office and place of business. The Management Committee
may delegate to a third party or any Member the duty to maintain and oversee
the preparation and maintenance of such records and books of account. Books
and records maintained for financial purposes shall be maintained in
accordance with GAAP, and books and records maintained for tax purposes shall
be maintained in accordance with the Code and applicable Treasury Regulations.
(b) INSPECTION. All records and documents described in Section
6.3(a) shall be open to inspection and copying by any of the Members or their
Representatives or agents, subject to applicable confidentiality
restrictions, at any reasonable time during normal business hours.
Notwithstanding anything in the Act or this Agreement to the contrary, the
Members and the Representatives shall not have the right to keep confidential
from any other Member or Representative, in their capacities as such, any
information of the Company.
6.4 FINANCIAL STATEMENTS. Within 120 days after the end of each
fiscal year, and 60 days after the end of each calendar quarter, the
Management Committee shall cause to be furnished to each Member financial
statements with respect to such fiscal year or quarter of the Company,
consisting of (i) a balance sheet showing the Company's financial position as
of the end of such fiscal year or quarter, (ii) supporting profit and loss
statements, (iii) a statement of cash flows for such year or quarter and (iv)
Member's Capital Accounts, provided that prior to such dates the Company
shall provide to each Member on a timely basis such financial information as
may be required to permit each Member Group to prepare its annual and
quarterly financial reports. The annual financial statements of the Company
shall, unless the Members determine otherwise by unanimous consent, be
audited (which audit shall be conducted in accordance with GAAP) and
certified by an independent firm of certified public accountants selected by
the Management Committee or the Members (which firm may be the firm regularly
engaged by any one or more of the Members). The Members hereby designate and
appoint the firm of Arthur Andersen, LLP as the Company's independent public
accountants, such designation and appointment to remain effective until
terminated by the Management Committee and appointment of replacement
independent public accountants. Each Member shall receive a copy of all
material financial reports and notices delivered by the Company to any third
party pursuant to any other agreement. The Company shall also produce and
distribute to all Members monthly revenue, operating expense and capital
expenditure reports and such other financial statements as the Management
Committee reasonably determines.
24
<PAGE>
6.5 TAXATION.
(a) STATUS OF THE COMPANY. The Members acknowledge that this
Agreement creates a partnership for federal income tax purposes.
Furthermore, the Members hereby agree not to elect to be excluded from the
application of Subchapter K of Chapter 1 of Subtitle A of the Code or any
similar state statute.
(b) TAX ELECTIONS AND REPORTING.
(i) GENERALLY. The Company shall make the following elections
and take the following positions under United States income tax laws and
Treasury Regulations and any similar state laws and regulations:
(A) Adopt the year ending December 31 as the annual
accounting period (unless otherwise required by the Code
and Treasury Regulations);
(B) Adopt the accrual method of accounting;
(C) Insofar as permissible, report the Company's tax
attributes and results using principles consistent with
those assumed in connection with entering into this
Agreement; and
(D) Have the Company treated as a partnership for federal
income tax purposes in a manner consistent with Treasury
Regulation Section 1-7701.
(ii) CODE SECTION 754 ELECTION. The Management Committee shall,
upon the written request of any Member, cause the Company to file an
election under Section 754 of the Code and the Treasury Regulations
promulgated thereunder to adjust the basis of the Company's assets under
Sections 734(b) or 743(b) of the Code and a corresponding election under
the applicable sections of state and local law.
(c) COMPANY TAX RETURNS. The Tax Matters Partner will prepare
or cause to be prepared the domestic and foreign tax returns and information
returns for the Company at no charge to the Company, except for all
reasonable out-of-pocket expenses (including accounting fees, if any).
Either Member may, at its own expense, engage a third party to review the tax
returns and information returns prepared by the Tax Matters Partner pursuant
to the preceding sentence. Any and all other tax returns shall be prepared
in a manner directed by the Tax Matters Partner consistent with the terms of
this Agreement. Each Member shall provide such information, if any, as may be
reasonably requested by the Company for purposes of preparing such tax and
information returns. The Company shall use its best efforts to (i) cause
copies of all tax returns to be submitted to each Member 30 days before the
date due, including extensions and (ii) deliver to each Member within 90
25
<PAGE>
days after the end of each taxable year any additional information in the
possession of the Company that the Members may require for the preparation of
their own income tax returns.
(d) TAX AUDITS. DCC Sub, so long as it is a Qualified Member
(or, from and after a Change of Control of DCC, AWS Sub, so long as it is a
Qualified Member) shall be the "tax matters partner" of the Company, as that
term is defined in Section 6231(a)(7) of the Code (the "Tax Matters
Partner"), with all of the rights, duties and powers provided for in sections
6221 through 6232, inclusive, of the Code, provided that the Tax Matters
Partner shall not pay or agree to pay any audit assessment, or any amount in
settlement or compromise of any litigation, in respect of income tax
liability of the Members attributable to the Interests in the Company, in
excess of $500,000 in any one instance or series of related instances, unless
approved by the Management Committee. The Tax Matters Partner, as an
authorized representative of the Company, shall direct the defense of any tax
claims made by the Internal Revenue Service or any other taxing jurisdiction
to the extent that such claims relate to adjustment of Company items at the
Company level and, in connection therewith, shall retain and cause the
Company to pay the fees and expenses of counsel and other advisors chosen by
the Tax Matters Partner. The Tax Matters Partner shall also be responsible
for filing a timely election on Form 8832 and for timely filing for all other
elections made by the Company. The Tax Matters Partner shall deliver to each
Member and the Management Committee a semi-annual report on the status of all
tax audits and open tax years relating to the Company, and shall consult with
and keep all Members and the Management Committee advised of all significant
developments in such matters coming to the attention of the Tax Matters
Partner. All reasonable expenses of the Tax Matters Partner and its
Affiliates (including reasonable internal time charges and reasonable
disbursements) and other reasonable fees and expenses in connection with such
defense shall be borne by the Company. Except as provided in Article 11,
neither the Tax Matters Partner nor the Company shall be liable for any
additional tax, interest or penalties payable by a Member or any costs of
separate counsel chosen by such Member to represent the Member with respect
to any aspect of such defense.
ARTICLE 7
MANAGEMENT
7.1 MANAGEMENT COMMITTEE. The property, business and affairs of
the Company shall be managed by or under the direction of a Management
Committee (the "Management Committee"). In addition to the powers and
authorities by this Agreement expressly conferred upon it, the Management
Committee may exercise all such powers of the Company and do all such lawful
acts and things as are not by statute or by this Agreement directed or
required to be exercised or done by the Members. Except as determined by the
Management Committee pursuant to this Article 7 or otherwise pursuant to this
Agreement, no Member or Representative shall have any right or authority to
take any action on behalf of the Company with respect to third parties or to
bind the Company.
26
<PAGE>
(a) NUMBER OF REPRESENTATIVES. The Management Committee shall
consist of four individuals (each, a "Representative"). So long as the AWS
Member Group is a Qualified Member Group, except as otherwise provided in
Section 8.12, AWS Sub (or another Member designated by a majority in Voting
Interests of the AWS Member Group) shall have the right to appoint two
Representatives, each of whom shall be employees of AWS or its Affiliates.
So long as the DCC Member Group is a Qualified Member Group, except as
otherwise provided in Section 9.8(a)(ii), DCC Sub (or another Member
designated by a majority in Voting Interests of the DCC Member Group) shall
have the right to appoint two Representatives, each of whom shall be
employees of DCC or its Affiliates. If a Member Group loses the right to
appoint two Representatives, the size of the Management Committee shall be
reduced to two members, who shall be appointed by the other Member Group.
The Representatives shall not be "managers" of the Company as such term is
used in the Act.
(b) INITIAL REPRESENTATIVES. The initial Representatives are:
DCC Member Group: Everett R. Dobson
Bruce R. Knooihuizen
AWS Member Group: Don Adams
Lee Maschmann
(c) VACANCIES. Each Representative shall hold office until
death, resignation or removal, with or without cause, by the Member Group
which appointed such Representative. If a vacancy occurs on the Management
Committee, the Member Group that appointed the vacating Representative shall
(so long as such Member Group has not lost the right to appoint two
Representatives pursuant to Section 7.1(a)) appoint such Representative's
successor.
7.2 MEETINGS OF MANAGEMENT COMMITTEE.
(a) REGULAR MEETINGS. The Management Committee shall meet at
least four times per year. Such meetings shall be held on such dates and at
such times and places as may be determined by the Representatives.
(b) SPECIAL MEETINGS. A special meeting of the Management
Committee or the Members shall be held at the request of any Representative.
Such meeting shall be held on the date and at the time and place set forth in
the notice of meeting.
(c) TELEPHONIC MEETINGS. Any meeting of the Management
Committee or the Members may be held by conference telephone call or through
similar communications equipment by means of which all persons participating
in the meeting can hear and be heard by each other. Participation in such a
telephonic meeting shall constitute presence in person at such meeting.
27
<PAGE>
(d) NOTICES. Notices of regular meetings and special meetings
of the Management Committee or the Members may be given by any
Representative, and shall state the date, hour and purpose of the meeting.
All such notices shall be accompanied by an agenda for the meetings, as well
as (to the extent practicable) the texts of all resolutions proposed to be
adopted at such meetings. No item may be discussed if not on the agenda
unless a quorum is present and the Representatives present waive notice of
the additional item(s). Notice of a regular or special meeting shall be given
by facsimile, confirmed by certified mail, return receipt requested not less
than 14 days (in the case of a regular meeting) or 72 hours (in the case of a
special meeting) before the date of the meeting to each Representative at the
facsimile number and address provided by the Representative to the Company
from time to time. Any Representative may waive, as to such Representative
only, in writing, the requirements for notice before, at or after a meeting.
Any Representative who attends a meeting without objecting at the meeting to
the Company's failure to comply with the notice requirements in respect of
such meeting shall be deemed to have waived such requirements.
(e) QUORUM. At each meeting of the Management Committee or the
Members, the presence in person or by telephone of at least one
Representative of each Member Group shall be necessary to constitute a quorum
for the transaction of business.
(f) WRITTEN CONSENTS. Any action required or permitted to be
taken at a meeting of the Management Committee or the Members may be taken
without a meeting, but upon the requisite notice as provided in paragraph (d)
above, if the requisite Representatives of each Member Group consent thereto
in writing, and if a complete and correct copy of such consent is promptly
delivered to all the Representatives of each Member Group following the
execution of any such consent.
7.3 ACTIONS BY MANAGEMENT COMMITTEE.
(a) SCOPE OF AUTHORITY. The Management Committee shall have
full power and authority to direct and control the business and affairs of
the Company except as otherwise required by applicable law, and subject to
the right of the Management Committee to delegate such power and authority to
Persons responsible for day-to-day operation of the Company (it being
understood that authority to undertake Significant Matters prior to approval
by the Management Committee shall not be so delegated).
(b) ACTIONS REQUIRING MANAGEMENT COMMITTEE APPROVAL. Without
limiting the generality of the foregoing, the following actions shall require
approval of the Management Committee:
(i) approving any Significant Matter;
(ii) approving or taking any action for which the approval or action
of the Company is required under the Related Agreements, except as the
Management Committee may otherwise delegate in accordance with paragraph
(a) above; and
28
<PAGE>
(iii) approving any other matter that the Management Committee
determines shall require its approval as such items may be set forth on
Schedule 7.3(b) from time to time.
(c) APPROVAL REQUIREMENTS.
(i) Except as otherwise specifically provided herein, consent or
approval of the Management Committee shall mean the affirmative vote of a
majority of the representatives voting at a duly held meeting of the
Management Committee; provided, that with respect to any Significant
Matter, consent or approval of the Management Committee shall mean the
affirmative vote of all existing Representatives; provided, however, that
the Management Agreement may be terminated, and the Manager removed and
replaced, only in accordance with the terms thereof.
(ii) Each Representative shall be entitled to one vote on all
matters submitted to a vote of the Management Committee; provided, that if
one or more Representatives are absent or not appointed because of a
vacancy on the Management Committee or otherwise, then any other
Representative of such absent Representative's Member Group present at the
meeting shall have the right to cast the votes of such absent
Representative(s).
(iii) The Company shall provide each Representative with (A) adequate
notice (in light of the time frame in which approval is sought) of the
substance of any matter requiring the approval of the Management Committee
in order to afford such Representative sufficient time to review such
matter and the Company's analysis thereof and (B) an opportunity to consult
with the management of the Company regarding such matter and possible
alternatives prior to the meeting at which approval is sought; provided,
that any alleged noncompliance with the provisions of this paragraph (iii)
shall not affect the validity of any consent or approval pursuant to
paragraphs (i) and (ii) above.
(d) INITIAL BUDGET. The budget for the Company's first three
years of operations shall be approved by the Management Committee
simultaneously with the execution of this Agreement or promptly thereafter.
(e) ANNUAL BUDGETS. The Management Committee shall adopt an
annual budget for the operations of the Company, which budget shall be in at
least as much detail and cover the same matters as the initial budget. The
proposed budget shall be presented to the Management Committee no later than
60 days prior to the commencement of the fiscal year of the Company to which
it pertains. Any annual budget adopted by the Management Committee that
covers any period covered by the initial three-year budget shall replace the
initial three-year budget with respect to such period.
29
<PAGE>
ARTICLE 8
OPERATING AGREEMENTS AND OTHER COVENANTS
8.1 LIMITED EXCLUSIVITY.
(a) Except as provided in connection with a Disqualifying
Transaction, so long as the Company continues to meet the TDMA Quality
Standards in all material respects in all of its markets, AT&T will not, and
will not cause its Affiliates to, construct, own or acquire a controlling
interest in, or manage a communications system which provides Mobile Wireless
Services in the Territory, in each case within five years after the Effective
Date, except that AT&T and its Affiliates may:
(i) resell, or act as the Company's agent for, Company
Communications Services provided by the Company in accordance with a
Resale Agreement (or any other agreement between AWS Sub and its
Affiliates, on the one hand, and the Company, on the other hand), and
provide Company Communications Services to its own customers under the
Operating Agreement (including AWS Sub and its Affiliates providing local
numbers in the Territory or otherwise providing numbers and service to
residents of the Territory), including bundling any such Company
Communications Services with other Telecommunications Services marketed,
offered and provided or resold by AWS Sub or any of its Affiliates;
(ii) provide or resell wireless Telecommunications Services to or
from specific locations (such as buildings or office complexes), even if
the subscriber equipment used in connection with such service may be
capable of routine movement within a limited area (such as a building or
office complex), and even if such subscriber equipment may be capable of
obtaining other Telecommunications Services beyond such limited area (which
other services may include routine movement beyond such limited area) and
hand-off between the service to such specific locations and such other
Telecommunications Services; provided, however, that if AT&T or any of its
Affiliates sells such Mobile Wireless Services subscriber equipment as part
of such offering such equipment shall be capable of use in obtaining (but
not necessarily on an exclusive basis) Company Communications Services;
(iii) continue to act as an agent for other Mobile Wireless Services
carriers in the Territory solely for existing national account customers
who are served by that carrier and request that they continue to receive
service from that carrier;
(iv) acquire a controlling interest in Tritel, Inc. or its
successors or assigns; provided, that at the time of such acquisition
Tritel, Inc. (or its successors or assigns) do not hold Licenses issued by
the FCC covering service areas within the Territory other than Licenses in
the service areas covered by the Licenses held by Tritel, Inc. on the
Effective Date that are listed on Schedule 8.1(a)(iv); and provided,
further, that
30
<PAGE>
AT&T and its Affiliates will continue to be obligated to comply with their
obligations under Section 8.2; and
(v) take such action as may be necessary or advisable to comply
only to the extent required with the construction requirements of 47 CFR
24.203 in respect of the PCS licenses listed on Schedule 8.1(a)(v), and the
Company shall cooperate with AT&T and its Affiliates, at their request and
expense, in connection therewith.
(b) To the extent the "other Telecommunications Services"
referred to in Section 8.1(a)(ii) are classified as Mobile Wireless Services,
neither AT&T nor any of its Affiliates or any AT&T licensee may provide or
resell, or act as agent for any Person offering, such Mobile Wireless
Services except Mobile Wireless Services provided by the Company in
accordance with the terms of Section 8.1(a)(i) or pursuant to roaming
arrangements which comply with Section 8.2. Nothing herein shall be construed
to limit in any respect any advertising and promotional and similar
activities by AT&T or its Affiliates.
(c) The agreements set forth in this Section 8.1 will terminate
five years after the Effective Date, unless the parties agree to extend such
arrangements on mutually acceptable terms.
8.2 ROAMING PREFERENCE.
(a) For five years following the Effective Date, with respect to
the markets operated in the Territory, each of the Company and (except as
provided in connection with a Disqualifying Transaction) AT&T shall, and
shall cause each of its Affiliates to, in its and such Affiliates' capacity
as Home Carrier: (i) program and direct its authorized dealers to program the
subscriber equipment provided by it or such authorized dealers to its
customers, at the time it is provided to such customers (to the extent such
programming is technologically feasible) so that the Company or AT&T, as the
case may be, and such Affiliates, in its and such Affiliates' capacity as
Serving Carrier, is the preferred provider of roaming service in such
markets, and (ii) refrain, and direct its authorized dealers to refrain, from
inducing any of its customers to change or, except at such customer's request
in the event the quality of the Company's services do not meet the TDMA
Quality Standards, from changing the programming described in clause (i)
above.
(b) For five years following the Effective Date, with respect to
the markets operated in the Territory, each of the Company and DCC shall, and
shall cause each of its Affiliates (other than Logix Communications) to, in
its and such Affiliates' capacity as Home Carrier: (i) program and direct its
authorized dealers to program the subscriber equipment provided by it or such
authorized dealers to its customers, at the time it is provided to such
customers (to the extent such programming is technologically feasible) so
that the Company or DCC, as the case may be, and such Affiliates, in its and
such Affiliates' capacity as Serving Carrier, is the preferred provider of
roaming service in such markets, and (ii) refrain, and direct its authorized
dealers to refrain, from inducing any of its customers to change or, except
at such customer's request in the event the quality of the Company's services
do not
31
<PAGE>
meet the TDMA Quality Standards, from changing the programming described in
clause (i) above.
(c) As used in this Section 8.2, the terms "Affiliate," "Home
Carrier" and "Serving Carrier" shall have the meanings ascribed thereto in
the Operating Agreement.
(d) The agreements set forth in this Section 8.2 will terminate
five years after the Effective Date, unless the parties agree to extend such
arrangements on mutually acceptable terms.
8.3 RESALE AND AGENCY AGREEMENTS.
(a) From time to time, upon the request of AWS Sub, the Company
shall enter into a Resale Agreement relating to the Territory with AWS Sub
and any of its Affiliates and, with respect to any geographic area within the
Territory, one other Person designated by AWS Sub, provided such other Person
is licensed to provide Telecommunications Services in such geographic area
under the service marks used by AWS and qualifies as a reseller under any
generally applicable standards the Company establishes for its resellers from
time to time, and upon the request of AWS, the Company shall enter into an
agency agreement authorizing AWS Sub and any of its Affiliates and, with
respect to any geographic area within the Territory, one other Person
designated by AWS Sub, provided such other Person is licensed to provide
Telecommunications Services in such geographic area under the service marks
used by AWS and qualifies as an agent under any generally applicable
standards the Company establishes for its agents from time to time. Any such
agency agreements shall provide that the Company shall pay the agent a
commission at the rate then generally offered to the Company's agents and
shall otherwise be on commercially reasonable terms. At no time shall there
be more than one Person (other than AWS Sub and its Affiliates) designated by
AT&T as a reseller or an agent with respect to any geographic area within the
Territory.
(b) It is the intention of the parties that, in light of AWS
Sub's equity interest in the Company and the other arrangements between AWS
Sub and its Affiliates and the Company (including the roaming revenues
anticipated to be earned by the Company from subscribers of AWS Sub and its
Affiliates), the rates, terms and conditions of Service (as defined in the
Resale Agreement) provided by the Company pursuant to the Resale Agreement or
any other agreement between AWS Sub or such other reseller and the Company
shall be at least as favorable to AWS Sub or such other reseller, taken as a
whole, as the rates, terms and conditions of Service, taken as a whole,
provided by the Company to any other Customer (as defined in the Resale
Agreement) and, to the extent permitted by applicable law, such rates, terms
and conditions shall be superior to those provided to any other Customer.
Without limiting the foregoing, the rate plans offered by the Company
pursuant to any Resale Agreement shall be designed to result in the average
actual rate per minute paid by the Reseller (as defined in the Resale
Agreement) for Service being at least 25% below the weighted average actual
rate per minute billed by the Company to its retail subscribers for access
and air time, but excluding revenues for features, taxes, toll or other
32
<PAGE>
non-rate items. The Company and Reseller shall negotiate commercially
reasonable reductions to such resale rate based upon increased volume
commitments (including roaming charges incurred by subscribers of AT&T and
its Affiliates).
8.4 LONG DISTANCE SERVICE. To the extent permitted by law, AT&T
will be the Company's preferred provider of long distance service for so long
as the roaming arrangement described in Section 8.2(a) remains in effect.
The Company will purchase all of its long distance service, both for its own
needs and for resale to its customers, from AT&T, and AT&T will provide the
Company with long distance service at the best rates for which the Company
qualifies consistent with AT&T's practice with similarly situated customers,
provided, that at the time a long distance agreement is entered into, the
rates are commercially reasonable and reasonably competitive. Long distance
service may be purchased for the Company from AT&T by Logix Communications as
long as such service is made available to the Company at rates no higher than
the rates offered to the Company by AT&T directly.
8.5 EQUIPMENT DISCOUNTS. If reasonably requested by the
Company, AWS will, and will cause its 100% Subsidiaries to, use commercially
reasonable efforts to assist representatives of the Company in obtaining
discounts from any AWS vendor with whom the Company is negotiating for the
purchase of subscriber or infrastructure equipment. AWS shall not be
required to take any such action that AWS determines in its sole discretion
is adverse to its interests.
8.6 ROAMING AGREEMENTS. AWS will, and will cause its 100%
Subsidiaries to, use all commercially reasonable efforts to enable the
Company to become a party to the roaming agreements between AWS and its
Affiliates and operators of other wireless systems or, subject to the Company
agreeing to the obligations thereunder, entitled to the rights and benefits
of AWS under such roaming agreements. AWS shall not be required to take any
such action that AWS determines in its sole discretion is adverse to its
interests.
8.7 CERTAIN RESTRICTIONS. DCC and its Affiliates will not offer
Telecommunications Services in the Territory except that a special purpose
Subsidiary of DCC with separate management, facilities and financing from DCC
and the Company may construct, own or acquire a controlling interest in, or
manage a communications system which provides Telecommunications Services
that are not Company Communications Services.
8.8 OTHER BUSINESS; DUTIES; ETC.
(a) Except as otherwise expressly set forth in this Agreement,
the Members and any Person affiliated with any of the Members may engage in
or possess an interest in other business ventures in which the Company is not
a party, and may engage in any other activities, of every kind and
description (whether or not competitive with the business of the Company or
otherwise affecting the Company), independently or with others
33
<PAGE>
in which the Company is not a party, and shall owe no duty or liability to
the Company, its Members or their Affiliates in connection therewith except
as expressly set forth in this Agreement.
(b) To the extent that, at law or in equity, any Member or any
Affiliate of a Member, or any director, officer, stockholder, employee, agent
or representative of a Member or such Affiliate, would have duties (including
fiduciary duties) and liabilities to the Company or the Members arising out
of this Agreement that are different from or in addition to those expressly
provided in this Agreement, all rights of the other Members arising out of
such duties and liabilities are hereby waived and no such Person shall be
liable to the Company or to any Member for its good faith reliance on the
provisions of this Agreement.
(c) Notwithstanding any provision to the contrary in this
Agreement, to the fullest extent permitted by law, each Representative shall
be deemed the agent of the Member Group which appointed such Person a
Representative, and such Representative shall not be deemed an agent or a
sub-agent of the Company or the other Members or Member Groups and shall have
no duty (fiduciary or otherwise) to the Company or the other Members or
Member Groups.
8.9 CONFIDENTIALITY.
(a) Each Member shall, and shall cause each of its Affiliates,
and each of its and their respective partners, members, managers,
shareholders, directors, officers, employees and agents (collectively,
"Agents") to keep secret and retain in strictest confidence and not use for
any purpose except as contemplated by this Agreement any and all Confidential
Information relating to the Company or any Member and shall not disclose such
information, and shall cause its Agents not to disclose such information, to
anyone except (x) such Member's Affiliates or Agents who have a need to know
such information in connection with the matters contemplated by this
Agreement and (y) other Persons (such as lenders to the Company or a Member)
who have a bona fide business reason for obtaining such information in
connection with their dealings with the Company or such Member and who agree
in writing to keep in confidence all Confidential Information in accordance
with the terms of this Section. The obligations under this Section shall
survive the termination of this Agreement for a period of three years (or, if
earlier, as to any Person, three years following the date such Person ceases
to be a Member). The foregoing provisions of this Section were negotiated in
good faith by the parties hereto and the parties hereto agree that such
provisions are reasonable and are not more restrictive than is necessary to
protect the legitimate interests of the Members and the Company.
(b) The obligations set forth in paragraph (a) above shall be
inoperative with respect to Confidential Information that (i) is or becomes
generally available to the public other than as a result of disclosure by the
receiving party or its Agents, (ii) was available to the receiving party on a
non-confidential basis prior to its disclosure to the receiving party or
(iii) becomes available to the receiving party or its agents, provided that
34
<PAGE>
such source is not known by the receiving party to be bound by a
confidentiality agreement with the providing party or its Agents.
(c) To the fullest extent permitted by law, if a Member or any
of its Affiliates or Agents breaches or threatens to commit a breach of this
Section, the other Members and the Company shall have the right to have this
Section specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that money damages will not provide an adequate
remedy to such other Members or the Company. Nothing in this Section shall
be construed to limit the right of any Member or the Company to collect money
damages in the event of a breach of this Section; nor to limit the right of
any Member to report the financial condition and results of operations of the
Company to its shareholders, bondholders or to regulatory authorities to the
extent required by law, regulation or the terms of existing instruments.
(d) Anything else in this Agreement or the Related Agreements
notwithstanding, each Member shall have the right to disclose any
information, including Confidential Information of the other Member or such
other Member's Affiliates, in any filing with any regulatory agency, court or
other governmental authority to the extent that the disclosing Member
determines in good faith that it is required by law or regulation, provided
that any such disclosure shall be as limited in scope as possible and shall
only be made after giving the other Member as much notice as practicable of
such required disclosure and an opportunity to contest such disclosure if
possible.
8.10 CONVERSION TO CORPORATION.
(a) CONVERSION. The Company will be converted to a corporation
(the "Corporation") in connection with an IPO if the Management Committee so
determines or (notwithstanding Section 7.3) if a Qualified Member Group so
elects under Section 9.10. The Members will cooperate to minimize any
adverse tax consequences of such conversion.
(b) CONVERSION OF INTERESTS. Upon a conversion of the Company
to a corporation, the Interests of the Qualified Members will be converted
into Class B Common Shares of the Corporation entitling the holders thereof
to ten votes per share. The Interests of other Members will be converted
into Class A Common Shares of the Corporation entitling the holders thereof
to one vote per share. The certificate of incorporation of the Corporation
will provide that (i) Class B Common Shares that are Transferred to, or held
by, Persons that are not Qualified Members will convert automatically into
Class A Common Shares, (ii) Class B Common Shares will be convertible at any
time at the option of the holder into Class A Common Shares and (iii) if
permitted by the exchange on which shares of the Corporation are listed for
trading, Class A Common Shares held by a Qualified Member will be convertible
at any time at the option of the holder into Class B Common Shares.
(c) STOCKHOLDERS AGREEMENT. Upon a conversion of the Company to
a corporation, the Members will enter into a stockholders agreement
containing, to the extent then applicable, substantially the same terms as
this Agreement, provided, that the
35
<PAGE>
stockholders agreement will provide for each Qualified Member to have
registration rights that are substantially similar to the registration rights
set forth in Article 4 to the Stockholder and Investor Rights Agreement,
dated as of January 31, 2000, among DCC and the Persons listed on Schedule I
thereto.
8.11 DISPUTE RESOLUTION.
(a) If a dispute arises out of or relating to this Agreement or
the Related Agreements, or the transactions contemplated hereby or thereby,
or the construction, interpretation, performance, breach, termination,
enforceability or validity thereof, whether such claim is based on rights,
privileges or interests recognized by or based upon contract, tort, fraud,
misrepresentation, statute, common law or any other legal or equitable
theory, and whether such claim existed prior to or arises on or after the
date hereof (a "Dispute"), the dispute resolution processes set forth in this
Section 8.11 shall govern the resolution of such dispute.
(b) If a Dispute cannot be resolved by the executives having
primary managerial responsibility for the matter to which the Dispute
pertains, the parties shall attempt in good faith to resolve such Dispute
promptly by negotiation between executives who have authority to settle the
Dispute and who are at the level of the executives who have negotiated this
Agreement ("Senior Party Representatives").
(c) A party may provide any other party notice (a "Dispute
Notice") of any Dispute that has not been resolved in the normal course of
business. Within ten business days after delivery of the Dispute Notice, the
receiving party shall submit to each other party a response (the "Response").
The Dispute Notice and the Response shall each include (a) a statement
setting forth the position of the party providing such notice and a summary
of arguments supporting such position, and (b) the name and title of such
party's Senior Party Representative and any other Persons who will accompany
the Senior Party Representative at the meeting at which the parties will
attempt to settle the Dispute. Within 30 business days after delivery of the
Dispute Notice, the Senior Party Representatives of the parties shall meet at
a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the Dispute. All reasonable
requests for information made by one party to another will be honored.
(d) If the Dispute has not been resolved within 50 business days
after delivery of the Dispute Notice, or if the parties fail to meet within
30 business days after delivery of the Dispute Notice, any party may initiate
arbitration of the Dispute as provided below. If no party initiates
arbitration within 60 business days after delivery of the Dispute Notice,
then the parties shall automatically be released from any and all liability
for the Dispute.
(e) All negotiations pursuant to this section shall be treated
as compromise and settlement negotiations. Nothing said or disclosed, nor
any document produced, in the course of such negotiations that is not
otherwise independently discoverable shall be offered
36
<PAGE>
or received as evidence or used for impeachment or for any other purpose in
any current or future arbitration. The parties agree that all communications
and negotiations between the parties during the dispute resolution process,
any settlements agreed upon during the dispute resolution process and any
information regarding the other party obtained during the dispute resolution
process (that are not already public knowledge) are confidential and may be
disclosed only to employees and agents of the parties who shall have a "need
to know" the information and who shall have been made aware of the
confidentiality obligations set forth in this Section 8.11, unless the party
is required by law to disclose such information.
(f) If the Dispute is not resolved as provided in paragraphs (b)
through (d) above, then any party may initiate arbitration proceedings by
providing each other party notice of such initiation of arbitration. The
Dispute shall then be settled by arbitration in accordance with the CPR
Non-Administered Arbitration Rules in effect on the date hereof, by a panel
of three arbitrators. Each Party shall select one of the three arbitrators
and the two arbitrators so chosen shall select the third arbitrator. The
arbitrators shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16, and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof. The place of arbitration
shall be chosen by the three arbitrators. The arbitrators shall be empowered
to award only damages that are recoverable under the provisions of Article
11, and each party hereby irrevocably waives any right to recover any other
damages with respect to any Dispute. The arbitrators shall not order
pre-hearing discovery of documents or the taking of depositions, although the
arbitrators may compel the attendance of witnesses and the production of
documents at the hearing to the extent permitted by the CPR Non-Administered
Arbitration Rules.
(g) If a party does not provide a Dispute Notice within one year
following the time the party first knows of the existence of the acts or
omissions that give rise to the Dispute, the party shall be forever estopped
from asserting the Dispute against any other party.
(h) The reasonable out-of-pocket costs (including reasonable
attorneys' fees and expenses) of the prevailing party and the fees of the
arbitrators in any arbitration proceeding pursuant to this Section 8.11 shall
be paid by the other party. The arbitrators shall determine which party is
the prevailing party for purposes of this paragraph, and shall include such
determination in their award. If the arbitrators determine that neither
party is the prevailing party for purposes of this paragraph, then each party
shall bear its own costs and expenses, including attorneys' fees and
expenses, and the parties shall share equally the fees of the arbitrators.
(i) Notwithstanding the foregoing, nothing in this Agreement
shall preclude the parties from seeking injunctive or other equitable relief
from a court with regard to any breach of this Agreement or the Related
Agreements.
8.12 DISQUALIFYING TRANSACTION. Upon a Disqualifying
Transaction, AWS may terminate, with respect to all or any portion of the
Territory, the obligations of AT&T
37
<PAGE>
and its Affiliates contained in Sections 8.1, 8.2, 8.5 and 8.6, in which
event the Voting Interests then held by the AWS Member Group shall, subject
to FCC approval if necessary, immediately and automatically cease to exist
and, accordingly, the AWS Member Group shall no longer be entitled (x) to
exercise governance rights with respect to the Company (including the right
to appoint Representatives to the Management Committee) except as required by
applicable law or (y) to receive information concerning the Company except
for annual and quarterly financial statements pursuant to Section 6.4. In
such event, upon at least 90 days' written notice to AWS given within 90 days
after termination by AWS of the obligations contained in Sections 8.1 and
8.2, the Company will have the right to terminate the Operating Agreement
with respect to the same portion of the Territory.
ARTICLE 9
TRANSFER RESTRICTIONS; EXIT RIGHTS;
CHANGE OF CONTROL OF DCC
The provisions of Sections 9.1 through 9.4 shall apply to direct
Transfers of Interests by the Members and Indirect Transfers of Interests by
Persons (including Members) that beneficially own Equity Interests in the
Members.
9.1 GENERAL RESTRICTIONS ON TRANSFERS.
(a) PRIOR TO THE THIRD ANNIVERSARY OF THE EFFECTIVE DATE. Prior
to the third anniversary of the Effective Date, Members may not Transfer
Voting Interests or Economic Interests except to other Qualified Members or
members of their respective Affiliate Groups, nor shall Indirect Transfers of
Interests be permitted except in accordance with the provisions of Section
9.4.
(b) AFTER THE THIRD ANNIVERSARY OF THE EFFECTIVE DATE. On and
after the third anniversary of the Effective Date, Indirect Transfers of
Interests shall not be permitted except in accordance with the provisions of
Section 9.4, and
(i) Members may not Transfer Voting Interests except to other
Qualified Members or members of their respective Affiliate Groups. Any
Transfer permitted by the preceding sentence shall not be subject to the
right of first refusal set forth in Section 9.2 or the tag-along right set
forth in Section 9.3.
(ii) Members of the AWS Member Group may Transfer in the aggregate
up to 20% of the Economic Interests acquired by AWS Sub on the Effective
Date to Persons that are not members of the AWS Affiliate Group or the DCC
Affiliate Group. Members of the DCC Member Group may Transfer in the
aggregate up to 20% of the Economic Interests acquired by DCC Sub on the
Effective Date to Persons that are not members of the DCC Affiliate Group
or the AWS Affiliate Group. Any Transfer permitted by the two preceding
sentences shall not be subject to
38
<PAGE>
the right of first refusal set forth in Section 9.2, but shall be subject
to the tag-along right set forth in Section 9.3.
(iii) If members of the AWS Member Group Transfer in the aggregate
more than 20% of the Economic Interests acquired by AWS Sub on the
Effective Date to Persons that are not members of the AWS Affiliate Group
or the DCC Affiliate Group, or members of the DCC Member Group Transfer in
the aggregate more than 20% of the Economic Interests acquired by DCC Sub
on the Effective Date to Persons that are not members of the DCC Affiliate
Group or the AWS Affiliate Group, the Voting Interests then held by the AWS
Member Group or the DCC Member Group, as the case may be, shall immediately
and automatically cease to exist and, accordingly, Members that are members
of the AWS Member Group or the DCC Member Group, as the case may be, shall
no longer be entitled (x) to exercise governance rights with respect to the
Company (including the right to appoint Representatives to the Management
Committee) except as required by applicable law or (y) to receive
information concerning the Company except for annual and quarterly
financial statements under Section 6.4. Any Transfer (or portion thereof)
by a Member of any Member Group, after giving effect to which the 20%
threshold described in the preceding sentence is crossed, and any
subsequent Transfer by a Member of such Member Group, shall be subject to
the right of first refusal set forth in Section 9.2 and the tag-along right
set forth in Section 9.3.
(iv) Members may not Transfer Voting Interests or Economic Interests
to a Prohibited Transferee except (after the IPO) pursuant to broadly
distributed underwritten registered public offerings and Rule 144 under the
Securities Act.
(c) OTHER ENCUMBRANCES ON INTERESTS. Notwithstanding anything
to the contrary in this Agreement or the Act, a Member may not pledge,
hypothecate or otherwise encumber all or any portion of its Interests.
9.2 RIGHT OF FIRST REFUSAL.
(a) NOTICE AND EXERCISE OF RIGHT. Subject to the limitations of
Section 9.1(a), if
(i) members of a Member Group (the "Sellers") receive and wish to
accept a written offer (the "Offer") from a bona fide third party (the
"Offeror") to purchase some or all of their Economic Interests (the
"Offered Interests"),
(ii) the consummation of such purchase would result (together with
any prior Transfers) in the Member Group to which the Sellers belong
ceasing to be a Qualified Member Group, or this Section 9.2 otherwise
expressly applies pursuant to the terms of this Agreement, and
39
<PAGE>
(iii) the other Member Group is a Qualified Member Group (it being
understood that if the other Member Group is not then a Qualified Member
Group, the Sellers shall not be obligated to comply with the provisions of
this Section 9.2 or Section 9.3),
then the Sellers shall give notice of such Offer (the "Offer Notice") to the
members of the other Member Group (the "Buyers"), which notice shall identify
the Offeror, enclose a copy of the Offer, and irrevocably offer to the Buyers
the right to purchase (pro rata in accordance with their respective Interests
unless the Buyers otherwise agree) the Offered Interests on the same economic
terms and conditions as specified in the Offer (if they are the only assets
being sold and are being sold for cash) or for cash at their Fair Market
Value (if they are being Transferred in such transaction or series of related
transactions with other assets or for consideration other than cash),
provided, that the Buyers shall be entitled to pay for the Offered Interests
with instruments of indebtedness to the extent the Offer contemplates the
delivery of instruments of indebtedness. The Buyers may exercise their right
to purchase the Offered Interests by notifying the Sellers in writing of
their election to purchase within 21 days after the later of (x) delivery of
the Offer Notice and (y) any determination of Fair Market Value pursuant to
Section 9.4(c) or otherwise.
(b) CLOSING OF PURCHASE. If the Buyers duly elect to purchase
the Offered Interests, the closing of such purchase (the "RoFR Closing")
shall take place on a date agreed to by the Sellers and the Buyers, but in no
event later than 30 days following the exercise by the Buyers of their
election to purchase; provided, that if governmental or regulatory approval
is required for any Buyer to consummate its purchase and has not been
obtained, the RoFR Closing with respect to such purchase may be deferred
until such approval is obtained.
(c) REPRESENTATIONS AT CLOSING. At any RoFR Closing, the
Sellers shall represent and warrant in writing to the Buyers only that the
Sellers (i) are the sole beneficial and record owners of the Offered
Interests and have good and marketable title thereto free and clear of all
Liens (other than restrictions imposed pursuant to this Agreement) and (ii)
have full power and authority to sell the Offered Interests without conflict
with the terms of any law, order or material agreement or instrument binding
upon them or their assets; and the Sellers shall deliver to the Buyers such
customary instruments of assignment with respect to the Offered Interests as
may be reasonably requested by the Buyers.
(d) SALE TO THIRD PARTY. If the Buyers fail to exercise their
right to purchase the Offered Interests, the Sellers may accept the Offer and
sell the Offered Interests to the Offeror; provided, that such sale shall be
at the same price and on the same terms and conditions as specified in the
Offer Notice and otherwise in accordance with Section 9.5. If such sale is
not consummated within 90 days after the expiration of the applicable time
periods specified in paragraph (b) above, such right to sell shall lapse and
Transfers of the Offered Interests shall again be subject to the provisions
of this Section 9.2.
(e) ASSUMPTION OF AGREEMENTS. At any closing with respect to a
sale to a third party, the Offeror shall execute a counterpart to this
Agreement and any Related
40
<PAGE>
Agreements to which the Sellers or their Affiliates are party and shall be
bound by the provisions of and assume the obligations of the Sellers under
all such Agreements, provided, that the Management Agreement shall not be
assigned or assumed except in accordance with its terms. The Sellers and the
Offeror shall execute such documents as the Buyers may reasonably request to
evidence such assumption.
(f) PUBLIC SALES. Sales of Interests after the IPO pursuant to
registered public offerings and Rule 144 under the Securities Act shall be
subject to this Section 9.2.
9.3 TAG-ALONG RIGHT.
(a) NOTICE AND EXERCISE OF RIGHT. In lieu of exercising its
rights under Section 9.2, or as otherwise expressly provided herein, the
Buyers may, within 21 days after receipt of any Offer Notice, elect by notice
to the Sellers to include their Economic Interests (the "Included Interests")
in such sale on a pro rata basis with the Sellers. Any such sale of Included
Interests shall be made on the same economic terms and conditions as
specified in the Offer (if they are the only assets being sold and are being
sold for cash) or for cash at their Fair Market Value (if they are being
Transferred in such transaction or series of related transactions with other
assets or for consideration other than cash), and the Sellers may not
consummate their sale unless the sale of Included Interests (if any) by the
Buyers is consummated simultaneously in accordance with the terms hereof. If
the Buyers do not elect to participate in such sale, and such sale is not
consummated within the applicable time periods specified in Section 9.2(d),
the restrictions contained in this Section 9.3 shall again become effective,
and Economic Interests may not be Transferred thereafter except in accordance
with this Article 9.
(b) REPRESENTATIONS AT CLOSING. At the closing of any Transfer
of Included Interests pursuant to this Section 9.3, (i) the participating
Buyers shall not be required to make any representations and warranties with
respect to the Company or the Business other than those that the Sellers make
to the purchaser, nor shall the Buyers be required to make any non-compete,
non-solicit or similar covenants in connection with such Transfer, and (ii)
the participating Buyers shall deliver to the purchaser such customary
instruments of assignment with respect to the Included Interests as may be
reasonably requested by the purchaser.
(c) PUBLIC SALES. Sales of Interests after the IPO pursuant to
registered public offerings and Rule 144 under the Securities Act shall not
be subject to this Section 9.3.
9.4 INDIRECT TRANSFERS. Subject to Section 9.8, the provisions
of Sections 9.1, 9.2, 9.3, 9.5, 9.6 and 9.7 (the "Specified Restrictions")
shall apply to Indirect Transfers of Interests to the same extent that they
apply to direct Transfers of Interests except as otherwise provided in this
Section 9.4 or elsewhere in this Agreement.
(a) PERCENTAGE TRANSFERRED. A Transfer of any percentage of the
Equity Interests in a member of any Affiliate Group shall be deemed to be a
Transfer by the
41
<PAGE>
applicable Member Group of the same percentage of Economic Interests in the
Company. For example, the Transfer of 30% of the capital stock of AWS Sub or
DCC Sub shall be deemed to be the Transfer of 30% of the Economic Interests
in the Company by the AWS Member Group or the DCC Member Group, respectively.
Notwithstanding the foregoing, if at the time of any Indirect Transfer
involving a member of any Affiliate Group, the percentage of the Equity
Interests in such member being Transferred exceeds the percentage of Economic
Interests in the Company then held by the applicable Member Group, such
Indirect Transfer shall be deemed to be a Transfer by such Member Group of
the percentage of Economic Interests in the Company then held by such Member
Group. For example, the Transfer of 60% of the capital stock of AWS Sub or
DCC Sub at a time when they each hold 50% of the Economic Interests in the
Company shall be deemed to be a Transfer of 50% of the Economic Interests in
the Company by the AWS Member Group or the DCC Member Group, respectively.
(b) INDIRECT TRANSFERS WITHIN AN AFFILIATE GROUP. The Specified
Restrictions shall not apply to Transfers of Equity Interests in a member of
any Affiliate Group if immediately after giving effect to such Transfer such
Person remains a member of such Affiliate Group, unless such Transfer has
substantially the same economic effect as a Transfer of Interests in the
Company to a Person that is not a member of such Affiliate Group.
(c) INDIRECT TRANSFERS INVOLVING DCC. So long as the Interests
in the Company beneficially owned by DCC do not account for 50% or more of
the value of DCC, the Specified Restrictions shall not apply to Transfers of
Equity Interests in DCC or any Parent of DCC; provided, that such Transfers
are not designed to circumvent the transfer restrictions contained herein;
and provided, further, that the Specified Restrictions shall apply, in
accordance with Section 9.8, to any Transfer resulting in a Change of Control
of DCC. Notwithstanding Section 9.1(c), DCCLP may pledge capital stock of
DCC to secure indebtedness owing to Bank of America, N.A. under instruments
of indebtedness in effect on the Effective Date, as such instruments may be
amended or replaced from time to time.
(d) INDIRECT TRANSFERS INVOLVING AT&T. The Specified
Restrictions shall not apply to (i) Transfers of Equity Interests in AWS,
(ii) Transfers of Equity Interests in AT&T or (iii) Transfers of Equity
Interests by any direct or indirect shareholder of AWS or AT&T; provided,
that such Transfers are not designed to circumvent the transfer restrictions
contained herein.
(e) INDIRECT TRANSFERS INVOLVING JWC. Notwithstanding anything
in this Agreement to the contrary, the Specified Restrictions shall not apply
to Transfers of Equity Interests in DCC by J.W. Childs Equity Partners, II,
L.P. (and its affiliated funds and co-investors listed on Schedule 9.4).
9.5 SUBSTITUTED MEMBERS. Prior to any Transfer of Interests by
a member of any Member Group, the transferor shall deliver to the members of
the other Member Group a notice setting forth the identity of the transferee
and (if applicable) stating that such
42
<PAGE>
transferee is a member of the transferor's Affiliate Group, and shall provide
such other information as the members of the other Member Group may
reasonably request in connection with such Transfer. The transferee shall be
admitted as a Member upon execution of a counterpart to this Agreement
evidencing its agreement to be bound hereby. Upon the admission of any such
transferee as a Member, the transferring Member or Members shall be relieved
of any obligation arising under this Agreement subsequent to such Transfer
with respect to the Interests being transferred (provided that the transferee
shall assume all such obligations), and if the transferring Member no longer
holds any Interests, the transferring Member shall be relieved of its
obligations arising under this Agreement to the extent provided in Section
12.12.
9.6 INVALID TRANSFERS VOID. Any purported Transfer of an
Interest or any part thereof not in compliance with the provisions of this
Article 9 shall be void and of no force or effect and the transferring Member
shall be liable to the other Members and the Company for all liabilities,
obligations, damages, losses, costs and expenses (including but not limited
to reasonable attorneys' fees and court costs) arising out of such
noncomplying Transfer.
9.7 DETERMINATION OF FAIR MARKET VALUE. The Fair Market Value
of Interests to be transferred or other property received pursuant to this
Agreement shall be determined in the following manner:
For purposes of this Section 9.7, Sellers owning a majority of the
applicable Offered Interests shall have the right to act on behalf of
the Sellers. Within 15 days after the delivery of the notice requiring
such determination, the Sellers and the Buyers shall attempt in good
faith to agree on the Fair Market Value. If the Sellers and the Buyers
fail within 15 days thereafter to agree thereon, each of the Sellers and
the Buyers shall deliver a notice to the other appointing as its
appraiser ("Appraiser") an independent accounting or investment banking
firm of nationally recognized standing. The Sellers and Buyers by
mutual agreement shall also appoint a third Appraiser. If after
appointment of the two Appraisers, the Sellers and Buyers are unable to
agree upon a third Appraiser, such appointment shall be made within
fifteen days of the request by the American Arbitration Association, or
any organization successor thereto, from a panel of arbitrators having
experience in the appraisal of the type of property then the subject of
appraisal. The decisions of the three Appraisers so appointed and
chosen shall be given within 30 days after the selection of such third
Appraiser. If the determination of one Appraiser differs from the
middle determination by more than twice the amount by which the other
determination differs from the middle determination, then the
determination of such Appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be binding and
conclusive on the parties; otherwise the average of all three
determinations shall be binding and conclusive. The Sellers' obligation
to provide an Offer Notice pursuant to Section 9.2(a) shall not be
applicable until the date of delivery of such determination to the
Buyers. The costs of conducting any Appraisal Procedure shall be borne
as follows: (x) the costs of the Appraiser designated by the
43
<PAGE>
Sellers and other costs separately incurred by the Sellers shall be
borne by the Sellers; (y) the costs of the Appraiser designated by the
Buyers and other costs separately incurred by the Buyers shall be borne
by the Buyers; and (z) the costs of the third Appraiser, if any, shall
be shared equally by the Sellers and the Buyers.
9.8 CHANGE OF CONTROL OF DCC. Notwithstanding anything in this
Agreement to the contrary:
(a) PROHIBITED TRANSFEREE, ETC. If there is a Change of Control
of DCC in which a Prohibited Transferee (alone or as part of a "group" as
such term is used in Sections 13(d) and 14(d) of the Exchange Act and the
regulations thereunder) or, prior to the second anniversary of the Effective
Date, a Person that is not a Prohibited Transferee (alone or as part of a
"group" as such term is used in Sections 13(d) and 14(d) of the Exchange Act
and the regulations thereunder) acquires control of DCC, and either the
Company is a limited liability company and the AWS Member Group is a
Qualified Member Group, or the Company has converted to a corporation and
members of the AWS Affiliate Group retain in the aggregate capital stock in
such corporation representing at least 50% of the Economic Interests that AWS
Sub acquired on the Effective Date, then
(i) If it does not elect to exercise its rights under Section 9.2
or 9.3, the AWS Member Group may initiate the Buy-Sell Procedure (except
that the AWS Member Group shall have the right but not the obligation to
require that DCC propose the cash purchase price for all of the Interests
of the AWS Member Group) for 90 days after the second anniversary of the
Effective Date,
(ii) from and after the effective date of such Change of Control of
DCC, the DCC Member Group shall lose the right to appoint one of its two
Representatives to the Management Committee (and such Representative shall
forthwith resign or be deemed removed as such) and the AWS Member Group
shall thereupon have the right to appoint three of the four
Representatives, and
(iii) from and after the effective date of such Change of Control of
DCC, subject to Section 9.1(b)(iii), the Significant Matters that the DCC
Member Group will have the right to approve shall be those set forth on
Exhibit A.
(b) NON-PROHIBITED TRANSFEREE. If, on or after the second
anniversary of the Effective Date, a Person that is not a Prohibited
Transferee (alone or as part of a "group" as such term is used in Sections
13(d) and 14(d) of the Exchange Act and the regulations thereunder) acquires
control of DCC and either the Company is a limited liability company and the
AWS Member Group is a Qualified Member Group, or the Company has converted to
a corporation and members of the AWS Affiliate Group retain in the aggregate
capital stock in such corporation representing at least 50% of the Economic
Interests that AWS Sub acquired on the Effective Date, then AWS Sub may elect
in its reasonable discretion to cause the Company to (and the Company shall)
terminate the Management Agreement.
44
<PAGE>
(c) STATUS OF CONTROL PERSON. Except as otherwise provided in
this Section 9.8, any Person referred to in paragraphs (a) or (b) above that
acquires control of DCC shall be treated as the Dobson Group for all purposes
of this Agreement, and if the DCC Member Group was a Qualified Member Group
immediately prior to the time of the Change of Control of DCC, and for so
long thereafter as it qualifies as such hereunder, it shall also be
considered a Qualified Member Group immediately after the Change of Control.
9.9 BUY-SELL PROCEDURE.
(a) AFTER THE FIFTH ANNIVERSARY OF THE EFFECTIVE DATE. After
the fifth anniversary of the Effective Date, whether or not an IPO has
occurred, a Member Group may initiate a buy-sell procedure (the "Buy-Sell
Procedure") by giving the other Member Group a notice referring to this
Section 9.9(a) (the "Section 9.9(a) Notice"), which notice shall specify a
cash purchase price per Interest or per share, as applicable, for all of the
Interests in the Company then held by the other Member Group, and contain an
irrevocable offer to purchase such Interests, and to sell all of the
Interests in the Company then held by the initiating Member Group, at such
price. The non-initiating Member Group may exercise its right to purchase or
sell by notifying the initiating Member Group of its election within 90 days
after delivery of the Section 9.9(a) Notice; provided, that the DCC Member
Group may not initiate the Buy-Sell Procedure, or elect to buy in the event
that the AWS Member Group initiates the Buy-Sell Procedure, without
concurrently providing to the AWS Member Group a firm commitment, including a
"material adverse change" condition (which may include a condition relating
to disruption of the financial markets), reasonably acceptable to the AWS
Member Group, from a financial institution reasonably acceptable to the AWS
Member Group, to underwrite the purchase price. The closing of any such
purchase and sale will occur within 90 days after the end of such 90-day
period, subject to extension for obtaining by Final Order any regulatory
approvals.
(b) IN CONNECTION WITH OVERLAP IN SERVICE COVERAGE. The AWS
Member Group may initiate the Buy-Sell Procedure at any time if (x) the
Company is then offering, in service areas covering 15% or more of the
Company's Pops, Company Communications Services that are not Mobile Wireless
Services and (y) AWS or its Affiliates are then offering, or have a good
faith intention to begin offering and have taken material steps towards
offering, in such service areas, Telecommunications Services that could
reasonably be considered by subscribers to be equivalent to, or a substitute
for, such Company Communications Services that are not Mobile Wireless
Services. Such right will be exercisable by giving the DCC Member Group a
notice referring to this Section 9.9(b) (the "Section 9.9(b) Notice") and
signed by a senior executive officer of AWS, which notice shall (x) describe
in reasonable detail the competing services that AWS or its Affiliates are
then offering or intending in good faith to offer and the steps they have
taken towards offering such services, (y) specify a cash purchase price per
Interest or per share, as applicable, for all of the Interests in the Company
then held by the DCC Member Group, and (z) contain an irrevocable offer to
purchase such Interests, and to sell all of the Interests in the Company then
held by the AWS Member Group, at such price. The DCC Member Group may
exercise its right to purchase or sell by notifying the AWS Member Group of
its election within 90
45
<PAGE>
days after delivery of the Section 9.9(b) Notice; provided, that the DCC
Member Group may not elect to purchase without concurrently providing to the
AWS Member Group a firm commitment, including a "material adverse change"
condition (which may include a condition relating to disruption of the
financial markets), reasonably acceptable to the AWS Member Group, from a
financial institution reasonably acceptable to the AWS Member Group, to
underwrite the purchase price. The closing of any such purchase and sale
will occur within 90 days after the end of such 90-day period, subject to
extension for regulatory approvals.
(c) IN THE EVENT OF CHANGE OF CONTROL OF DCC. If, in connection
with a Change of Control of DCC, the AWS Member Group does not elect to
exercise its right to initiate the Buy-Sell Procedure pursuant to Section
9.8(a)(i), if applicable, or its right of first refusal or tag-along right
under Section 9.2 or 9.3, then, at any time during the 90-day period
beginning on the later of the second anniversary of the Effective Date and 90
days following the expiration of the last of such rights, the DCC Member
Group will have the right to initiate the Buy-Sell Procedure by giving the
AWS Member Group a notice referring to this Section 9.9(c) (the "Section
9.9(c) Notice"), which notice shall specify a cash purchase price per
Interest or per share, as applicable, for all of the Equity Interests in the
Company then held by the AWS Member Group, and contain an irrevocable offer
to purchase such Equity Interests, and to sell all of the Equity Interests in
the Company then held by the DCC Member Group, at such price; provided, that
the DCC Member Group may not initiate the Buy-Sell Procedure without
concurrently providing to AWS Member Group a firm commitment, including a
"material adverse change" condition (which may include a condition relating
to disruption of the financial markets), reasonably acceptable to the AWS
Member Group, from a financial institution reasonably acceptable to the AWS
Member Group, to underwrite the purchase price. The AWS Member Group may
exercise its right to purchase or sell by notifying the DCC Member Group of
its election within 90 days after delivery of the Section 9.9(c) Notice. The
closing of any such purchase and sale will occur within 90 days after the end
of such 90-day period, subject to extension for regulatory approvals.
(d) REPRESENTATIONS AT CLOSING. At the closing of any purchase
and sale pursuant to the Buy-Sell Procedure, the selling Member Group shall
represent and warrant in writing to the non-selling Member Group that the
selling Members (i) are the sole beneficial and record owners of the
Interests being sold and have good and marketable title thereto free and
clear of all Liens (other than restrictions imposed pursuant to this
Agreement) and (ii) have full power and authority to sell the Interests being
sold without conflict with the terms of any law, order or material agreement
or instrument binding upon them or their assets; and the selling Members
shall deliver to the non-selling Member Group such customary instruments of
assignment with respect to the Interests being sold as may be reasonably
requested by the non-selling Member Group.
(e) TERMINATION OF AGREEMENT. Upon the consummation of a
purchase and sale transaction pursuant to the Buy-Sell Procedure, the
Management Agreement and the agreements set forth in Sections 8.1, 8.2, 8.5
and 8.6 will terminate immediately, and the
46
<PAGE>
Operating Agreement will terminate on the later of (a) the tenth anniversary
of the Effective Date and (b) the second anniversary of the consummation of
such purchase and sale transaction.
9.10 IPO DEMAND. After the fifth anniversary of the Effective
Date, any Qualified Member Group may by notice to the Company and the other
Qualified Member Group (if any) elect (the "Section 9.10 Election") to
require the Company to convert to a corporation in accordance with Section
8.10 and to effect an IPO of not less than 10% nor more than 20% of the
Corporation's Class A Common Stock, underwritten by an underwriter selected
by the Management Committee, and otherwise conducted in accordance with the
registration procedures referred to in Section 8.10(c); provided, that the
non-electing Qualified Member Group (if any) may (i) defer the Section 9.10
Election for up to 180 days on one occasion during any 12-month period and
(ii) preempt the Section 9.10 Election by initiating the Buy-Sell Procedure
within 30 days after such Election is made, provided, that the DCC Member
Group may not initiate the Buy-Sell Procedure, or elect to buy in the event
that the AWS Member Group initiates the Buy-Sell Procedure, without
concurrently providing to AWS Member Group a firm commitment, including a
"material adverse change" condition (which may include a condition relating
to disruption of the financial markets), reasonably acceptable to AWS Member
Group, from a financial institution reasonably acceptable to AWS Member
Group, to underwrite the purchase price.
ARTICLE 10
DISSOLUTION AND TERMINATION
10.1 NO WITHDRAWAL. Except as expressly provided in this
Agreement or as otherwise provided by law, no Member shall have the right,
and each Member hereby agrees not, to dissolve, terminate or liquidate the
Company, or to resign or withdraw as a Member.
10.2 DISSOLUTION. The Company shall be dissolved upon the
written determination of the Management Committee to dissolve the Company,
but only on the effective date of dissolution specified by the Management
Committee in such determination.
10.3 PROCEDURES UPON DISSOLUTION.
(a) GENERAL. In the event the Company dissolves it shall
commence winding up pursuant to the appropriate provisions of the Act and the
procedures set forth in this Section 10.3. Notwithstanding the dissolution
of the Company, until the winding up of the Company's affairs is completed,
the business of the Company and the affairs of the Members, as such, shall
continue to be governed by this Agreement.
(b) CONTROL OF WINDING UP. The winding up of the Company shall
be conducted under the direction of the Management Committee or such other
Person as may be designated by a court of competent jurisdiction (herein
sometimes referred to as the "Liquidator"); provided that any Member whose
breach of this Agreement shall have caused the dissolution of the Company
(and the Representatives appointed by such Member) shall
47
<PAGE>
not participate in the control of the winding up of the Company; and provided
further, that if the dissolution is caused by entry of a decree of judicial
dissolution, the winding up shall be carried out in accordance with such
decree.
(c) MANNER OF WINDING UP. The Company shall engage in no
further business following dissolution other than that necessary for the
orderly winding up of business and distribution of assets. The Company's
maintenance of offices shall not be deemed a continuation of business for
purposes of this Section 10.3. Upon dissolution of the Company, the
Liquidator shall, subject to paragraph (a) above, first attempt to distribute
assets in kind if it can obtain the consent of each of the Members and, to
the extent necessary, the creditors of the Company. If such consent is not
obtained, the Liquidator shall sell the Company or all the Company's property
in such manner and on such terms as it deems fit, consistent with its
fiduciary responsibility and having due regard to the activity and condition
of the relevant market and general financial and economic conditions. Each
Member shall share Profits, Losses and other items after the dissolution of
the Company and during the period of winding up in the same manner as
described in Article 4.
(d) APPLICATION OF ASSETS. Upon dissolution of the Company, the
Company's assets (which shall, after the sale or sales referenced in
paragraph (c) above, consist of the proceeds thereof) shall be applied as
follows:
(i) CREDITORS. To creditors, including Members and Representatives
who are creditors, to the extent otherwise permitted by law, in
satisfaction of liabilities of the Company (whether by payment or the
reasonable provision for the payment thereof). Any reserves set up by the
Liquidator may be paid over by the Liquidator to an escrow agent or
trustee, to be held in escrow or trust for the purpose of paying any such
contingent or unforeseen liabilities or obligations, and, at the expiration
of such period as the Liquidator may deem advisable, such reserves shall be
distributed to the Members or their assigns in the manner set forth in
paragraph (ii) below.
(ii) MEMBERS. By the end of the taxable year in which the
liquidation occurs (or, if later, within 90 days after the date of such
liquidation), to the Members in proportion to the positive balances of
their respective Capital Accounts, as determined after taking into account
all Capital Account adjustments for the taxable year during which the
liquidation occurs (other than those made pursuant to this paragraph).
10.4 TERMINATION. Upon completion of the winding up of the
Company and the distribution of all Company assets, the Company's affairs
shall terminate and the Members shall cause to be executed and filed any and
all documents required by the Act to effect the termination of the Company.
48
<PAGE>
ARTICLE 11
EXCULPATION AND INDEMNIFICATION
11.1 NO PERSONAL LIABILITY.
(a) Except as otherwise provided by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort
or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Indemnified Person (as defined in paragraph (b) below) shall
be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being an Indemnified Person.
(b) No Representative, Member or its Affiliates, or any of their
respective shareholders, directors, officers, employees, agents, members,
managers, or partners (each, an "Indemnified Person") shall be liable,
responsible or accountable in damages or otherwise to the Company or to any
other Indemnified Person for any act or omission performed or omitted by an
Indemnified Person in connection with the transactions contemplated hereby,
whether for mistake of judgment or negligence or other action or inaction,
unless such action or omission constitutes willful misconduct, gross
negligence or bad faith. Each Indemnified Person may consult with counsel,
accountants and other experts in respect of the affairs of the Company and
such Indemnified Person shall be fully protected and justified in any action
or inaction which is taken in good faith in accordance with the advice or
opinion of such counsel, accountants or other experts, provided that they
shall have been selected with reasonable care.
11.2 INDEMNIFICATION BY COMPANY. To the maximum extent permitted
by applicable law, the Company shall protect, indemnify, defend and hold
harmless each Indemnified Person for any acts or omissions performed or
omitted by an Indemnified Person (in its capacity as such) unless such action
or omission constituted willful misconduct, gross negligence or bad faith.
The indemnification authorized under this Section shall include payment on
demand (with appropriate evidence of the amounts claimed) of reasonable
attorneys' fees and other expenses incurred in connection with, or in
settlement of, any legal proceedings between the Indemnified Person and a
third party and the removal of any Liens affecting any property of the
Indemnified Person. Such indemnification rights shall be in addition to any
and all rights, remedies and recourse to which any Indemnified Person shall
be entitled, whether or not pursuant to the provisions of this Agreement, at
law or in equity. The indemnities provided for in this Section 11.2 shall be
recoverable only from the assets of the Company, and there shall be no
recourse to any Member or other Person for the payment of such indemnities.
11.3 NOTICE AND DEFENSE OF CLAIMS.
(a) NOTICE OF CLAIM. If any action, claim or proceeding
("Claim") shall be brought or asserted against any Indemnified Person in
respect of which indemnity may be sought from the Company under Section 11.2,
the Indemnified Person shall give prompt written notice of such Claim to the
Company, which may assume the defense thereof,
49
<PAGE>
including the employment of counsel reasonably satisfactory to the
Indemnified Person and the payment of all of such counsel's fees and
expenses; provided that any delay or failure to so notify the Company shall
relieve the Company of its obligations hereunder only to the extent, if at
all, that it is prejudiced by reason of such delay or failure. Any such
notice shall refer to Section 11.2 and describe in reasonable detail the
facts and circumstances of the Claim being asserted.
(b) DEFENSE BY THE COMPANY. In the event that the Company
undertakes the defense of the Claim, the Company will keep the Indemnified
Person advised as to all material developments in connection with any Claim,
including, but not limited to, promptly furnishing the Indemnified Person
with copies of all material documents filed or served in connection
therewith. The Indemnified Person shall have the right to employ one
separate firm per jurisdiction with respect to any of the foregoing Claims
and to participate in the defense thereof, but the fees and expenses of such
firm shall be at the expense of the Indemnified Person unless both the
Indemnified Person and the Company are named as parties and representation by
the same counsel is inappropriate due to actual differing interests between
them; provided that under no circumstances shall the Company be liable for
the fees and expenses of more than one law firm per jurisdiction in any of
the foregoing Claims for the Indemnified Persons, taken collectively and not
separately. The Company may, without the Indemnified Person's consent,
settle or compromise any Claim or consent to the entry of any judgment if
such settlement, compromise or judgment involves only the payment of money
damages by the Company (which payment is made or adequately provided for at
the time of such settlement, compromise or judgment) or provides for the
unconditional release by the claimant or plaintiff of the Indemnified Person
and its Affiliates from all liability in respect of such Claim and does not
impose injunctive relief against any of them. The Indemnified Person shall
provide reasonable assistance to the Company in the defense of the Claim. As
between the Company, on the one hand, and the Indemnified Persons, on the
other hand, any matter that is not agreed to unanimously by the Indemnified
Persons shall be determined by the Indemnified Person that is a party to this
Agreement.
(c) DEFENSE BY THE INDEMNIFIED PERSON. In the event that the
Company, within 20 business days after receiving written notice of any such
Claim, fails to assume the defense thereof, the Indemnified Person shall have
the right, subject to the right of the Company thereafter to assume such
defense pursuant to the provisions of this Article 11, to undertake the
defense, compromise or settlement of such Claim for the account of the
Company.
(d) ADVANCEMENT OF EXPENSES. Unless the Indemnifying Party
shall have assumed the defense of any Claim pursuant to paragraph (b) above,
the Company shall advance to the Indemnified Person any of its reasonable
attorneys' fees and other costs and expenses incurred in connection with the
defense of any such Claim. Each Indemnified Person shall agree in writing
prior to any such advancement, that in the event he or it receives any such
advance, such Indemnified Person shall reimburse the Company for such fees,
costs, and expenses to the extent that it shall be determined that he or it
was not entitled to indemnification under this Article 11.
50
<PAGE>
(e) CONTRIBUTION. Notwithstanding any of the foregoing to the
contrary, the provisions of this Article 11 shall not be construed so as to
provide for the indemnification of any Indemnified Person for any liability
to the extent (but only to the extent) that such indemnification would be in
violation of applicable law or to the extent such liability may not be
waived, modified, or limited under applicable law, but shall be construed so
as to effectuate the provisions of this Article 11 to the fullest extent
permitted by law; provided, that if and to the extent that the Company's
indemnification obligation under this Article 11 is unenforceable for any
reason, the Company hereby agrees to make the maximum contribution
permissible under applicable law to the payment and satisfaction of the
losses of the Indemnified Person, except to the extent such losses are found
in a final, nonappealable judgment by a court of competent jurisdiction to
have resulted from the Indemnified Person's gross negligence or willful
misconduct.
ARTICLE 12
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement and the Related
Agreements, together with any schedules and exhibits hereto and thereto,
contain the entire agreement and understanding of the Members relating to the
subject matter hereof and supersede all prior negotiations, proposals,
offers, agreements and understandings (written or oral) relating to such
subject matter, including the letter agreement and term sheet attached
thereto dated October 5, 1999 among AWS, DCC and DCCLP.
12.2 AMENDMENT; WAIVER. Neither this Agreement nor any provision
hereof may be amended or modified except in a writing signed by each of the
Qualified Members; PROVIDED, that any amendment or modification that
adversely affects a non-Qualified Member shall require the consent of such
Member. No failure or delay of any Member in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce any such right or power, preclude any other further exercise
thereof or the exercise of any other right or power. No waiver by any Member
of any departure by any other Member from any provision of this Agreement
shall be effective unless the same shall be in a writing signed by the Member
against which enforcement of such waiver or consent is sought, and then such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given. No notice or similar
communication by any Member to another shall entitle such other Member to any
other or further notice or similar communication in similar or other
circumstances, except as specifically provided herein.
12.3 SPECIFIC PERFORMANCE. The Members acknowledge that money
damages may not be an adequate remedy for violations of this Agreement and
that any Member may, in its sole discretion, in an arbitration or a court of
competent jurisdiction, to the extent permitted hereunder, apply for specific
performance or injunctive or other relief as such arbitration or court may
deem just and proper in order to enforce this Agreement or to
51
<PAGE>
prevent violation hereof and, to the extent permitted by applicable law, each
Member waives any objection to the imposition of such relief.
12.4 REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law
or in equity shall, unless otherwise specifically provided herein, be
cumulative and not alternative, and the exercise or beginning of the exercise
of any right, power or remedy thereof by a Member shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such Member.
12.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Members and their respective
successors and permitted assigns. No Member may assign its rights or
delegate its duties under this Agreement without the written consent of the
other Members except to the extent expressly provided in this Agreement.
12.6 NO THIRD PARTY BENEFICIARIES. This Agreement is entered
into solely for the benefit of the Members and no Person other than the
Members, their respective successors and permitted assigns, their Affiliates
to the extent expressly provided herein, and (to the extent provided in
Article 11) the Persons entitled to indemnification pursuant to Article 11,
may exercise any right or enforce any obligation hereunder.
12.7 FURTHER ASSURANCES. Each Member will execute and deliver
such further documents and take such further actions as any other Member may
reasonably request consistent with the provisions hereof in order to effect
the intent and purposes of this Agreement.
12.8 NOTICES. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given or made (i)
upon delivery if delivered personally (by courier service or otherwise) or
(ii) upon confirmation of dispatch if sent by facsimile transmission (which
confirmation shall be sufficient if shown on the journal produced by the
facsimile machine used for such transmission), and all legal process with
regard hereto shall be validly served when served in accordance with
applicable law, in each case to the applicable addresses set forth below (or
such other address as the recipient may specify in accordance with this
Section):
If to a Member or Representative of the DCC Member Group, to such
Member or Representative:
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
Fax: (405) 529-8765
52
<PAGE>
with a copy to:
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, RI 02903
Attn: David K. Duffell
Fax: (401) 276-6611
If to a Member or Representative of the AWS Member Group, to such
Member or Representative:
c/o AT&T Wireless Services, Inc.
7277 164th Avenue, NE
Redmond, WA 98052
Attn: William W. Hague
Fax: (425) 580-8405
with a copy to:
AT&T Wireless Services, Inc.
7277 164th Avenue, NE
Redmond, WA 98052
Attn: General Counsel
Fax: (425) 580-8333
If to any other Member, to the address of such Person for notices set forth
in the records of the Company.
12.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware,
without regard to principles of conflicts of law.
12.10 SEVERABILITY. If any term of this Agreement or the
application thereof to any Member or any circumstance shall be held invalid
or unenforceable to any extent, the remainder of this Agreement and the
application of such term to the other Members or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
applicable law, so long as the economic and legal substance of this Agreement
and the actions contemplated hereby is not affected in any manner adverse to
any Member.
12.11 INDEPENDENT CONTRACTORS. The Members are independent
contractors, and this Agreement does not create a partnership or agency
relationship between the Members, or any other relationship between the
Members except as expressly set forth herein. No Member shall have any right
or authority to assume, create or incur any liability or obligation, express
or implied, in the name or on behalf of any other Member.
53
<PAGE>
12.12 DISPOSITION OF INTERESTS. Upon the sale or other
disposition by a Person of all its Interests in the Company, following which
such Person and Affiliate thereof is no longer a Member of the Company, this
Agreement shall terminate as to such Member and its Affiliates except as
provided in Section 12.13.
12.13 SURVIVAL OF RIGHTS AND DUTIES. Termination of this
Agreement for any reason shall not relieve any Member of any liability which
at the time of termination has already accrued to such Member or which
thereafter may accrue in respect of any act or omission prior to such
termination, nor shall any such termination affect in any way the other
Related Agreements or the survival of any right, duty or obligation of any
Member which is expressly stated elsewhere in this Agreement to survive
termination hereof. Sections 8.3, 8.9 and 8.11 and Articles 11 and 12 shall
survive any termination of this Agreement, including any termination pursuant
to Section 12.12 in connection with the consummation of a purchase and sale
transaction pursuant to the Buy-Sell Procedure.
12.14 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one instrument.
12.15 CONSTRUCTION. Each of the parties hereto acknowledges that
it has reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any
amendments hereto. The captions used herein are for convenience of reference
only and shall not affect the interpretation or construction hereof. All
pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the context may require.
Unless otherwise specified, (a) the terms "hereof," "herein" and similar
terms refer to this Agreement as a whole, (b) references herein to Articles
or Sections refer to articles or sections of this Agreement and (c) the word
"including" connotes the words "including without limitation" unless the
context requires otherwise.
12.16 NO RIGHT TO PARTITION. No Member shall have the right to
bring an action for partition against the Company. Each of the Members
hereby irrevocably waives any and all rights which it may have to maintain an
action to partition Company property or to compel any sale or transfer
thereof.
12.17 DE FACTO AND DE JURE TRANSFERS OF CONTROL. Notwithstanding
anything to the contrary contained herein, to the extent that, by reason of
any action taken or proposed to be taken, by or on behalf of a Member or any
Member Group (including any actions taken in accordance with the provisions
of Articles 7, 8, or 9 of this Agreement), there would be a de jure or de
facto transfer of control of the Company, (a) if such transfer of control
requires prior notice to, or the prior approval of, the FCC, then no such
action shall be taken unless and until the FCC has approved such transfer of
control, and in such case, the Member proposing to take (or whose Member
Group is proposing to take) such action shall be responsible for assuring
that all required notifications or applications to the FCC have been filed,
and all required consents from the FCC have been obtained, before such
transfer of control is made; and (b) if such transfer of control requires
notification to the FCC after it has occurred, the Member taking such action
(or whose Member Group has taken such action) shall be responsible for
assuring that all required notifications to the FCC have been
54
<PAGE>
filed. In any such event, the responsible Member shall assure that all
required applications and/or notifications are timely filed and are accurate
and complete in all material respects, and such Member shall execute and file
any such applications or notifications on behalf of the Company.
[SIGNATURE PAGE FOLLOWS]
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
AT&T WIRELESS SERVICES JV CO.
By: /s/ Michael Schwarez
--------------------------------------------
Name: Michael Schwarez
Title: VP
DOBSON JV COMPANY
By: /s/ Ronald L. Ripley
--------------------------------------------
Name: Ronald L. Ripley
Title: Vice President
Agreed and accepted with respect
to Sections 8.1, 8.2, 8.3 and 8.4 only:
AT&T CORP.
By: /s/ G P Landis
--------------------------------
Name: G P Landis
Title: VP
56
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Principal Place of Business. . . . . . . . . . . . . . . . . . . . . . 17
2.3 Registered Office; Registered Agent... . . . . . . . . . . . . . . . . 17
2.4 Term.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Purpose and Powers.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.6 Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7 Sole Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 3 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3 No Withdrawals.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 4 PROFITS AND LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Limitation on Losses.. . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 Special Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Curative Allocations.. . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 Allocation of Credits. . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Tax Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.7 Change in Member's Interests . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 5 DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Distributable Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Liquidating Distributions. . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 6 ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Method of Accounting.. . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Books and Records; Inspection. . . . . . . . . . . . . . . . . . . . . 24
6.4 Financial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Taxation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 7 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2 Meetings of Management Committee.. . . . . . . . . . . . . . . . . . . 27
7.3 Actions by Management Committee. . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8 OPERATING AGREEMENTS AND OTHER COVENANTS . . . . . . . . . . . . . . . . 30
8.1 Limited Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Roaming Preference . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Resale and Agency Agreements.. . . . . . . . . . . . . . . . . . . . . 32
8.4 Long Distance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
i
<PAGE>
8.5 Equipment Discounts. . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.6 Roaming Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.7 Certain Restrictions.. . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Other Business; Duties; Etc. . . . . . . . . . . . . . . . . . . . . . 33
8.9 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Conversion to Corporation. . . . . . . . . . . . . . . . . . . . . . . 35
8.11 Dispute Resolution.. . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.12 Disqualifying Transaction. . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 9 TRANSFER RESTRICTIONS; EXIT RIGHTS; CHANGE OF CONTROL OF DCC . . . . . . 38
9.1 General Restrictions on Transfers. . . . . . . . . . . . . . . . . . . 38
9.2 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 Tag-Along Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Indirect Transfers.. . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.5 Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Invalid Transfers Void . . . . . . . . . . . . . . . . . . . . . . . . 43
9.7 Determination of Fair Market Value . . . . . . . . . . . . . . . . . . 43
9.8 Change of Control of DCC . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Buy-Sell Procedure.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.10 IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 10 DISSOLUTION AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . 47
10.1 No Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.2 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.3 Procedures Upon Dissolution. . . . . . . . . . . . . . . . . . . . . . 47
10.4 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 11 EXCULPATION AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 49
11.1 No Personal Liability. . . . . . . . . . . . . . . . . . . . . . . . . 49
11.2 Indemnification by Company.. . . . . . . . . . . . . . . . . . . . . . 49
11.3 Notice and Defense of Claims.. . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.2 Amendment; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.3 Specific Performance.. . . . . . . . . . . . . . . . . . . . . . . . . 52
12.4 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 52
12.6 No Third Party Beneficiaries.. . . . . . . . . . . . . . . . . . . . . 52
12.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.10 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.11 Independent Contractors. . . . . . . . . . . . . . . . . . . . . . . . 53
12.12 Disposition of Interests . . . . . . . . . . . . . . . . . . . . . . . 54
12.13 Survival of Rights and Duties. . . . . . . . . . . . . . . . . . . . . 54
12.15 Construction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ii
<PAGE>
12.16 No Right to Partition. . . . . . . . . . . . . . . . . . . . . . . . . 54
12.17 De Facto and De Jure Transfers of Control. . . . . . . . . . . . . . . 55
</TABLE>
iii
<PAGE>
===============================================================================
MANAGEMENT AGREEMENT
between
DOBSON CELLULAR SYSTEMS, INC.
and
ACC ACQUISITION LLC
Dated as of January 31, 2000
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. ENGAGEMENT.. . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. MANAGEMENT STANDARDS.. . . . . . . . . . . . . . . . . . . . .2
SECTION 3. SERVICES TO BE PROVIDED. . . . . . . . . . . . . . . . . . . .2
SECTION 4. COMPENSATION.. . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 5. TERM AND TERMINATION.. . . . . . . . . . . . . . . . . . . . .8
SECTION 6. NONCOMPETITION AND CONFIDENTIALITY.. . . . . . . . . . . . . 11
SECTION 7. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 8. BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . 12
SECTION 9. REGULATORY COMPLIANCE. . . . . . . . . . . . . . . . . . . . 12
SECTION 10. DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . 13
SECTION 11. INSPECTION RIGHTS; DELIVERY OF INFORMATION. . . . . . . . . 14
SECTION 12. MISCELLANEOUS.. . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
EXHIBIT 2(C) QUALITY STANDARDS
Exhibit 3(c) Financial Performance Standards
Exhibit 4(b)(i) Cost Allocation Methodology
Exhibit 4(b)(ii) Per Unit Cost Comparison
Exhibit 5(e) Integration with DCC Systems
i
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is entered into as of January
31, 2000 by and between Dobson Cellular Systems, Inc., an Oklahoma corporation
("Manager"), and ACC Acquisition LLC, a Delaware limited liability company (the
"Company"). Capitalized terms used but not defined in this Agreement shall have
the meanings given to such terms in the Amended and Restated Limited Liability
Company Agreement of the Company, dated as of date hereof (the "LLC Agreement").
WHEREAS, the operation of the Business, including, without limitation,
the determination of policy, the preparation and filing of any and all
applications and other filings with the FCC, the hiring, supervision and
dismissal of personnel, day-to-day system operations, and the payment of
financial obligations and operating expenses, shall be controlled by the
Company, and Manager shall assist the Company in connection therewith and any
action undertaken by Manager shall be under the Company's continuing oversight,
review, control and approval, and the Company shall retain unfettered control
of, access to, and use of the Business, including its facilities and equipment
and shall be entitled to receive all profits from the operation of the Business;
WHEREAS, Manager is an indirect wholly owned subsidiary of Dobson
Communications Corporation ("DCC"), which owns 50% of the Economic Interests and
50% of the Voting Interests of the Company;
WHEREAS, the Company owns all of the equity interests in ACC Acquisition
Co., which as of the Effective Date (as defined below) will own certain Cellular
Systems and PCS Systems;
WHEREAS, Manager is willing to provide management services for the
Company and its Subsidiaries (including ACC Acquisition Co.) on the terms and
subject to the conditions contained in this Agreement; and
WHEREAS, the parties desire to execute this Agreement to specify the
terms upon which Manager will perform services to the Company hereunder.
NOW, THEREFORE, for and in consideration of the premises, the covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the execution and delivery
hereof, the parties agree as follows:
Section 1. ENGAGEMENT. The Company hereby engages Manager to oversee,
manage and supervise the development and operation of the Business, and Manager
hereby accepts such engagement, subject to and upon the terms and conditions
hereof.
<PAGE>
Section 2. MANAGEMENT STANDARDS.
(a) Manager shall discharge its duties hereunder in compliance
with the LLC Agreement and the Operating Agreement (collectively, the "Operating
Agreements") and all applicable law. In performing its obligations hereunder,
Manager shall act in a manner that it reasonably believes to be in the best
interests of the Company consistent with the standards set forth herein.
Nothing in this Agreement shall be construed as constituting Manager an agent of
the Company beyond the extent expressly provided in, and as limited by, this
Agreement.
(b) Manager shall devote comparable attention and services to
the Company as those devoted by Manager (or any Affiliate of DCC that manages
DCC's wireless communications systems) in its management of other wireless
communications systems or markets directly or indirectly owned or managed by
Manager, and will otherwise deal with the Company subject to the terms of this
Agreement in a manner that does not discriminate against the Company in favor of
such other markets.
(c) Manager shall use reasonable best efforts to cause the
Company's Cellular Systems to comply in each of the Company's markets with the
Quality Standards set forth on Exhibit 2(c).
Section 3. SERVICES TO BE PROVIDED.
(a) SCOPE OF SERVICES. Subject to the Company's oversight,
review and ultimate control and approval and the limitations of Section 3(c)
below, Manager shall be responsible for the supervision, design, construction
and operation of the Company and the Business in accordance with the Operating
Agreements. Among other things, Manager shall have the right to select the
persons who shall perform all design, construction, management or operational
services and may elect to use its own employees or engage independent
contractors. To this end Manager shall provide generally, on the terms and
subject to the conditions set forth herein and in a manner consistent with the
standards set forth herein and in the Operating Agreements, supervisory services
with respect to (x) all administrative, accounting, billing, credit, collection,
insurance, purchasing, clerical and such other general services as may be
necessary to the administration of the Business, (y) operational, engineering,
maintenance, construction, repair and such other technical services as may be
necessary to the construction and operation of the Business, and (z) marketing,
sales, advertising and such other promotional services as may be necessary to
the marketing of the Business. The services for which Manager shall be
responsible, subject in each case to the Operating Agreements, the Company's
oversight, review and ultimate control and approval and to the limitations of
Section 3(c) below, shall include but shall not be limited to the following:
2
<PAGE>
(i) the marketing of Mobile Wireless Services (and, to
the extent determined by the Management Committee, other Company
Communications Services) to be offered and provided by the Company;
(ii) the management, tax compliance, accounting and
financial reporting for the Company including, but not limited to, the
preparation and presentation of reports and reviews of the business,
financial results and condition, regulatory status, competitive position
and strategic prospects of the Company as requested by the Management
Committee;
(iii) the regulatory processing for the Company, including
without limitation the preparation and filing of all appropriate
regulatory filings, certificates, tariffs and reports that are required
by, and participation in any hearings or other proceedings before, local,
state and federal governmental regulatory bodies;
(iv) the engineering, design, planning, construction and
installation, maintenance and repair (both emergency and routine) and
operation of, and equipment purchases for, the Company;
(v) assisting the Company in the development and
preparation of budgets, including, without limitation, preparing and
presenting, not later than 60 days before the beginning of each fiscal
year (it being understood that the annual budgets for the first three
years shall be based on, in terms of format and level of detail, the
initial three-year budget of the Company, provided, that any such annual
budget shall supersede the initial three-year budget with respect to the
year covered by such annual budget), a proposed draft of an annual
operating budget for the Company's review, evaluation and approval
setting forth in reasonable detail the anticipated capital expenditures
and other projected costs and expenses of constructing and operating the
Business during the period covered by the budget, as well as projected
revenues for that period, a business plan and personnel requirements, and
key performance standards, goals and indicators for the Company, for the
period covered by the budget, in each case presented on a month-by-month
basis to the extent practicable, and generally describing all contracts
and commitments which Manager expects to enter into on behalf of the
Company during the period covered thereby;
(vi) services relating to sales of the products and
services offered by the Company, including without limitation processing
orders for service, customer support, billing for services provided by
the Company and collection of receivables for the Company;
(vii) management information services for the Company;
(viii) monitoring and controlling the Business and its
Cellular Systems;
3
<PAGE>
(ix) negotiating contracts, issuing purchase orders and
otherwise entering into agreements on behalf of the Company for the
purchase, lease, license or use of such properties, services and rights
as may be necessary or desirable in the judgment of Manager for the
operation of the Company;
(x) supervising, recruiting and training all necessary
personnel to be employed by the Company, and determining salaries, wages
and benefits for the Company's employees;
(xi) administering the Company's employee benefit
programs and the Company's programs for compliance with applicable laws
governing the administration and operation of such plans and programs;
(xii) administering the Company's risk management
programs, including negotiating the terms of property and casualty
insurance and preparing a comprehensive disaster recovery program; and
(xiii) in furtherance of the foregoing, making or
committing to make permitted expenditures (including permitted capital
expenditures) on behalf of the Company.
(b) ACCOUNTS. Subject to the foregoing, the Company shall be
responsible for payment of all costs and expenses necessary to fund the ongoing
business and operations of the Business and for the provision of all services of
Manager hereunder, which shall include, but not be limited to, payments under
Section 4, payments to independent contractors, payments to vendors and
suppliers of the Business, and interest payments to creditors who have financed
the construction or operation of the Business. To the extent provided herein,
Manager shall make such payments on the Company's behalf from one or more
accounts maintained in the name of the Company at one or more banks acceptable
to the Management Committee, into which all Company revenues shall be deposited
(the "Accounts"). All funds of the Company shall be promptly deposited in such
bank accounts. All disbursements made by the Company as permitted under this
Agreement shall be made by checks drawn on the Accounts, and all funds on
deposit in the Accounts shall at all times be the property of the Company.
Manager will have the right and authority to make deposits to and disbursements
and withdrawals from the Accounts as required in connection with the performance
of its services hereunder, PROVIDED that all signatories on the Accounts shall
be subject to the approval of the Management Committee. The executive officers
of the Manager shall be deemed to be signatories who have been approved by the
Management Committee.
(c) RESTRICTIONS ON MANAGER'S AUTHORITY. Anything to the
contrary in this Agreement notwithstanding, Manager shall not take, or cause or
permit to be taken, any action that requires the approval of the Management
Committee under Section 7.3 of the LLC Agreement (including, if applicable, by
reference to Exhibit A to the LLC Agreement), or do, or cause or permit to be
done, any of the following for or on behalf of
4
<PAGE>
the Company without the prior written consent of the Management Committee
(unless included with reasonable specificity in a budget duly adopted by the
Company):
(i) settle any claim or litigation by or against the
Company if the settlement involves a payment of $100,000 or more, or any
non-ministerial regulatory proceedings involving the Company;
(ii) (A) lend money or guarantee debts of others (other
than wholly-owned Subsidiaries of the Company) on behalf of the Company,
or assign, transfer, or pledge any debts due the Company, or (B) release
or discharge any debt due or compromise any claim of the Company, other
than trade credit and advances to employees in the ordinary course of
business;
(iii) invest in or otherwise acquire any debt or equity
securities of any other Person, enter into any binding agreement for the
acquisition of any interest in any business entity or other Person
(whether by purchase of assets, purchase of stock or other securities,
merger, loan or otherwise), or enter into any joint venture or
partnership with any other Person;
(iv) take any tax reporting position or make any related
election on behalf of the Company which is inconsistent with the
directions given by the Management Committee;
(v) assert on behalf of the Company a position with
respect to any material matter, or disagree on behalf of the Company with
a position taken with respect to any material matter by a Member or any
other Person, before the Federal Communications Commission or any other
Governmental Authority, a self-regulatory body, any industry organization
or in any other public forum;
(vi) knowingly take or fail to take any action that
violates (A) any law, rule or regulation relating to the Business,
(B) any material agreement, arrangement or understanding to which the
Company is a party, including an Operating Agreement, (C) any License or
other governmental authorization granted to the Company in connection
with its ownership and operation of the Business, or (D) any judicial or
administrative order or decree to which the Company is subject;
(vii) sell, assign, transfer, or otherwise dispose of, or
hypothecate or grant a Lien on any License or other material assets
belonging to the Company (other than the disposal of assets or equipment
in the ordinary course of business);
(viii) take any action amending or agreeing to amend any
License granted to the Company in connection with its ownership and
operation of the Business (it being understood that License renewals in
the ordinary course of business shall not require Management Committee
approval);
5
<PAGE>
(ix) borrow money on behalf of the Company or enter into
other forms of financing for the Business, other than any capital lease;
(x) commingle any funds of the Company with funds of any
other entity or Person;
(xi) hire or fire the independent certified public
accountants of the Company;
(xii) pay to any employee or agent of, or consultant or
advisor to, the Company, cash compensation in excess of $150,000 in any
fiscal year;
(xiii) establish any reserves that are not set forth on the
quarterly financial reports provided to the Management Committee;
(xiv) make any material changes or modifications to any
significant components of the Company's Cellular Systems as they exist on
the Effective Date;
(xv) enter into any contract, agreement (including any
capital lease) or other commitment or issue any purchase order, which
contract or other agreement or purchase order (A) is not in the ordinary
course of business, (B) obligates the Company to make payments of
$100,000 or more within any 12-month period or (C) could reasonably be
expected to create a material variance relative to (x) in the case of a
capital expenditure, the total budget for capital expenditures contained
in any budget approved by the Management Committee and (y) in the case of
an operating expense, the total operating expense budget contained in any
budget approved by the Management Committee, in each case for the
year-to-date period in which the expenditure is made or incurred and
taking into account all previous expenditures and commitments in such
year-to-date period; or terminate or amend in any material respect any
contract, agreement or other commitment or purchase order, in each case
if the execution and delivery or issuance thereof requires approval
pursuant to this Section 3(c); or
(xvi) enter into, or commit to enter into, any agreement,
arrangement or understanding that could reasonably be expected to have an
adverse effect on the Company's ability to comply in any material respect
with the Quality Standards set forth in Exhibit 2(c) or the financial
performance standards set forth in Exhibit 3(c).
PROVIDED, that if this Agreement is terminated by the Company pursuant to
5(b)(ii)(B), and AT&T designates the New Provider (as defined in Section
6(e)(i)), such New Provider may do, or cause or permit to be done, for or on
behalf of the Company, without the prior written consent of the Management
Committee, any of the actions set forth in clauses (i) through (xvi) above;
PROVIDED, FURTHER, that anything herein to the contrary notwithstanding, the New
Provider shall not take any action set forth on Exhibit B to the
6
<PAGE>
LLC Agreement without obtaining approval of the Management Committee in the
manner specified in the LLC Agreement. Prior to the effectiveness of any
assignment to a New Provider, such Person shall agree in writing to become
bound by this Agreement.
(d) BUDGETS. Manager shall prepare or cause to be prepared and
present not later than 30 days before the beginning of each fiscal year
following the fiscal year 2000 an annual operating budget (with quarterly
forecasts) for the Company's review, evaluation and approval (each, as duly
approved by the Company, an "Operating Budget"). Each Operating Budget shall
set forth in reasonable detail the anticipated capital expenditures and other
projected costs and expenses of operating the Company's Cellular Systems during
the period covered by the budget, as well as projected revenues for that period
and the projected reportable income for such quarter and Manager shall endeavor
to assure the accuracy of its estimates. Prior approval by the Company shall be
required for any expenditure which would result in operating expenditures
exceeding any summary line item in an Operating Budget by more than 10 percent
or the total amount of expenses contemplated by an Operating Budget by more than
10 percent.
(e) TRANSACTIONS WITH AFFILIATES. Notwithstanding anything in
this Agreement to the contrary, without the prior approval of the Management
Committee, Manager shall not (and shall cause the Company and its Subsidiaries
not to) enter into any agreement, arrangement or understanding with Manager or
any of its Affiliates or any member of the Dobson Group except in the ordinary
course of the Business of the Company and on commercially reasonable terms that
are no less favorable to the Company or its Subsidiaries than the Company or its
Subsidiaries would obtain in a comparable arm's-length transaction with an
unaffiliated Person. In its request for approval of the Management Committee,
Manager shall specify that the applicable transaction is subject to this Section
3(e).
Section 4. COMPENSATION.
(a) REIMBURSEMENT. The Company shall reimburse Manager for all
out-of-pocket expenses ("Out-of-Pocket Expenses") reasonably incurred by Manager
for goods and services provided by third parties to, for or on behalf of the
Company or incurred by Manager in the performance of its duties and
responsibilities hereunder. Manager shall provide the Company with a statement
setting forth in reasonable detail (and with copies of invoices or other
supporting documentation) the Out-of-Pocket Expenses claimed within thirty (30)
days after they are incurred, provided, that Out-of-Pocket Expenses incurred in
the last thirty (30) days of any fiscal year shall be claimed or estimated in
good faith at least two weeks prior to the end of such fiscal year. The Company
shall pay to Manager each such amount within thirty (30) days of receipt of such
statement and invoices or other supporting documentation (it being understood
that estimated Out-of-Pocket Expenses will not be reimbursed until Manager
provides the Company with the invoices or other supporting documentation
therefor).
7
<PAGE>
(b) COST ALLOCATIONS. To the maximum extent practicable,
Manager and its Affiliates will specifically identify costs associated with the
Business, which shall be reimbursed by the Company as Out-of-Pocket Expenses in
accordance with Section 4(a). To the extent that such specific identification
is impracticable, Manager shall charge the Company "Cost Allocations" for those
common costs which benefit the Company (including an appropriate portion of
Manager's general overhead expenses). Cost Allocations (including without
limitation the cost of services directly allocable to the Company that are
performed by employees of DCC or its Affiliates) shall be calculated in the
manner set forth in Exhibit 4(b)(i). Manager shall cause to be furnished to the
Company, at Company's expense, an accounting of any such Cost Allocations, and
the Company shall pay to Manager such amount within thirty (30) days of receipt
of such accounting. Exhibit 4(b)(ii) sets forth by category in reasonable detail
the per unit costs incurred by American Cellular Corporation in 1999, the per
unit costs incurred by Manager and its Affiliates in 1999, and Manager's good
faith estimate of the projected per unit costs to be incurred by the Company in
2000, in operating their respective Cellular Systems.
(c) DISPUTES, ETC. If the Company disputes the amount of
Out-of-Pocket Expenses or Cost Allocations claimed by Manager, the Company
shall notify Manager in writing before payment is due, and if the matter
cannot be resolved informally between the parties, either the Company or
Manager may request resolution of the dispute pursuant to Section 10.
Section 5. TERM AND TERMINATION.
(a) TERM. This Agreement shall commence on the Closing Date
under the Agreement and Plan of Merger dated as of October 5, 1999 among the
Company, ACC Acquisition Co. and American Cellular Corporation (the "Effective
Date") and shall terminate as provided herein or under the LLC Agreement.
(b) TERMINATION.
(i) BY EITHER PARTY. Either party may terminate this
Agreement in the event that a Governmental Authority shall enter an order
appointing a custodian, receiver, trustee, intervenor or other officer
with similar powers with respect to the other party or with respect to
any substantial part of its property, or constituting an order for relief
or approving a petition in bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding up or liquidation of
such party; or if a party files a petition seeking any such order; or if
any such petition shall be filed against such party and shall not be
dismissed within one hundred and twenty (120) days thereafter; or an
order shall have been issued granting such party a suspension of payments
under applicable law and any such order is not dismissed within one
hundred and twenty (120) days thereafter.
8
<PAGE>
(ii) BY COMPANY. The Company (acting through the
Management Committee, excluding the Representatives appointed by DCC) may
terminate this Agreement:
(A) on five (5) days' notice in the event of a
material breach of this Agreement by Manager (as determined by the
Management Committee, excluding the Representatives appointed by
DCC), which has not been cured within sixty (60) days following
notice thereof from the Company;
(B) on five (5) days' notice if (I) the DCC
Affiliate Group ceases to be a Qualified Affiliate Group or (II) a
Change of Control of DCC occurs and (x) a Prohibited Transferee
(or, prior to the second anniversary of the Effective Date, any
other Person) acquires control of Dobson and (y)(1) either the
Company is a limited liability company and the AWS Affiliate Group
is a Qualified Affiliate Group or (2) the Company has converted to
a corporation and the AWS Affiliate Group retains at least 50% of
its initial economic interests or (III) Manager ceases to be a
wholly owned subsidiary of DCC;
(C) on five (5) days' notice if the Company
(acting through the Management Committee, excluding the
Representatives appointed by DCC) has notified Manager of the
Company's failure to comply with the Quality Standards in any
material respect, and such failure has not been cured within sixty
(60) days thereafter or, if such breach is not capable of being
cured on commercially reasonable terms within such sixty (60) day
period, within one-hundred eighty (180) days of such notice,
provided that Manager is using reasonable best efforts to cure
such breach as soon as reasonably practicable; and
(D) on five (5) days' notice if the Company fails
to comply with the financial performance standards set forth on
Exhibit 3(c).
(iii) BY MANAGER. Manager may terminate this Agreement on
five (5) days' notice in the event of a material breach of this Agreement
by the Company (other than a payment default) which has not been cured
within sixty (60) days following notice thereof from Manager.
(c) REMEDIES. The remedies set forth herein are not intended
to be exclusive, and all remedies shall be cumulative and may be exercised
concurrently with any other remedy available to Manager or the Company at law or
in equity.
(d) CONTINUING OBLIGATIONS. Notwithstanding the provisions of
Sections 6(a) and (b), no termination of this Agreement shall take effect until
the expiration of the Transition Period (as defined below). After receipt of
written notice of termination, but prior to the expiration of the Transition
Period, Manager shall continue
9
<PAGE>
to perform under this Agreement unless specifically instructed (by the
Management Committee, excluding the Representatives appointed by DCC) to
discontinue such performance in whole or in part. In the event of
termination, Manager and the Company shall remain liable for their respective
obligations accrued under this Agreement prior to the expiration of the
Transition Period.
(e) TRANSITION ARRANGEMENTS.
(i) GENERAL. In the event of termination of this
Agreement for any reason, Manager shall, during the Transition Period, at
the Company's expense, cooperate with the Company in order to facilitate
the transition to a new management service provider (the "New Provider")
designated by AWS (which may be, at the election of AWS, an Affiliate of
AWS). Manager shall at the Company's expense take all commercially
reasonable steps to assist the New Provider in assuming the management of
the Company and the operation of the Company's Cellular Systems
including, without limitation, transferring to the New Provider all
historical financial, tax, accounting, billing and other data with
respect to the Company in the possession of Manager or its Affiliates,
and giving such consents, assigning such permits and executing such
instruments as may be necessary to vest in the New Provider those rights
that were used by Manager to perform its services hereunder.
Exhibit 5(e) sets forth those items of information and other assets and
properties of the Company that Manager anticipates will be integrated in
whole or in part with the operations of Manager or its Affiliates in the
course of Manager's performance of its obligations hereunder, and that
will accordingly need to be transferred to the Company or the New
Provider in connection with any termination of this Agreement.
(ii) USE OF MANAGER MARKS. Notwithstanding anything
herein to the contrary, in the event of termination of this Agreement by
Manager other than pursuant to Section 5(b)(i) or Section 5(b)(iii),
Manager shall use reasonable efforts to make available to the Company on
commercially reasonable terms, by license, sublicense or otherwise,
during the Transition Period, the right to market in those areas being
served by the Company at the commencement of the Transition Period those
products and services being marketed at the commencement of the
Transition Period under those marks owned by or licensed to Manager or
its Affiliates (the "Manager Marks") being used for such purpose at the
commencement of the Transition Period (including the "Cellular One" name
and logo and, if applicable, the "Dobson" name and logo) and, during the
Transition Period and for six (6) months thereafter, neither Manager nor
any of its Affiliates shall market under any of the Manager Marks in such
areas such products and services.
(iii) "Transition Period" means the period commencing on
the effective date of termination of this Agreement and expiring on the
later of (x) the first anniversary of such date of termination and (y)
the date on which the
10
<PAGE>
Company, as managed by the New Provider, is able, in the good faith
determination of AWS, to provide substantially the same level of service
to its registered and roaming customers as it did when the Company was
managed by Manager.
Section 6. NONCOMPETITION AND CONFIDENTIALITY.
(a) NONCOMPETITION. During the Transition Period, neither
Manager nor any of its Affiliates shall assist or become associated with any
person or entity, whether as a principal, partner, employee, consultant or
shareholder (other than as a holder of not in excess of 5% of the outstanding
voting shares of any publicly traded company) that is actively engaged in the
business of providing Mobile Wireless Services in the Territory.
(b) CONFIDENTIALITY. Manager shall, and shall cause each of
its Affiliates, and each of its and their respective partners, members,
managers, shareholders, directors, officers, employees and agents (collectively,
"Agents") to keep secret and retain in strictest confidence and not use for any
purpose any and all Confidential Information relating to the Company or any
member of the Company and shall not disclose such information, and shall cause
its Agents not to disclose such information, to the same extent provided in
Section 8.9 of the LLC Agreement.
(c) COMPANY PROPERTY. Promptly following the termination of
this Agreement, Manager shall return to the Company all property of the Company,
and all copies thereof in its possession or under its control, and all tangible
embodiments of Confidential Information in its possession in whatever media such
Confidential Information is maintained.
(d) NON-SOLICITATION OF EMPLOYEES. During the Transition
Period and for six months thereafter, neither Manager nor any of its Affiliates
will directly or indirectly induce any employee of the Company or any of its
Affiliates, or any employee of the New Provider or any of its Affiliates, to
terminate employment with such entity, and will not directly or indirectly,
either individually or as owner, agent, employee, consultant or otherwise,
employ or offer employment to any person who is or was employed by the Company
or any of its Affiliates, or by the New Provider or any of its Affiliates,
unless such person shall have ceased to be employed by such entity for a period
of at least six months.
(e) INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. Manager
acknowledges and agrees that the covenants and obligations contained in this
Section 6 relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the
Company irreparable injury for which adequate remedies are not available at law.
Therefore, Manager agrees that the Company shall be entitled to an injunction,
restraining order, or such other equitable relief as a court of competent
jurisdiction may deem necessary or appropriate to restrain Manager
11
<PAGE>
and its Affiliates from committing any violation of the covenants and
obligations contained in this Section 6. These injunctive remedies are
cumulative and are in addition to any other rights and remedies the Company
may have at law or in equity.
Section 7. FORCE MAJEURE. Neither of the parties will be liable for
nonperformance or defective or late performance of any of its obligations
hereunder to the extent and for such periods of time as such nonperformance,
defective performance or late performance is due to reasons outside such party's
control, including acts of God, war (declared or undeclared), acts (including
failure to act) of any governmental authority, riots, revolutions, fire, floods,
explosions, sabotage, nuclear incidents, lightning, weather, earthquakes,
storms, sinkholes, epidemics, strikes, or delays of suppliers or subcontractors
for the same causes.
Section 8. BOOKS AND RECORDS. Manager shall maintain and oversee the
maintenance and preparation of proper and complete records and books of account
for tax and financial purposes with respect to its management of the operation
of the Business, including all such transactions and other matters as are
usually entered into records and books of account maintained by Persons engaged
in business of like character or as required by law. Manager shall maintain and
oversee the maintenance and preparation of complete records and books of the
Company for tax purposes. Books and records maintained for financial purposes
shall be maintained in accordance with GAAP, and books and records maintained
for tax purposes shall be maintained in accordance with the Code and applicable
Treasury Regulations. Within five (5) days after the end of each month Manager
shall prepare or cause to be prepared and transmit to the Company unaudited
statements, which shall include a general ledger and a trial balance. Manager
shall also provide at the Company's request and expense any and all such
additional statements or reports as may be reasonably necessary to the Company's
oversight and control of the Business. The Company shall have control over and
access, at all reasonable times during normal business hours, to the books and
records of the Company maintained by Manager pursuant to this Section 8.
Section 9. REGULATORY COMPLIANCE. Subject to the other provisions of
this Agreement, Manager shall cause the Company and its Subsidiaries, and their
respective Cellular Systems, to remain in compliance in all material respects
with applicable laws, rules and regulations, including rules and regulations
promulgated by the FAA and the FCC. Without limiting the generality of the
foregoing, the parties agree to comply with all applicable FCC rules and
regulations governing the Cellular Systems and the Licenses, and specifically
agree as follows:
(a) The Company (or its Subsidiaries which are the holders of
the Licenses) shall at all times maintain absolute control over, and retain the
ability to exercise the unfettered use of, the Licenses and the licensed
facilities provided thereunder, including the products and services to be
offered and the rates to be charged and the further right to terminate service
should public interest obligations under the applicable Licenses so require.
12
<PAGE>
(b) Manager shall not represent itself as the holder of a
License to provide the Company Communications Services on any of the Cellular
Systems of the Company.
(c) Each customer (if any) billed by Manager shall be clearly
advised that service is provided over facilities licensed to the Company (or the
Subsidiary which is the holder of a License).
(d) Neither Manager nor the Company (or a Subsidiary which is a
holder of a License) shall represent itself as the legal representative of the
other before the FCC. Manager and the Company (and each Subsidiary which is the
holder of a License) will cooperate with the other with respect to FCC matters
concerning the Cellular Systems.
(e) The Company (and each Subsidiary which is the holder of a
License) shall (i) in cooperation with Manager, take all actions necessary to
keep its Licenses in force and shall prepare and submit to the FCC, or any other
relevant authority, all reports, applications, renewals, filings or other
documents necessary to keep its Licenses in force and in good standing; (ii)
with all due assistance which may be necessary from Manager, respond promptly to
all FCC correspondence or inquiries and will immediately notify Manager of the
receipt thereof; and (iii) promptly report any changes of its address to the FCC
and to Manager.
(f) The Company (and each Subsidiary which is the holder of a
License) and Manager are familiar with the rules of the FCC regarding the
responsibility of the holder of a License under the Communications Act and
applicable FCC rules, regulations and policies. Nothing in this Agreement is
intended to diminish or restrict the obligations of the Company (or a Subsidiary
which is the holder of a License) as an FCC licensee and both parties desire
that this Agreement be in compliance with the rules and regulations of the FCC.
If the FCC determines that any provision of this Agreement violates any FCC
rule, policy or regulation, all parties will make good faith efforts to
immediately correct the problem and bring this Agreement into compliance,
consistent with the intent of this Agreement.
Section 10. DISPUTE RESOLUTION. If a dispute arises out of or relating
to this Agreement or the transactions contemplated hereby, or the construction,
interpretation, performance, breach, termination, enforceability or validity
hereof, whether such claim is based on rights, privileges or interests
recognized by or based upon contract, tort, fraud, misrepresentation, statute,
common law or any other legal or equitable theory, and whether such claim
existed prior to or arises on or after the Effective Date, the dispute
resolution processes set forth in Section 8.11 of the LLC Agreement shall govern
the resolution of such dispute.
13
<PAGE>
Section 11. INSPECTION RIGHTS; DELIVERY OF INFORMATION.
(a) COMPANY'S RIGHT TO INSPECT. Manager will permit
representatives of the Company or any Qualified Affiliate Group, at the
Company's or such Group's cost, during normal business hours and upon not less
than five business days' advanced written request, to (i) visit and inspect
during normal business hours Manager's properties and facilities which are
utilized in connection with Manager's provision of services to the Company
pursuant to this Agreement, including without limitation access to, and the
right to make copies of, books and records of the Company located at such
properties and facilities, and (ii) discuss with Manager's officers and
employees such properties and facilities and Manager's provision of services to
the Company pursuant to this Agreement. All such information shall be held in
confidence by the Company or such Group, except for disclosures made to the
Company's or Group's advisors, lenders and investors, or as required to be
disclosed by process of law or other applicable law.
(b) NOTICE OF CERTAIN EVENTS. Promptly, and in any event
within five (5) business days after Manager has received notice or has otherwise
become aware thereof, Manager shall give the Company notice of (i) the
commencement of any material proceeding or investigation against the Company or
Manager by or before any governmental body or in any court or before any
arbitrator which would be likely to have a material adverse effect on Manager,
the Business or the Company, or on Manager's ability to perform its obligations
hereunder, and (ii) the occurrence or non-occurrence of any event (x) which
constitutes, or which with the passage of time or giving of notice or both would
constitute, a default by the Company or Manager under this Agreement or under
any other material agreement to which the Company or Manager is a party or by
which its properties may be bound, and (y) would be likely to have a material
adverse effect on Manager, the Business or the Company, or on Manager's ability
to perform its obligations hereunder, giving in each case the details thereof
and specifying the action being taken or proposed to be taken with respect
thereto. Promptly upon receipt thereof, Manager shall deliver to the Company
copies of any material notice or report regarding any License from the grantor
of such license or from any Governmental Authority regarding the Business or the
Company.
(c) OTHER INFORMATION. From time to time and promptly upon
each request, Manager shall provide the Company with such data, certificates,
reports, statements, financial projections, documents or further information
regarding the business, equity owners, assets, liabilities, financial position
or results of operations of Manager, as may be reasonably requested by the
Company.
Section 12. MISCELLANEOUS.
(a) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one instrument.
14
<PAGE>
(b) CONSTRUCTION. Each of the parties hereto acknowledge that
it has reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments
thereto. The captions used herein are for convenience of reference only and
shall not affect the interpretation or construction hereof. All pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular, plural as the context may require. Unless otherwise
specified, (i) the terms "hereof," "herein," and similar terms refer to this
Agreement as a whole, (ii) references herein to Articles or Sections refer to
articles or sections of this Agreement and (iii) the word "including" connotes
the words "including without limitation unless the context requires otherwise.
(c) BENEFIT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of all parties hereto and their respective successors
and permitted assigns; PROVIDED, however, that Manager shall not assign or
otherwise transfer its rights and obligations under this Agreement (other than
to another wholly owned subsidiary of DCC that has substantially the same
ability to perform its obligations hereunder as the original Manager) without
the prior written consent of the Company (acting through the Management
Committee excluding the Representatives appointed by DCC). The parties agree
that, upon any termination of this Agreement by the Company pursuant to Section
5(b)(i) or Section 5(b)(ii), the rights and (to the extent provided herein)
obligations of Manager shall be deemed to have been assigned to the New
Provider; PROVIDED, that no such termination shall relieve Manager of any
liability which at the time of termination had already accrued to Manager or
which thereafter may accrue in respect of any act or omission of Manager or its
Affiliates prior to such termination.
(d) COMPLETE AGREEMENT. This document, the exhibits attached
hereto and each of the documents referred to herein, embody the complete
agreement and understanding among the parties relating to the subject matter
hereof and supersede and preempt any prior understandings (written or oral)
relating to such subject matter, including the letter agreement and term sheet
attached thereto dated October 5, 1999 among AT&T Wireless Services, Inc., DCC
and Dobson CC Limited Partnership.
(e) AMENDMENT. This Agreement may not be amended except by a
writing signed by each of the parties.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws, and not the laws of conflict, of
the State of New York.
(g) SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall for any reason or to any
extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby, but, rather, shall be enforced to the extent permitted by law,
so long as the economic and legal substance of this
15
<PAGE>
Agreement and the actions contemplated hereby is not affected in any manner
adverse to either party.
(h) FURTHER ASSURANCES. The parties agree that they will take
all such further actions and execute and deliver all such further instruments
and documents as may be required in order to effectuate the agreements set forth
in this Agreement.
(i) WAIVER. No failure or delay on the part of the parties or
any of them in exercising any right, power or privilege hereunder, nor any
course of dealing among the parties or any of them shall operate as a waiver of
any such right, power or privilege nor shall any single or partial exercise of
any such right, power or privilege preclude the simultaneous or later exercise
of any other right, power or privilege. The rights and remedies herein expressly
provided are cumulative and are not exclusive of any rights or remedies which
the parties or any of them would otherwise have.
(j) NOTICES. All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given or made (i) upon
delivery if delivered personally (by courier service or otherwise) or (ii) upon
confirmation of dispatch if sent by facsimile transmission (which confirmation
shall be sufficient if shown on the journal produced by the facsimile machine
used for such transmission), and all legal process with regard hereto shall be
validly served when served in accordance with applicable law, in each case to
the applicable addresses set forth below (or such other address as the recipient
may specify in accordance with this Section):
If to Manager:
Dobson Cellular Systems, Inc.
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attention: General Counsel
Fax: (405) 529-8765
If to the Company:
ACC Acquisition LLC
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attention: General Counsel
Fax: (405) 529-8765
16
<PAGE>
with copies to:
Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attention: General Counsel
Facsimile: (405) 529-8765
and
AT&T Wireless Services, Inc.
7277 164th Avenue, NE
Redmond, WA 98052
Attention: Mary Hawkins-Key
Facsimile: (425) 580-8075
* * *
[SIGNATURE PAGE FOLLOWS]
17
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands effective as of the
date first written above.
COMPANY:
ACC ACQUISITION LLC
By: AT&T Wireless Services JV Co.
By: /s/ Michael Schwarez
------------------------------------
Name: Michael Schwarez
Title: VP
By: Dobson JV Company
By: /s/ Ronald L. Ripley
------------------------------------
Name: Ronald L. Ripley
Title: Vice President
MANAGER:
DOBSON CELLULAR SYSTEMS, INC.
By: /s/ Ronald L. Ripley
------------------------------------
Name: Ronald L. Ripley
Title: Vice President
<PAGE>
ACC Acquisition LLC
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, Oklahoma 73114
January 31, 2000
Dobson Cellular Systems, Inc.
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, Oklahoma 73114
Re: Management Agreement of even date herewith
between Dobson Cellular Systems, Inc. ("Manager")
and ACC Acquisition LLC (the "Company")
---------------------------------------
Ladies and Gentlemen:
With reference to the above-captioned Management Agreement, the parties
to this letter agreement will cooperate in good faith to reach agreement on the
terms of Exhibits 3(c), 4(b)(i), 4(b)(ii) and 5(e) to the Management Agreement,
and they agree further that, notwithstanding anything in the Management
Agreement to the contrary, Manager will not integrate the administration or
operation of the Company's Cellular Systems with the Cellular Systems of Manager
or any other Person unless and until the Company receives, and the Management
Committee (excluding the Representatives appointed by DCC) approves in its sole
discretion, the terms of such Exhibits and such integration. Capitalized terms
used herein without definition have the meanings set forth in the LLC Agreement.
This letter agreement (i) contains the entire agreement among the
parties hereto as to the subject matter set forth herein, anything to the
contrary in the Management Agreement notwithstanding, (ii) shall be governed by,
and construed in accordance with, the laws of the State of New York, without
giving effect to New York's conflict of law rules, and (iii) may be executed in
any number of counterparts, all of which when taken together shall constitute
one and the same instrument and any of the parties hereto may execute this
letter agreement by signing any such counterpart.
<PAGE>
Please confirm your agreement with the foregoing by signing below and
returning one originally executed copy of this letter to the undersigned.
Very truly yours,
ACC ACQUISITION LLC
By: AT&T Wireless Services JV Co.
By:
------------------------------------
Name:
Title:
By: Dobson JV Company
By:
------------------------------------
Name:
Title:
Accepted and agreed to by:
DOBSON CELLULAR SYSTEMS, INC.
By:
----------------------------
Name:
Title:
2
<PAGE>
OPERATING AGREEMENT
-------------------
THIS OPERATING AGREEMENT (the "Agreement") is dated as of the 31st day
of January, 2000 by and between AT&T Wireless Services, Inc., on behalf of
itself and its Affiliates listed in Schedule 1 hereto (individually and
collectively, "AWS") and ACC Acquisition LLC, on behalf of itself and its
Affiliates listed in Schedule 2 hereto (individually and collectively,
"ACC"). AWS and ACC are sometimes referred to, individually, as a "Party"
and together as "Parties."
R E C I T A L
-------------
WHEREAS, each of AWS and ACC desires to make arrangements to facilitate
the provision of voice and voice-related mobile wireless radiotelephone
service to its Customers through the wireless radiotelephone facilities of
the other Party in a manner providing a common look and feel and the
appearance of seamlessness between the Parties' facilities, in accordance
with the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein set forth and intending to be legally bound hereby, the
Parties do hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
As used in this Agreement, the terms below shall have the following
meanings:
ACC has the meaning set forth in the first paragraph of this Agreement.
ACC SERVICE AREA means the geographic area in which ACC and those of its
Affiliates now or hereafter listed on Schedule 2 provide Service.
ACC SYSTEM means the facilities owned and/or operated by ACC with
which it provides Service anywhere within the ACC Service Area.
ACC TDMA SYSTEM means that portion of the ACC System located in the
markets listed on Exhibit A.
ADDITIONAL FEATURES means the Features that are offered by AWS to
their Customers in their Home Service Areas and are adopted by ACC pursuant
to Section 10.3.3. Once implemented, an Additional Feature shall be deemed a
Core Feature for purposes of this Agreement.
-1-
<PAGE>
ADOPTED FEATURES means the Core Features, the Future Core Features and
the Additional Features.
AFFILIATE means, with respect to a Party, any facilities-based CMRS
operating company that (a) is controlled by or under common control with the
Party, (b) is an entity in which the Party has at least fifty percent (50%)
voting interest, (c) shares switching facilities with the Party, (d) is
managed by the Party, or (e) is providing Service utilizing CMRS spectrum it
has acquired from a Party; provided, that AWS and Dobson Communications
Corporation and their respective Affiliates shall be deemed not to be
Affiliates of ACC for purposes of this Agreement.
APPROVED CIBERNET NEGATIVE FILE GUIDELINES means the negative file
guidelines appearing in the CIBER Record in effect from time to time.
AT&T WIRELESS means AT&T Wireless Services, Inc., individually.
AUTHORIZED RECEIPT POINT or ARP means the location or address of the
Party designated by the Home Carrier as the delivery point for its CIBER
records and authorized agent for performing CIBER edits.
AUTHORIZED ROAMER means a Roamer using equipment and an assigned
telephone number with the NPA/NXX combinations listed in accordance with
Article VI below for whom the Serving Carrier has not received a negative
notification in accordance with the provisions of this Agreement.
AWS has the meaning set forth in the first paragraph of this Agreement.
AWS SYSTEM means the facilities owned and/or operated by AWS with
which it provides Service anywhere within the United States.
BTA means a geographic area designated by the FCC as a Basic Trading
Area in which a PCS System may be operated, as described more specifically in
47 CFR 24.202 of the FCC rules and regulations.
CELLULAR SYSTEM means a wireless communication system that is operated
pursuant to authority granted by the FCC under 47 CFR Part 22.
CIBER means Cellular Intercarrier Billing Exchange Record.
CIBER RECORD means the publication prepared by CIBERNET Corporation, a
wholly-owned subsidiary of the Cellular Telecommunications Industry
Association, as a service to the wireless communications industry. Unless
specifically provided otherwise in this Agreement, all words and phrases
defined in the CIBER Record shall have the meaning herein that they have
therein.
CLEARINGHOUSE means that entity which provides for the exchange of
CIBER records and performs industry accepted CIBER edits, including edits to
verify Industry Negative File information.
-2-
<PAGE>
CMRS means any Commercial Mobile Radio Service as authorized by the
FCC.
CORE FEATURES means the Features that, as of the Effective Date, AWS
and ACC have agreed to implement and maintain in order to create a common
look and feel and seamless subscriber service between the AWS System and the
ACC System, as evidenced by their listing in Schedule E-1 to Exhibit E
attached hereto.
CUSTOMER means an end-user of Service with which a Party has entered
into an agreement to provide such Service, regardless of whether such Service
is to be provided through the facilities of such Party.
DEFAULT has the meaning set forth in Section 13.1.
EFFECTIVE DATE means the Closing Date under the Agreement and Plan of
Merger dated as of October 5, 1999 among ACC Acquisition LLC, ACC Acquisition
Co. and American Cellular Corporation.
ESN means the Electronic Serial Number that is encoded in a wireless
telephone set by the manufacturer and which is broadcast by such telephone.
EQUIPMENT means phones, handsets, transmitters, terminals, control
equipment and switches and other hardware and software required or useful to
use Service, including phones and handsets Customers use in connection with
Service.
FCC means the Federal Communications Commission and any successor
agency or authority.
FEATURES means voice and voice-related features and services available
from a Party through its mobile wireless telecommunication system.
FUTURE CORE FEATURES means the Features that are agreed upon in the
future by the Parties pursuant to Section 10.3.2 as necessary to maintain a
common look and feel, and seamless subscriber service, between the AWS System
and the ACC System, and which the Parties agree will be supported by both of
their Systems, on the terms and conditions of this Agreement, in the same
manner as the Core Features. Once implemented, a Future Core Feature shall
be deemed a Core Feature for purposes of this Agreement.
GENERAL AVAILABILITY means the date upon which the technology and
products that comprise any Future Core Features are commercially available at
a commercially reasonable price from the vendors of such technology and
product(s), and such Feature has successfully completed and passed the first
application in the System of the Party seeking to implement such features and
is ready for live commercial deployment.
HOME CARRIER means a Party who is providing Service to its registered
Customers (it being understood that for purposes of this Agreement AWS shall
be deemed to be the Home Carrier for its registered Customers residing in the
ACC Service Area).
-3-
<PAGE>
HOME SERVICE AREA means the geographic area in which a Home Carrier is
licensed to provide Service.
INDUSTRY NEGATIVE FILE means the negative file maintained by the
authorized Clearinghouses in accordance with approved CIBERNET Negative File
Guidelines.
MIN means the "Mobile Identification Number" which is assigned by a
Home Carrier to each of its registered Customers.
MSA means a geographic area designated by the FCC as a Metropolitan
Service Area in which a Cellular System may be operated, as described more
specifically in 47 CFR 22.909 of the FCC rules and regulations.
MTA means a geographic area designated by the FCC as a Major Trading
Area in which a PCS System may be operated, as described more specifically in
47 CFR 24.202 of the FCC rules and regulations.
NPA/NXX COMBINATIONS means the six-digit numerical combinations
assigned by regulatory authorities to identify the area code and telephone
number prefix for Service.
PCS SYSTEM means a wireless communication system that is operated
pursuant to authority granted by the FCC under 47 CFR Part 24.
PARTIES and PARTY have the meanings set forth in the first paragraph
of this Agreement.
ROAMER means a Customer of one Party who seeks Service from the other
Party within the geographic area served by the other Party, regardless of
whether Service also is offered in that area by the Party whose Customer is
seeking Service.
RSA means a geographic area designated by the FCC as a Rural Service
Area in which a Cellular System may be operated, as described more
specifically in 47 CFR 22.909 of the FCC rules and regulations.
SERVICE means telecommunications service for the transmission and
reception of voice and voice-related features provided by means of radio
frequencies that are or may be licensed, permitted or authorized now or in
the future by the FCC for use by a Cellular System or a PCS System, and in
respect of which service the user equipment is capable of and intended for
usage during routine movement, including halts at unspecified points, at more
than one location throughout a wide area public or private wireless network.
Unless otherwise specifically agreed by the Parties, Service shall include
personal base station services but, by way of example and without limitation,
does not include fixed wireless services, two-way messaging wireless services
(NBPCS), video broadcasting wireless services, television services (whether
cable, broadcast or direct broadcast satellite), broadcast radio services,
interactive informational or transactional content services such as on-line
content network services, Internet based services, satellite based
communications services, and air to ground communications services.
-4-
<PAGE>
SERVING CARRIER means a Party who provides Service for registered
Customers of another Party while such Customers are in the geographic area
where the Serving Carrier, directly or through subsidiaries, provides Service.
SYSTEM means the AWS System or the ACC System, and SYSTEMS means the
AWS System and the ACC System.
TDMA means the present and future North American Time Division
Multiple Access standard which is set by the Telecommunications Industry
Association (which at the Effective Date is IS-136), which is the essential
radio frequency technical method for digital wireless telephone operations
upon which the Service and equipment related thereto are designed to operate.
USER INTERFACE means the process, functional commands, and look and
feel by which a Customer operates and utilizes the Adopted Features,
including the sequence and detail of specific commands or service codes, the
detailed operation and response of Equipment to the sequence of keys pressed
to effect subscriber Equipment functions, and the response of subscriber
Equipment to the activation of these keys, or in response to signals or data
from either the ACC System or the AWS System. Furthermore and for greater
certainty, such definition shall include without limitation, the manner in
which information is displayed on the screen of a phone used for Adopted
Features, announcement tones or messages occur, and service or feature codes
that must be dialed. The origins of the information presented to the user
may be the user Equipment, or the AWS System or the ACC System, or both.
ARTICLE II.
PROVISION OF SERVICE
--------------------
2.1 Each Party shall provide, to any Authorized Roamer who so
requests, in accordance with its own ordinary requirements, restrictions,
practices, and tariffs, if applicable, and with the terms and conditions of
this Agreement, any and all types of Service that such Party provides to its
own Customers within its Service Area. At a minimum, such Service shall
include voice communications capability, as well as any other types of
Service required by this Agreement, including without limitation Article X
hereof.
2.2 Notwithstanding anything in this Agreement to the contrary, a
Serving Carrier may suspend or terminate Service to an Authorized Roamer in
accordance with the terms of its own ordinary requirements, restrictions,
practices, and tariffs, if any, but such suspension or termination shall not
affect the rights and obligations of the Parties for Service furnished
hereunder prior to such termination or suspension.
2.3 In connection with its Service to Roamers, no Serving Carrier
shall use recorded announcements or other inducements for an Authorized
Roamer to discontinue the Service of its Home Carrier or, unless otherwise
authorized herein, Roamer's use of a Serving Carrier's system.
-5-
<PAGE>
2.4 In the event that an operating entity becomes an Affiliate of a
Party after the date of this Agreement, such Party may, upon thirty (30) days
prior written notice to the other Party, add such operating entity to
Schedule 1 or Schedule 2, as the case may be, at the expiration of which
thirty-day period, in which event (a) the Customers of such entity shall be
entitled to Service as Roamers from the other Party on the terms and
conditions of this Agreement and (b) such operating entity shall provide
Service to Customers of the other Party who are Authorized Roamers, although
the other Party is not obligated to request such Service or to require its
Customers to request such Service. Notwithstanding the foregoing, the other
Party, in its reasonable discretion, may specify, by delivering written
notice thereof prior to the expiration of the thirty day period, that any
Affiliate so added shall not be entitled to preference as a Serving Carrier
as otherwise provided in Section 2.5. Upon the addition to or deletion from
Schedule 1 or 2 of any operating entity pursuant to this Section 2.4,
Exhibits A and B shall automatically be revised accordingly, except that
either Party may, in its sole discretion, specify that an addition by either
Party to Schedule 1 or 2 shall not be given effect for any or all purposes of
Section 2.5.
2.5
2.5.1 AWS, in its capacity as Home Carrier, shall cause
substantially all of its Customers, when roaming in the markets operated by
ACC that are listed on Exhibit A, to normally seek Service as Roamers from
ACC prior to seeking Service from any other carrier. ACC, in its capacity as
Home Carrier, shall cause substantially all of its Customers, when roaming in
the markets operated by AWS that are listed on Exhibit B, to normally seek
Service as Roamers from AWS prior to seeking Service from any other carrier.
2.5.2 As a condition to the right of a Party under Section
2.5.1 to be the preferred provider of Service to Customers of the other
Party, the market being served by the Serving Carrier shall (i) have fully
installed a TDMA-based system, including all Core Features, (ii) be fully
interoperable in accordance with Sections 10.6, 10.7, and 10.8, and (iii)
otherwise have met, and be in compliance with, all terms and conditions of
this Agreement.
2.6 ACC shall join and remain a member of the North American
Cellular Network throughout the term of this Agreement.
2.7 Notwithstanding anything in this Agreement to the contrary, ACC
acknowledges that AWS has the right to market, offer and sell, to Customers
residing in the ACC Service Area, AT&T branded or co-branded
telecommunications services that are offered nationally, including providing
local numbers and service to such Customers, subject to the provisions of
Section 2.5.1, Article V and the other provisions of this Agreement.
ARTICLE III.
RELATED SERVICES
----------------
3.1 Upon request by ACC, AWS and ACC shall consider implementing a
common System Identification Number (SID) for markets operated by the respective
Parties in the same
-6-
<PAGE>
general vicinity or taking other steps to suppress the roaming indicator on a
Customer's handset from lighting to indicate that the Customer is roaming in
such markets, but each Party may, in its sole discretion, decide whether to
implement such measure.
3.2 So long as interexchange services are offered to ACC and those
of its Affiliates listed in Schedule 2 by AT&T Corp. or one of its Affiliates
on terms that are reasonably competitive with those available through other
sources, ACC and its Affiliates listed in Schedule 2 shall not market, offer,
provide, or resell interexchange services, except (i) such services offered
by AT&T Corp. or its Affiliate or (ii) services provided exclusively within a
single home service area designated as such by ACC in its marketing
materials. All relevant factors shall be considered in determining the
competitiveness of interexchange services, including rates, volume
commitments, duration, and other terms. At anytime when ACC believes that it
can obtain such interexchange services from another source(s) at better terms
than those being offered to ACC by AT&T Corp. or one of its Affiliates, ACC
may solicit competing offers. If such offer is made which ACC believes is
better, and the relevant rates are at least 5% less than those charged to ACC
by AT&T Corp. or one of it's Affiliates, ACC shall provide AWS with a written
term sheet which specifies the relevant rates, volume commitments, duration
and other material terms of the competing offer ("Offer Notice"). AT&T Corp.
or one of its Affiliates shall have thirty (30) days after receipt of the
Offer Notice by AWS to offer to ACC the comparable interexchange service(s)
upon the same or better terms as specified in the Offer Notice. If AT&T
Corp. or one of its Affiliates make such an offer to ACC, ACC agrees to
contract with AT&T Corp. or one of its Affiliates for any of such services
acquired by ACC. If no such offer is made by AT&T Corp. or one of its
Affiliates within the required time period, then ACC may accept the competing
offer. Any claim or dispute over the interpretation or implementation of
this paragraph shall be resolved under the provisions of paragraph 13.2 of
this Agreement.
3.3 AWS and ACC agree that ACC shall participate in AWS's National
Account Program ("NAP") on substantially the terms of AWS's standard NAP
agreement, a copy of which has been provided to ACC. Promptly following the
execution of this Agreement, AWS and ACC shall negotiate in good faith the
final terms of such agreement, with the goal of executing the agreement by
May 1, 2000.
3.4 Each Party, within the geographic areas in which such Party
provides Service, will provide Service without any additional toll charge
throughout an area (a so-called "home calling area") that is of a size at
least reasonably comparable to the area within which toll-free calls placed
through facilities that are exclusively land-based are available.
ARTICLE IV.
CUSTOMER SERVICE
----------------
4.1 The Parties shall use commercially reasonable efforts to
develop and implement systems enabling each Party, as Serving Carrier, to
route to a Customer's Home Carrier any 611 customer service call received
from a Customer of the other Party while roaming on the Serving Carrier's
System.
-7-
<PAGE>
ARTICLE V.
CHARGES
-------
Each Home Carrier, whose Customers (including the Customers of its
resellers) receive service from a Serving Carrier as Authorized Roamers under
this Agreement, shall pay to the Serving Carrier who provided such service
100% of the Serving Carrier's charges for CMRS and one hundred percent (100%)
of the toll charges pursuant to Exhibit C. The amount of the charges for the
use of each Serving Carrier's Service are set forth in Exhibit C attached to
this Agreement.
ARTICLE VI.
EXCHANGE OF INFORMATION
-----------------------
6.1 The Parties shall furnish to each other, in the format of
Exhibit D to this Agreement, the valid NPA/NXX combinations used by their
respective Customers. These combinations shall be accepted by the other
Party. Each NPA/NXX combination is and shall be within the entire line range
(0000-9999), or a specified portion thereof. The minimum line range to be
exchanged by the Parties shall be 1,000 line numbers. Each Party shall be
responsible for all billings otherwise properly made under this Agreement to
any number listed by such Party within the range or ranges specified by it in
Exhibit D. Additions, deletions, or changes to NPA/NXX combinations and line
number range(s) for the Home Carrier's Customers may be made upon at least
fifteen (15) days prior written notice to the Serving Carrier. Such notice
shall be in the form attached as Exhibit D to this Agreement and shall
include the requested effective date for the addition, deletion or change.
6.2 [Reserved]
6.3 Each Party hereby agrees to indemnify the other Party, together
with its partners and any and all of their officers, directors, employees,
agents and/or affiliates, against, and hold them harmless from, any and all
claims, suits, demands, losses and expenses, including reasonable attorneys'
fees and disbursements, which may result in any way whatsoever from the
indemnified Party's denial of Roamer or local Service to any NPA/NXX
combination which has been listed by the indemnifying Party as not being
authorized to receive Service; provided that (i) the person seeking
indemnification (the "Indemnified Person") provides notice of such claim
promptly after its discovery to the Party from which indemnification is
sought (the "Indemnifying Person") and in any event the Indemnifying Person
will be released from any obligation hereunder to the extent it is prejudiced
by any delay in the delivery of such notice, (ii) the Indemnifying Person
shall have the right to assume the defense of such claim, (iii) the
Indemnified Person shall provide such reasonable assistance and cooperation
in the defense of such claim as is requested by the Indemnifying Person, and
(iv) the Indemnified Person shall not settle or compromise any such claim
without the prior written consent of the Indemnifying Person.
-8-
<PAGE>
6.4 [Reserved]
6.5 Upon the implementation of wireless number portability in any
portion of either the AWS System or the ACC System, the Parties shall
cooperate in establishing an alternative method for exchanging ESN and/or
NPA/NXX information required to permit roaming by the other Party's Customers
in their respective systems.
ARTICLE VII.
FRAUD
-----
7.1 The Parties will cooperate and, as necessary, supplement this
Agreement in order to minimize fraudulent or other unauthorized use of their
systems. If any Party reasonably decides that, in its sole judgment, despite
due diligence and cooperation pursuant to the preceding sentence, fraudulent
or other unauthorized use has reached an unacceptable level of financial loss
and is not readily remediable, such Party may suspend the use of applicable
NPA/NXX combinations, in whole or in part, pursuant to the terms of this
Agreement.
7.2 Each Party shall take reasonable actions to control fraudulent
Roamer usage, including without limitation using either (i) a positive
validation/verification ("PV") system provided by a mutually agreed upon
validation/verification service under which the ESN and/or NPA/NXX used in a
call in the Serving Carrier's system is compared against a list of Authorized
Roamers or (ii) SS-7 connections through a network of carriers. The Parties
shall work together in good faith to designate and implement a system as
specified in the preceding sentence and enhancements thereto or alternative
systems as they shall agree in the future. The Home Carrier shall have no
responsibility or liability for calls completed by a Serving Carrier without
obtaining positive validation/verification as required herein.
7.3 In addition to other procedures set forth in this Agreement, a
Home Carrier may notify a Serving Carrier by facsimile, with written
confirmation, that certain NPA/NXX combinations are not to receive Service.
Any calls completed using such NPA/NXX combinations made one full business
day or more after such notice has been given shall be the sole responsibility
of the Serving Carrier, and the Home Carrier shall not be charged any amount
for such calls.
7.4 Each Serving Carrier shall use commercially reasonable efforts
to provide each Home Carrier with real-time visibility of call detail records
delivered through a network compatible with AWS's network. Such information
shall be delivered within one hour of the applicable call. In the event that
the Serving Carrier provides such a real-time visibility system, the Serving
Carrier shall not be liable in any event for a temporary failure of the
system unless the Serving Carrier has been notified of such failure by the
Home Carrier and the Serving Carrier does not take commercially reasonable
steps to remedy the failure. If the Serving Carrier has been so notified and
has failed to take such commercially reasonable steps, the Serving Carrier
shall be liable for all unauthorized usage attributed to Home Carrier's
subscribers during the
-9-
<PAGE>
period from the time Serving Carrier was notified of the problem to the time
that the problem has been resolved to the reasonable satisfaction of the Home
Carrier.
7.5 For purposes of notification under this Article VII, the
following addresses and facsimile numbers shall be used:
If to AWS: AT&T Wireless Services, Inc.
P.O. Box 97061
Redmond, WA 98073-9761
Attn: Billing and ICS Operations
Tel. No. 425-580-6000
Fax No. 425-580-8390
If to ACC: ACC Acquisition LLC
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn:
Tel. No. (405) ___-____
Fax No. (405) ___-____
Each Party may change the names, addresses and numbers set forth above
by providing notice to the other Party as provided in Article XVI below.
ARTICLE VIII.
BILLING
-------
8.1 Each Home Carrier shall be responsible for billing to, and
collecting from, its own Customers all charges that are incurred by such
Customers as a result of service provided to them as Authorized Roamers by
the Serving Carrier. The Home Carrier shall also be responsible for billing
its Customers for, and remitting to, the Federal Government all federal
excise tax that may be due in connection with the service being billed by it
to its Customers. While the Serving Carrier will be responsible for the
computation and remittance of all state and local taxes, each Home Carrier
shall be liable to the Serving Carrier for all such state and local taxes
remitted by the Serving Carrier, for Authorized Roamers regardless of whether
these amounts are paid to the Home Carrier by its Customers.
8.2 Each Serving Carrier who provides Service to an Authorized
Roamer pursuant to this Agreement shall forward Roamer billing information,
within five business days of the call date, in accordance with the procedures
and standards set forth in the CIBER Record to the Home Carrier's Authorized
Receipt Point. CIBER Type 50 and CIBER Type 70 records shall not be accepted
without mutual signed agreement and if such mutual agreement is reached it
will be attached to this Agreement. Any future revisions of the CIBER Record
or additional record types
-10-
<PAGE>
must be mutually agreed upon before implementation. In the event the parties
use the CIBERNET Net Settlement Program, or alternative settlement program
such information must be in a format in compliance with the CIBER Record
requirements or agreed upon format.
8.3 Where the Authorized Roamer billing information required to be
provided by the Serving Carrier in accordance with Section 8.2 above is not
in accordance with the CIBER Record, the Home Carrier may return a record to
the Serving Carrier as provided in the CIBER Record. Returning the defective
record will be in accordance with CIBER Record established procedures. The
Serving Carrier may correct the defective record and return it to the Home
Carrier for billing, provided that the time period from the date of the
Service call at issue to the receipt of the corrected record does not exceed
sixty (60) days.
8.4 No credit for insufficient data or defective records shall be
permitted except as provided in Section 8.3 above, unless mutually agreed
upon by both Parties.
8.5 Each Home Carrier may at its discretion perform any necessary
edits at its Clearinghouse on incollect or outcollect call records to ensure
compliance with the terms of this Agreement.
ARTICLE IX.
SETTLEMENT
----------
9.1 Each Party will settle its accounts with the other Parties on
the basis of billing information received as described in this Article IX.
In the event both Parties use a net financial settlement procedure, the
Parties shall not submit a paper invoice but will make payments in accordance
with such net financial settlement procedures provided that the Parties may
submit call records for payment that relate to calls made more than sixty
(60) days from the date of the call if such call was the subject of a dispute
or investigation regarding fraudulent or unauthorized use.
9.2 If an incorrect roaming rate is charged by the Serving Carrier
to the Home Carrier, the Serving Carrier shall refund all amounts in excess
of the contract rate back to the Home Carrier within forty five days of
notification by the Home Carrier. Each carrier shall have ninety (90) days
from the end of the settlement period to invoice for amounts in excess of the
contract rate. The Home Carrier will send a collection letter within sixty
(60) days of the invoice date, within ninety (90) days of the invoice date,
and within one hundred (120) days of the invoice date. If the invoice remains
unpaid after one hundred twenty (120) days from the original invoice date,
the Home Carrier may withhold the amounts from the CIBERNET Net Settlement
Program or alternative settlement program.
9.3 In the event that either Party does not use a net financial
settlement procedure, the billing and payment for charges incurred under this
Agreement shall be as set forth below.
-11-
<PAGE>
9.3.1 The parties shall determine amounts owed to each other
for Service provided to Roamers in one-month periods with such period
beginning on the sixteenth day of each calendar month and ending on the
fifteenth day of the following month in which Service is provided. The end
of this Period shall be referred to as "Close of Billing."
9.3.2 The Parties shall send each other an invoice for
Services used under this Agreement within fifteen (15) days after the Close
of Billing.
9.3.3 Each invoice shall contain the following information.
a. Billing period used by Serving Carrier
b. Batch sequence number
c. Serving and Home Carrier System
Identification Number
d. Air Service charges
e. Total toll charges (both intrastate and
interstate)
f. All other charges and credits
g. Total taxes
h. Total charges
9.3.4 Payment on such invoices shall be made in the form of a
check or a wire transfer which must be received by the invoicing party within
thirty (30) days from the date of the invoice. Late payments shall be
charged with a late payment fee of one and one half percent (1.5%) of the
outstanding balance for each thirty-day period (or portion thereof) that such
payments are late.
9.3.5 Each Party may offset the amount owed to the other Party
under this Agreement and a single payment of the balance to the Party
entitled to receive such balance shall be made.
9.4 If the Serving Carrier provides pre-call validation of the Home
Carrier's Customers, the Home Carrier agrees to implement Negative File
Suppression at the Clearinghouse and the CIBERNET Negative File Guidelines
and procedures do not apply.
ARTICLE X.
INTEROPERABILITY
----------------
10.1 The Parties agree that their respective obligations under this
Agreement related to the interoperability of the AWS System and the ACC TDMA
System shall be construed in accordance with the following general principles:
10.1.1 The Parties agree, confirm and acknowledge that one of
their primary objectives in entering into this Agreement is to promote the
establishment and operation throughout the United States of a mobile wireless
service that is TDMA-based and that will appear to their respective
subscribers as a single mobile wireless network with a common User
-12-
<PAGE>
Interface pertaining to the Adopted Features, and that they intend to achieve
such purpose and objective as set forth in, and subject to the terms and
conditions of, this Agreement. Adopted Features shall be made available to
all Customers of a Party when roaming in the AWS System or the ACC TDMA
System, subject to the terms of this Agreement. Each Party shall use good
faith efforts, when implementing any software or other System change or
upgrade, to confirm the continued availability of the Feature
interoperability provided for herein, and in the event of any interference
with any Feature interoperability shall work expeditiously to restore
required functionality. Without limiting the generality of the foregoing, in
the event the Authentication Fraud Protection Feature (or any subsequent or
comparable fraud protection Feature) is disabled or affected by any network
change so as to interfere with its interoperability, the Party responsible
for such network shall restore interoperability within 48 hours of
notification from the affected Party.
10.1.2 The Parties agree that each of their respective
obligations, duties, rights and entitlements pursuant to this Agreement shall
be interpreted, to the extent such interpretation is required to resolve any
dispute or uncertainty concerning this Agreement, in a manner that is
reasonably consistent with, and which reasonably supports, the purpose and
objective of this Agreement as set out in Section 10.1.1.
10.1.3 The Parties agree that they each shall, in good faith,
work together, cooperate, and use the rights that they each have granted the
other under this Agreement for the purposes set out in Section 10.1.1 and on
the terms and conditions of this Agreement.
10.1.4 Any entity listed on Schedule 1 but in which AT&T
Wireless owns, directly or indirectly, less than a majority interest or which
AT&T Wireless otherwise does not control shall, at the option of AT&T
Wireless, not be subject to the requirements of this Article X.
10.2 The Parties agree to implement TDMA-based systems as follows:
10.2.1 The Parties each acknowledge and confirm that their
digital standard for, in the case of AWS, the AWS System and, in the case of
ACC, the ACC TDMA System, is currently (as of the Effective Date) TDMA. In
addition, ACC shall maintain its commitment to TDMA as ACC's digital standard
for the ACC TDMA System on Exhibit A for so long as, and to the extent that,
AWS maintains its commitment to TDMA as AWS's digital standard. AWS agrees
that in the event it may exercise its discretion to no longer remain
committed to TDMA as its digital standard, it shall inform ACC of that
decision by no later than six months prior to the implementation of any
non-compatible interface. Upon the implementation of any such non-compatible
interface, the following Sections of this Agreement shall immediately
terminate: Sections 10.1.1, 10.2.2, and 10.2.3.
10.2.2 ACC shall deploy TDMA throughout the ACC TDMA System
within twelve (12) months after the date of this Agreement. ACC shall use
commercially reasonable efforts to promote the use of TDMA-based
communications devices among its Customers who roam on the AWS System.
-13-
<PAGE>
10.3 Each of the Parties agrees that it shall operate and support
its TDMA-based System, to the extent installed, to ensure that the other
Party's Customers can use the Adopted Features when roaming on the Serving
Carrier's TDMA-based System in the same manner that such Customers use such
Adopted Features on the Home Carrier's TDMA-based System.
10.3.1 CORE FEATURES. Each Party shall, at its own expense,
implement the Core Features in the AWS System, in the case of AWS, and in the
ACC TDMA System, in the case of ACC, as soon as reasonably practicable and in
any event within one (1) year after the Effective Date. Thereafter, Core
Features shall be implemented at the time any TDMA-based system is placed
into operation.
10.3.2 FUTURE CORE FEATURES. The Future Core Features shall be
those features that are agreed upon by the Parties from time to time after
the execution of this Agreement. Each Party shall, at its own expense,
implement such Future Core Features within one (1) year after the General
Availability of such Future Core Features, provided that, and subject to such
Party's determination, in its sole and absolute discretion, that such
implementation is both financially feasible and economically viable, and
consistent with such Party's objective of maximizing its financial
performance. In the event that a Party opts not to adopt a Future Core
Feature in accordance with this Section 10.3.1, it shall promptly notify the
other Party of that decision. Future Core Features shall be implemented in
accordance with this Section in the areas specified for each respective Party
in Section 10.3.1.
10.3.3 ADDITIONAL FEATURES. In addition to the Core Features
and the Future Core Features, ACC shall offer, at the request of AWS,
additional service features that AWS notifies ACC that AWS will provide in a
majority of its TDMA Systems, unless the Management Committee reasonably
determines that providing such additional features would be financially
detrimental to ACC. Absent such determination, any such additional features
shall be adopted within 120 days (or such longer period as is reasonably
necessary under the circumstances) after the request by AWS. ACC agrees that
in order to offer certain Additional Features it will be obligated to
implement technological enhancements, upgrades, improvements and advances
("Improvements") that are implemented by AWS from time to time (e.g., EDGE
technology) and that are technologically compatible with ACC's equipment. At
the request of AWS, ACC will implement any Improvements that AWS notifies ACC
that AWS will implement in a majority of its TDMA Systems, unless the
Management Committee reasonably determines that the implementation of any
such Improvement would be financially detrimental to ACC. Absent such
determination, any such improvements shall be implemented within 120 days (or
such longer period as is reasonably necessary under the circumstances) after
the request by AWS. A course of action will be considered "financially
detrimental" to ACC for purposes of this Section 10.3.3 if the reasonable
business case for such course of action has a net present value that is less
than or equal to negative 10% of the capital cost of that course of action.
10.3.4 The Parties shall use commercially reasonable efforts to
comply with the network performance standards with respect to the Adopted
Features that are set out in Schedule E-2 to Exhibit E attached hereto.
-14-
<PAGE>
10.4 Neither Party shall provide the other Party's Customers with
Service inferior in quality to that provided to its own Customers. Each
Party shall provide Service to Customers of the other Party of a quality
level, based on criteria customarily used to evaluate the performance of
wireless voice systems, comparable to or exceeding industry norms. Any
assessment of "quality" shall be with reference to the System's performance
as a whole within a specific MSA, RSA, or BTA, as the case may be, and shall
be over such a period of time as reasonably necessary to yield an accurate
depiction of System "quality" taking into account all of the variables which
may affect System performance.
10.5 In order to facilitate performance by each of the Parties of
their obligations under this Article X, the Parties agree to exchange and
share information with each other as follows, except that nothing contained
herein shall be construed to require a Party to exchange information that the
Party considers confidential or proprietary.
10.5.1 Subject to Article XVII of this Agreement, the Parties
shall provide each other, on a reasonably prompt basis, with all information
and materials that either has a right to disclose that is necessary to meet
the interoperability standards set forth in this Article X, including without
limitation the following information:
System Engineering:
- Minimum Standards for Systems
Features:
- Capability description of present Core Features and other
Features
- User Interface (codes)
- Implementation procedures
- Roaming requirements
- Feature functionality design documents
Research and Development:
- operational test results
- operational defects and bugs
- remedial/back-up plans
- operational, functional and technical specifications
- all related documentation
- systems integration
10.5.2 Each Party agrees that it shall, in performing its
obligations to provide the other Party with information in accordance with
Section 10.5, act reasonably, and in good faith toward the other Party.
-15-
<PAGE>
10.5.3 Nothing contained herein is intended or should be
construed to constitute the transfer or grant by one Party to the other of
any ownership, license, or other rights of or to any trade secret, know-how,
or other intellectual property by one Party to the other.
10.6 Each Party shall provide for automatic call delivery for
Customers of the other Party who are Roamers in such Party's system. To this
end, each Party shall continuously provide the hardware, software and
transmission facilities required for such call delivery either directly
between the systems of the Parties or indirectly through a separate network
of wireless communications carriers. The hardware, software and transmission
facilities provided by each Party hereunder shall at all times be operated
and maintained to provide the most efficient level of service that is
technically feasible and commercially reasonable to minimize transmission
errors and Service interruptions.
10.7 If the Parties have implemented linking facilities as
contemplated in Section 10.8, the Serving Carrier shall automatically
hand-off to the Home Carrier, and as requested shall automatically accept
hand-off from the Home Carrier in order to provide Service as specified in
Article II, calls to or from a Customer of the Home Carrier in accordance
with the hand-off procedures established for such linking facilities. To
this end, each Party shall continuously provide the hardware, software and
transmission facilities required for such call hand-off either directly
between the systems of such Home and Serving Carrier or indirectly through a
separate network of wireless communications carriers. The hardware, software
and transmission facilities provided by each Party hereunder shall at all
times be operated and maintained to provide the most efficient level of
service that is technically feasible and commercially reasonable to minimize
transmission errors and Service interruption.
10.8 The Parties will work together to evaluate the economic
advantage of various switch linking options to interconnect and facilitate
networking of the Parties' respective Systems as required by this Agreement.
Should the Parties agree to install and maintain linking facilities, the cost
of the linking facilities shall be allocated pursuant to the following
provisions:
10.8.1 AWS and ACC will each pay one-half of the equipment
costs for the establishment of microwave facilities to link the Parties'
respective Systems for the purposes of automatic call delivery and automatic
call hand-off. Each Party is solely responsible for the costs of preparing
its own facilities for the System link.
10.8.2 Equipment costs for the establishment of a landline link
(T-1) to link the Parties' respective Systems together for these purposes
shall be split between the Parties as follows:
(a) AWS and ACC shall each pay one-half of the cost
for the installation, use, modification, or discontinuance of the linking
facilities. Each party is solely responsible for all costs to prepare its
own facilities for the link between the Systems.
(b) For ease of administration, AWS will order and be
the customer of record ("COR") for such facilities. ACC will reimburse AWS
monthly for its share of the
-16-
<PAGE>
recurring costs of such facilities. The COR shall be responsible for
invoicing the other Party for its share of the costs, with payment due within
30 days of receipt of the invoice.
10.8.3 The Parties agree that this Section 10.8 relates only to
those costs necessary to establish the referenced facilities. This section
is not applicable to the allocation of costs with respect to the provision of
service for each Party's Customers.
10.9 The Parties agree that the revenues and costs for a call belong
to the Party whose System operates the originating cell site (the "Bill and
Keep System").
ARTICLE XI.
REPRESENTATIONS AND WARRANTIES
------------------------------
11.1 AWS hereby represents and warrants to ACC that:
11.1.1 AT&T Wireless is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. AT&T
Wireless has all requisite power and authority to execute and deliver this
Agreement and to cause this Agreement to be the binding obligation, to the
extent provided herein, of those of its Affiliates listed on Schedule 1 or
added to Schedule 1 hereafter in accordance with Section 2.4.
11.1.2 This Agreement is the legal, valid, and binding
obligation of AT&T Wireless, enforceable against AT&T Wireless in accordance
with its terms, except that such enforceability may be subject to (a)
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now
or hereafter in effect relating to creditors' rights generally and (b)
equitable principles of law and the discretion of any court or arbitral body
before which any related proceeding may be brought.
11.1.3 The execution, delivery, and performance of this
Agreement by AT&T Wireless does not and will not conflict with or result in a
material default, suspension, or termination of any agreement, contract,
obligation, license, or authorization with or granted by any third party or
governmental body.
11.2 ACC hereby represents and warrants to AWS that:
11.2.1 ACC is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of
Delaware. ACC has all requisite power and authority to execute and deliver
this Agreement and to cause this Agreement to be the binding obligation, to
the extent provided herein, of those of its Affiliates listed on Schedule 2
or added to Schedule 2 hereafter in accordance with Section 2.4.
11.2.2 This Agreement is the legal, valid, and binding
obligation of ACC, enforceable against ACC in accordance with its terms,
except that such enforceability may be subject to (a) bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or
-17-
<PAGE>
hereafter in effect relating to creditors' rights generally and (b) equitable
principles of law and the discretion of any court or arbitral body before
which any related proceeding may be brought.
11.2.3 The execution, delivery, and performance of this
Agreement by ACC does not and will not conflict with or result in a material
default, suspension, or termination of any agreement, contract, obligation,
license, or authorization with or granted by any third party or governmental
body.
ARTICLE XII.
TERM, TERMINATION AND SUSPENSION OF AGREEMENT
---------------------------------------------
12.1 This Agreement shall have a term commencing on the Effective
Date and continuing for a period of twenty (20) years; PROVIDED, that the
provisions of Section 2.5 shall terminate on the earlier of (i) the fifth
anniversary of the Effective Date and (ii) termination of the roaming
preference obligations of AWS under Section 8.2(a) of the LLC Agreement.
Thereafter, this Agreement shall continue in force on a month-to-month basis
unless either party terminates the Agreement by written notice to the other
party given at least 90 days prior to the date of termination. Otherwise,
this Agreement may be terminated or suspended only as provided in this
Article XII.
12.2 This Agreement may be terminated or suspended by either Party
immediately upon written notice to the other of a Default (as defined in
Section 13.1) by the other Party. In addition, either Party may suspend this
Agreement immediately upon written notice to the other Party pursuant to
Section 13.1.1 of the existence of a breach of this Agreement, whether or not
such breach constitutes a Default, which materially affects the Service being
provided to Customers of the non-breaching Party. While any suspension of
this Agreement, whether in part or in whole, is in effect, the obligations of
the Parties shall be only those that survive termination and to work together
to resolve as expeditiously as possible any difficulty that resulted in a
suspension. At such time as the Party originally giving notice of suspension
concludes that the problem causing the suspension has been resolved, that
Party shall give to the other written notice to this effect. This Agreement
shall resume in full effect within five (5) business days after the Parties
have mutually agreed that the problem has been resolved.
12.3 The Parties shall cooperate to limit the extent and effect of
any suspension of this Agreement to what is reasonably required to address
only the cause of such suspension.
12.4 In the event that a Party transfers control of an Affiliate
listed in Schedule 1 or Schedule 2, as the case may be, the Party shall
provide at least four months' prior written notice to the other Party and
upon such transfer such Affiliate shall be deleted from the appropriate
Schedule, but doing so will not relieve a Party of its obligations under
Section 14.1.
12.5 The termination or suspension of this Agreement shall not
affect the rights and liabilities of the Parties under this Agreement with
respect to all Authorized Roamer charges incurred prior to the effective date
of such termination or suspension.
-18-
<PAGE>
ARTICLE XIII.
DEFAULT
-------
13.1 A Party will be in "Default" under this Agreement upon the
occurrence of any of the following events:
13.1.1 Material breach of any material term of this Agreement,
if such breach shall continue for thirty (30) days after receipt of written
notice thereof from the nonbreaching Party;
13.1.2 Voluntary liquidation or dissolution or the approval by
the management, board of directors, stockholders, or owners of a Party of any
plan or arrangement for the voluntary liquidation or dissolution of the Party;
13.1.3 A final order by the FCC revoking or denying renewal of
CMRS licenses or permits granted to such Party which, individually or in the
aggregate, are material to the business of such Party; or
13.1.4 Such Party (i) filing pursuant to a statute of the
United States or of any state, a petition for bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee for all or a
portion of such Party's property, (ii) has filed against it, pursuant to a
statute of the United States or of any state, a petition for bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or
trustee for all or a portion of such Party's property, provided that within
120 days after the filing of any such petition such Party fails to obtain a
discharge thereof, or (iii) making an assignment for the benefit of creditors
or petitioning for, or voluntarily entering into, an arrangement of similar
nature, and provided that such filing, petition, or appointment is still
continuing.
13.2 All claims and disputes relating in any way to the performance,
interpretation, validity, or breach of this Agreement, including but not
limited to a claim based on or arising from an alleged tort, shall be
resolved as provided in this Section 13.2. It is the intent of the Parties
that any disagreements be resolved amicably to the greatest extent possible.
13.2.1 If a disagreement cannot be resolved by the
representatives of the Parties with day-to-day responsibility for this
Agreement, such matter shall be referred to an executive officer of each of
the Parties. The executive officers shall conduct face-to-face negotiations
at a neutral location or such other location as shall be mutually agreed
upon. If these representatives are unable to resolve the dispute within ten
business days after either Party requests the involvement of the executive
officers, then either Party may, but is not required to, refer the matter to
mediation or arbitration, as applicable in accordance with Sections 13.2.2
and 13.2.3.
13.2.2 In any case where the amount claimed or at issue is One
Million Dollars ($1,000,000) or more and the Parties are unsuccessful in
resolving the disagreement, the Parties agree to submit the disagreement to
non-binding mediation upon written notification by either
-19-
<PAGE>
Party. The Parties shall mutually select an independent mediator experienced
in telecommunications system disputes. The specific format for the mediation
shall be left to the discretion of the mediator. If mediation does not
result in resolution of the disagreement within thirty days of the initial
request for mediation, then either Party may, but is not required to, refer
the matter to arbitration.
13.2.3 Any disagreement not finally resolved in accordance with
the foregoing provisions of this Section 13.2 shall, upon written notice by
either Party to the other, be resolved by final and binding arbitration.
Subject to this Section 13.2.3, such arbitration shall be conducted through,
and in accordance with the rules of, JAMS/Endispute. A single neutral
arbitrator shall decide all disputes. Each Party shall bear its own expenses
with respect to the arbitration, except that the costs of arbitration
proceeding itself, including the fees and expenses of the arbitrator, shall
be shared equally by the Parties. The arbitration shall take place in a
neutral location selected by the arbitrator. The arbitrator may permit
discovery to the full extent permitted by the Federal Rules of Civil
Procedure or to such lesser extent as the arbitrator determines is
reasonable. The arbitrator shall be bound by and strictly enforce the terms
of this Agreement. The arbitrator shall make a good faith effort to apply
applicable law, but an arbitration decision and award shall not be subject to
review because of errors of law. The arbitrator shall have the sole
authority to resolve issues of the arbitrability of any disagreement,
including the applicability or running of any applicable statute of
limitation. The arbitrator shall not have power to award damages in
connection with any dispute in excess of actual compensatory damages nor to
award punitive damages nor any damages that are excluded under this Agreement
and each party irrevocably waives any claim thereto. The award of any
arbitration shall be final, conclusive and binding on the Parties. Judgment
on the award may be entered in any court having jurisdiction over the Party
against which the award was made. Nothing contained in this Section 13.2.3
shall be deemed to prevent either party from seeking any interim equitable
relief, such as a preliminary injunction or temporary restraining order,
pending the results of the arbitration. The United States Arbitration Act
and feeral arbitration law shall govern the interpretation, enforcement, and
proceedings pursuant to the arbitration clause in this Agreement.
ARTICLE XIV.
SUCCESSORS AND ASSIGNS
----------------------
14.1 Neither Party may, directly or indirectly, sell, assign,
transfer, or convey its interest in this Agreement or any of its rights or
obligations hereunder, including any assignment or transfer occurring by
operation of law, without the written consent of both Parties, except that
(i) either Party may assign or delegate this Agreement or any of its rights
or obligations hereunder to an Affiliate of such Party without the consent of
the other Party, but such assignment or delegation will not relieve the Party
of any of its obligations hereunder and (ii) a Party may assign its rights
and obligations hereunder to an assignee of its Service license or permit
issued by the FCC, provided that such assignee expressly assumes, by written
instrument approved in writing by the other Party, all of the obligations of
such Party hereunder and thereby
-20-
<PAGE>
becomes a Party hereunder. In no event will an assignment permitted under
this Section 14.1 without the consent of the other Party obligate a Serving
Carrier to provide Service to Customers of the assignee or any of its
Affiliates other than Customers residing in the area in which the assignor
previously was licensed to provide Service.
14.2 No person other than a Party to this Agreement or an
Indemnified Person shall acquire any rights hereunder as a third-party
beneficiary or otherwise by virtue of this Agreement.
ARTICLE XV.
NO PARTNERSHIP OR AGENCY RELATIONSHIP IS CREATED
------------------------------------------------
Nothing contained in this Agreement shall constitute the Parties as
partners with one another or render any Party liable for any debts or
obligations of any other Party, nor shall any Party hereby be constituted the
agent of the other Party.
ARTICLE XVI.
NOTICES AND AUTHORIZED REPRESENTATIVES
--------------------------------------
Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any Party to the other shall be in
writing and delivered by hand delivery, certified mail (postage prepaid,
return receipt requested), facsimile, or overnight air delivery service, as
follows:
If to AWS, to: AT&T Wireless Services, Inc.
PO Box 97061
Redmond, WA 98073-9761
Attn: Intercarrier Services
with a copy to: AT&T Wireless Services, Inc.
PO Box 97061
Redmond, WA 98073-9761
Attn: Legal Department
If to ACC to: ACC Acquisition LLC
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
-21-
<PAGE>
with a copy to: Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
or such other address as any Party may from time to time furnish to the other
Party by a notice given in accordance with the terms of this Section. All
such notices and communications shall be deemed to have been duly given at
the time delivered by hand, if personally delivered; three business days
after being deposited in the mail, if mailed; when receipt is confirmed, if
by facsimile and received by 3:00 p.m. local time on any business day and
otherwise on the next business day; and the next business day if sent by
overnight air delivery service.
ARTICLE XVII.
CONFIDENTIALITY
---------------
17.1 Each Party shall, and shall cause each of its Affiliates and
each of its and their employees, agents, and contractors, to keep
confidential and not use for any purpose except as contemplated by this
Agreement, any and all information and know-how provided to it by the other
Party which is identified in writing as confidential ("Confidential
Information"). Identification of information as confidential shall, in the
case of information delivered in tangible form, appear on at least the face
or first page of such information and, in the case of information
communicated verbally, be given verbally contemporaneously with the delivery
of the information and confirmed in writing within five business days
thereafter. Notwithstanding the foregoing, the following information shall
be treated as Confidential Information without any further identification as
such: (i) The terms, but not including the mere existence, of this Agreement;
and (ii) all information exchanged pursuant to Article VI.
17.2 Notwithstanding Section 17.1, a Party shall have no obligation
to keep confidential any information that (a) was rightly in the receiving
Party's possession before receipt from the disclosing Party, (b) is or
becomes a matter of public knowledge without violation of this Agreement by
the receiving Party, (c) is rightfully received by the receiving Party from a
third party rightfully in possession of and, to the best of the receiving
Party's knowledge, with a right to make an unrestricted disclosure of such
information, (d) is disclosed by the disclosing Party to a third party
without imposing a duty of confidentiality on the third party, or (e) is
independently developed by the receiving Party without the use of any
Confidential Information. In addition, a Party may disclose any Confidential
Information to the extent required by applicable law or regulation or by
order of a court or governmental agency; provided, that prior to disclosure
the Party shall use all reasonable efforts to notify the other Party of such
pending disclosure and shall provide any reasonable assistance requested by
the other Party to maintain the confidentiality of the information.
17.3 The Parties agree that a Party will not have an adequate remedy
at law in the event of a disclosure or threatened disclosure of Confidential
Information in violation of this Article XVII. Accordingly, in such event,
in addition to any other remedies available at law or in equity,
-22-
<PAGE>
a Party shall be entitled to specific enforcement of this Article XVII and to
other injunctive and equitable remedies against such breach without the posting
of any bond.
17.4 The obligations under this Article XVII shall survive the
termination of this Agreement for a period of three years.
ARTICLE XVIII.
MISCELLANEOUS
-------------
18.1 The Parties agree to comply with, conform to, and abide by all
applicable and valid laws, regulations, rules and orders of all governmental
agencies and authorities, and agree that this Agreement is subject to such
laws, regulations, rules and orders. All references in this Agreement to
such laws, regulations, rules and orders include any successor provision. If
any amendment to or replacement of the same materially alters the benefits,
rights, and duties of the Parties hereunder, the Parties agree to negotiate
in good faith an amendment to this Agreement to restore the respective
positions of the Parties to substantially the same point as existed prior to
such amendment or replacement.
18.2 The Parties agree to use their respective best, diligent, and
good faith efforts to fulfill all of their obligations under this Agreement.
The Parties recognize, however, that to effectuate all the purposes of this
Agreement, it may be necessary either to enter into future agreements or to
amend this Agreement, or both. In that event, the Parties agree to negotiate
with each other in good faith.
18.3 This Agreement constitutes the full and complete agreement of
the Parties with respect to the subject matter hereof. Any prior agreements
among the Parties with respect to this subject matter, are hereby superseded.
This Agreement may not be amended, except by the written consent of the
Parties. Waiver of any breach of any provision of the Agreement must be in
writing signed by the Party waiving such breach or provision and such waiver
shall not be deemed to be a waiver of any preceding or succeeding breach of
the same or any other provision. The failure of a Party to insist upon
strict performance of any provision of this Agreement or any obligation under
this Agreement shall not be a waiver of such Party's right to demand strict
compliance therewith in the future.
18.4 The headings in this Agreement are inserted for convenience and
identification only and are not intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision thereof.
18.5 This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same Agreement.
18.6 This Agreement shall be construed in accordance with the
internal laws of the State of Delaware without reference to the choice of law
principles, except as subject to the United States Arbitration Act and the
Federal Communications Act.
-23-
<PAGE>
18.7 Except for claims by third parties which fall within the scope
of a Party's indemnification obligations under Section 6.3, neither Party
shall be liable to the other Party for any special, indirect, consequential,
or punitive damages.
18.8 The Parties agree that they will not use the name, service
marks or trademarks of the other party or any of its Affiliates in any
advertising, publicity releases or sales presentations, without such Party's
written consent. Neither Party is licensed hereunder to conduct business
under any logo, trademark, service or trade name (or any derivative thereof)
of the other Party.
18.9 No Party shall make any public statement or issue any press
release concerning the terms of this Agreement except as necessary to comply
with requirements of any law, regulation, or the order or judgment of a court
or tribunal of competent jurisdiction. If any such public statement or
release is so required, and AWS and ACC mutually agree to such statement or
release, the Party making such disclosure shall consult with the other Party
prior to making such statement or release and the Party shall use all
reasonable efforts, act in good faith, to agree upon a text for such
statement or release which is satisfactory to AWS and ACC. Nothing contained
herein is intended to limit the ability of the Parties to make statements
regarding the availability to such Party's Customers of the Services to be
provided hereunder by the other Party or that such other Party is the
provider of such Services.
18.10 Neither of the Parties will be liable for nonperformance or
defective performance of its obligations under this Agreement to the extent
and for such periods of time as such nonperformance or defective performance
is due to reasons outside such Party's control, including, without
limitation, acts of God, war, acts of any governmental authority, riots,
revolutions, fire, floods, explosions, sabotage, nuclear incidents,
lightning, weather, earthquakes, storms, sinkholes, epidemics, strikes, or
delays of suppliers or subcontractors for the same causes. Neither Party
shall be required to settle any labor dispute or other third party dispute in
any manner which is deemed by that Party to be less than totally
advantageous, in that Party's sole discretion.
18.11 Except as specifically provided herein, this Agreement is a
non-exclusive arrangement between the Parties and nothing contained in this
Agreement is intended or should be construed to preclude or limit a Party
from obtaining from or providing to a third party Service of a type available
or required to be provided under this Agreement.
-24-
<PAGE>
EXECUTED as of the date first written above.
AT&T WIRELESS SERVICES, INC. ACC ACQUISITION LLC
By: /s/ Don Adams By: AT&T Wireless Services JV
--------------------------
Name: Don Adams By: /s/ Michael Schwarez
---------------------------
Title: Vice President - Carrier Relations Name: Michael Schwarez
-------------------------
Date: Title: VP
------------------------ ------------------------
Date:
-------------------------
By: Dobson JV Company
By: /s/ Ronald L. Ripley
---------------------------
Name: Ronald L. Ripley
-------------------------
Title: Vice President
------------------------
Date: January 31, 2000
-------------------------
-25-
<PAGE>
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (the "Agreement") is dated as of the 31st day of
January, 2000, by and between Dobson Cellular Systems, Inc., on behalf of itself
and its Affiliates listed in Schedule 1 hereto (individually and collectively,
"Dobson") and ACC Acquisition LLC, on behalf of itself and its Affiliates listed
in Schedule 2 hereto (individually and collectively, "ACC"). Dobson and ACC are
sometimes referred to, individually, as a "Party" and together as "Parties."
R E C I T A L
WHEREAS, each of Dobson and ACC desires to make arrangements to
facilitate the provision of voice and voice-related mobile wireless
radiotelephone service to its Customers through the wireless radiotelephone
facilities of the other Party in a manner providing a common look and feel and
the appearance of seamlessness between the Parties' facilities, in accordance
with the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein set forth and intending to be legally bound hereby, the Parties do hereby
agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the terms below shall have the following
meanings:
ACC has the meaning set forth in the first paragraph of this Agreement.
ACC SERVICE AREA means the geographic area in which ACC and those of its
Affiliates now or hereafter listed on Schedule 2 provide Service.
ACC SYSTEM means the facilities owned and/or operated by ACC with which
it provides Service anywhere within the ACC Service Area.
ACC TDMA SYSTEM means that portion of the ACC System located in the
markets listed on Exhibit A.
ADOPTED FEATURES means the Core Features and the Future Core Features.
AFFILIATE means, with respect to a Party, any facilities-based CMRS
operating company that (a) is controlled by or under common control with the
Party, (b) is an entity in which the Party has at least fifty percent (50%)
voting interest, (c) shares switching facilities with the Party, (d) is managed
by the Party, or (e) is providing Service utilizing CMRS spectrum it has
acquired
<PAGE>
from a Party; provided, that AT&T Wireless and Dobson Communications
Corporation and their respective Affiliates shall be deemed not to be
Affiliates of ACC for purposes of this Agreement.
APPROVED CIBERNET NEGATIVE FILE GUIDELINES means the negative file
guidelines appearing in the CIBER Record in effect from time to time.
AT&T WIRELESS means AT&T Wireless Services, Inc., individually.
AUTHORIZED RECEIPT POINT or ARP means the location or address of the
Party designated by the Home Carrier as the delivery point for its CIBER records
and authorized agent for performing CIBER edits.
AUTHORIZED ROAMER means a Roamer using equipment and an assigned
telephone number with the NPA/NXX combinations listed in accordance with Article
VI below for whom the Serving Carrier has not received a negative notification
in accordance with the provisions of this Agreement.
BTA means a geographic area designated by the FCC as a Basic Trading Area
in which a PCS System may be operated, as described more specifically in 47 CFR
24.202 of the FCC rules and regulations.
CELLULAR SYSTEM means a wireless communication system that is operated
pursuant to authority granted by the FCC under 47 CFR Part 22.
CIBER means Cellular Intercarrier Billing Exchange Record.
CIBER RECORD means the publication prepared by CIBERNET Corporation, a
wholly-owned subsidiary of the Cellular Telecommunications Industry Association,
as a service to the wireless communications industry. Unless specifically
provided otherwise in this Agreement, all words and phrases defined in the CIBER
Record shall have the meaning herein that they have therein.
CLEARINGHOUSE means that entity which provides for the exchange of CIBER
records and performs industry accepted CIBER edits, including edits to verify
Industry Negative File information.
CMRS means any Commercial Mobile Radio Service as authorized by the FCC.
CORE FEATURES means the Features that, as of the Effective Date, Dobson
and ACC have agreed to implement and maintain in order to create a common look
and feel and seamless subscriber service between the Dobson System and the ACC
System, as evidenced by their listing in Schedule E-1 to Exhibit E attached
hereto.
CUSTOMER means an end-user of Service with which a Party has entered into
an agreement to provide such Service, regardless of whether such Service is to
be provided through the facilities of such Party.
-2-
<PAGE>
DEFAULT has the meaning set forth in Section 13.1.
DOBSON has the meaning set forth in the first paragraph of this
Agreement.
DOBSON SYSTEM means the facilities owned and/or operated by Dobson with
which it provides Service anywhere within the United States.
EFFECTIVE DATE means the Closing Date under the Agreement and Plan of
Merger dated as of October 5, 1999 among ACC Acquisition LLC, ACC Acquisition
Co. and American Cellular Corporation.
ESN means the Electronic Serial Number that is encoded in a wireless
telephone set by the manufacturer and which is broadcast by such telephone.
EQUIPMENT means phones, handsets, transmitters, terminals, control
equipment and switches and other hardware and software required or useful to use
Service, including phones and handsets Customers use in connection with Service.
FCC means the Federal Communications Commission and any successor agency
or authority.
FEATURES means voice and voice-related features and services available
from a Party through its mobile wireless telecommunication system.
FUTURE CORE FEATURES means the Features that are agreed upon in the
future by the Parties pursuant to Section 10.3.2 as necessary to maintain a
common look and feel, and seamless subscriber service, between the Dobson System
and the ACC System, and which the Parties agree will be supported by both of
their Systems, on the terms and conditions of this Agreement, in the same manner
as the Core Features. Once implemented, a Future Core Feature shall be deemed a
Core Feature for purposes of this Agreement.
GENERAL AVAILABILITY means the date upon which the technology and
products that comprise any Future Core Features are commercially available at a
commercially reasonable price from the vendors of such technology and
product(s), and such Feature has successfully completed and passed the first
application in the System of the Party seeking to implement such features and is
ready for live commercial deployment.
HOME CARRIER means a Party who is providing Service to its registered
Customers.
HOME SERVICE AREA means the geographic area in which a Home Carrier is
licensed to provide Service.
INDUSTRY NEGATIVE FILE means the negative file maintained by the
authorized Clearinghouses in accordance with approved CIBERNET Negative File
Guidelines.
MIN means the "Mobile Identification Number" which is assigned by a Home
Carrier to each of its registered Customers.
-3-
<PAGE>
MSA means a geographic area designated by the FCC as a Metropolitan
Service Area in which a Cellular System may be operated, as described more
specifically in 47 CFR 22.909 of the FCC rules and regulations.
MTA means a geographic area designated by the FCC as a Major Trading Area
in which a PCS System may be operated, as described more specifically in 47 CFR
24.202 of the FCC rules and regulations.
NPA/NXX COMBINATIONS means the six-digit numerical combinations assigned
by regulatory authorities to identify the area code and telephone number prefix
for Service.
PCS SYSTEM means a wireless communication system that is operated
pursuant to authority granted by the FCC under 47 CFR Part 24.
PARTIES and PARTY have the meanings set forth in the first paragraph of
this Agreement.
ROAMER means a Customer of one Party who seeks Service from the other
Party within the geographic area served by the other Party, regardless of
whether Service also is offered in that area by the Party whose Customer is
seeking Service.
RSA means a geographic area designated by the FCC as a Rural Service Area
in which a Cellular System may be operated, as described more specifically in 47
CFR 22.909 of the FCC rules and regulations.
SERVICE means telecommunications service for the transmission and
reception of voice and voice-related features provided by means of radio
frequencies that are or may be licensed, permitted or authorized now or in the
future by the FCC for use by a Cellular System or a PCS System, and in respect
of which service the user equipment is capable of and intended for usage during
routine movement, including halts at unspecified points, at more than one
location throughout a wide area public or private wireless network. Unless
otherwise specifically agreed by the Parties, Service shall include personal
base station services but, by way of example and without limitation, does not
include fixed wireless services, two-way messaging wireless services (NBPCS),
video broadcasting wireless services, television services (whether cable,
broadcast or direct broadcast satellite), broadcast radio services, interactive
informational or transactional content services such as on-line content network
services, Internet based services, satellite based communications services, and
air to ground communications services.
SERVING CARRIER means a Party who provides Service for registered
Customers of another Party while such Customers are in the geographic area where
the Serving Carrier, directly or through subsidiaries, provides Service.
SYSTEM means the Dobson System or the ACC System, and SYSTEMS means the
Dobson System and the ACC System.
TDMA means the present and future North American Time Division Multiple
Access standard which is set by the Telecommunications Industry Association
(which at the Effective
-4-
<PAGE>
Date is IS-136), which is the essential radio frequency technical method for
digital wireless telephone operations upon which the Service and equipment
related thereto are designed to operate.
USER INTERFACE means the process, functional commands, and look and feel
by which a Customer operates and utilizes the Adopted Features, including the
sequence and detail of specific commands or service codes, the detailed
operation and response of Equipment to the sequence of keys pressed to effect
subscriber Equipment functions, and the response of subscriber Equipment to the
activation of these keys, or in response to signals or data from either the ACC
System or the Dobson System. Furthermore and for greater certainty, such
definition shall include without limitation, the manner in which information is
displayed on the screen of a phone used for Adopted Features, announcement tones
or messages occur, and service or feature codes that must be dialed. The
origins of the information presented to the user may be the user Equipment, or
the Dobson System or the ACC System, or both.
ARTICLE II.
PROVISION OF SERVICE
2.1 Each Party shall provide, to any Authorized Roamer who so
requests, in accordance with its own ordinary requirements, restrictions,
practices, and tariffs, if applicable, and with the terms and conditions of this
Agreement, any and all types of Service that such Party provides to its own
Customers within its Service Area. At a minimum, such Service shall include
voice communications capability, as well as any other types of Service required
by this Agreement, including without limitation Article X hereof.
2.2 Notwithstanding anything in this Agreement to the contrary, a
Serving Carrier may suspend or terminate Service to an Authorized Roamer in
accordance with the terms of its own ordinary requirements, restrictions,
practices, and tariffs, if any, but such suspension or termination shall not
affect the rights and obligations of the Parties for Service furnished hereunder
prior to such termination or suspension.
2.3 In connection with its Service to Roamers, no Serving Carrier
shall use recorded announcements or other inducements for an Authorized Roamer
to discontinue the Service of its Home Carrier or, unless otherwise authorized
herein, Roamer's use of a Serving Carrier's system.
2.4 In the event that an operating entity becomes an Affiliate of a
Party after the date of this Agreement, such Party may, upon thirty (30) days
prior written notice to the other Party, add such operating entity to Schedule
1 or Schedule 2, as the case may be, at the expiration of which thirty-day
period, in which event (a) the Customers of such entity shall be entitled to
Service as Roamers from the other Party on the terms and conditions of this
Agreement and (b) such operating entity shall provide Service to Customers of
the other Party who are Authorized Roamers, although the other Party is not
obligated to request such Service or to require its Customers to request such
Service. Notwithstanding the foregoing, the other Party, in its reasonable
discretion, may specify, by delivering written notice thereof prior to the
expiration of
-5-
<PAGE>
the thirty day period, that any Affiliate so added shall not be entitled to
preference as a Serving Carrier as otherwise provided in Section 2.5. Upon
the addition to or deletion from Schedule 1 or 2 of any operating entity
pursuant to this Section 2.4, Exhibits A and B shall automatically be revised
accordingly, except that either Party may, in its sole discretion, specify
that an addition by either Party to Schedule 1 or 2 shall not be given effect
for any or all purposes of Section 2.5.
2.5
2.5.1 Dobson, in its capacity as Home Carrier, shall cause
substantially all of its Customers, when roaming in the markets operated by ACC
that are listed on Exhibit A, to normally seek Service as Roamers from ACC prior
to seeking Service from any other carrier. ACC, in its capacity as Home
Carrier, shall cause substantially all of its Customers, when roaming in the
markets operated by Dobson that are listed on Exhibit B, to normally seek
Service as Roamers from Dobson prior to seeking Service from any other carrier.
2.5.2 As a condition to the right of a Party under Section 2.5.1
to be the preferred provider of Service to Customers of the other Party, the
market being served by the Serving Carrier shall (i) have fully installed a
TDMA-based system, including all Core Features, (ii) be fully interoperable in
accordance with Sections 10.6, 10.7, and 10.8, and (iii) otherwise have met, and
be in compliance with, all terms and conditions of this Agreement.
2.6 ACC shall join and remain a member of the North American Cellular
Network throughout the term of this Agreement.
ARTICLE III.
RELATED SERVICES
3.1 Upon request by ACC, Dobson and ACC shall consider implementing a
common System Identification Number (SID) for markets operated by the respective
Parties in the same general vicinity or taking other steps to suppress the
roaming indicator on a Customer's handset from lighting to indicate that the
Customer is roaming in such markets, but each Party may, in its sole discretion,
decide whether to implement such measure.
3.2 Each Party, within the geographic areas in which such Party
provides Service, will provide Service without any additional toll charge
throughout an area (a so-called "home calling area") that is of a size at least
reasonably comparable to the area within which toll-free calls placed through
facilities that are exclusively land-based are available.
-6-
<PAGE>
ARTICLE IV.
CUSTOMER SERVICE
4.1 The Parties shall use commercially reasonable efforts to develop
and implement systems enabling each Party, as Serving Carrier, to route to a
Customer's Home Carrier any 611 customer service call received from a Customer
of the other Party while roaming on the Serving Carrier's System.
ARTICLE V.
CHARGES
Each Home Carrier, whose Customers (including the Customers of its
resellers) receive service from a Serving Carrier as Authorized Roamers under
this Agreement, shall pay to the Serving Carrier who provided such service 100%
of the Serving Carrier's charges for CMRS and one hundred percent (100%) of the
toll charges pursuant to Exhibit C. The amount of the charges for the use of
each Serving Carrier's Service are set forth in Exhibit C attached to this
Agreement.
ARTICLE VI.
EXCHANGE OF INFORMATION
6.1 The Parties shall furnish to each other, in the format of Exhibit
D to this Agreement, the valid NPA/NXX combinations used by their respective
Customers. These combinations shall be accepted by the other Party. Each
NPA/NXX combination is and shall be within the entire line range (0000-9999), or
a specified portion thereof. The minimum line range to be exchanged by the
Parties shall be 1,000 line numbers. Each Party shall be responsible for all
billings otherwise properly made under this Agreement to any number listed by
such Party within the range or ranges specified by it in Exhibit D. Additions,
deletions, or changes to NPA/NXX combinations and line number range(s) for the
Home Carrier's Customers may be made upon at least fifteen (15) days prior
written notice to the Serving Carrier. Such notice shall be in the form
attached as Exhibit D to this Agreement and shall include the requested
effective date for the addition, deletion or change.
6.2 [Reserved]
6.3 Each Party hereby agrees to indemnify the other Party, together
with its partners and any and all of their officers, directors, employees,
agents and/or affiliates, against, and hold them harmless from, any and all
claims, suits, demands, losses and expenses, including reasonable attorneys'
fees and disbursements, which may result in any way whatsoever from the
indemnified Party's denial of Roamer or local Service to any NPA/NXX combination
which has been listed by the indemnifying Party as not being authorized to
receive Service; provided that (i)
-7-
<PAGE>
the person seeking indemnification (the "Indemnified Person") provides notice
of such claim promptly after its discovery to the Party from which
indemnification is sought (the "Indemnifying Person") and in any event the
Indemnifying Person will be released from any obligation hereunder to the
extent it is prejudiced by any delay in the delivery of such notice, (ii) the
Indemnifying Person shall have the right to assume the defense of such claim,
(iii) the Indemnified Person shall provide such reasonable assistance and
cooperation in the defense of such claim as is requested by the Indemnifying
Person, and (iv) the Indemnified Person shall not settle or compromise any
such claim without the prior written consent of the Indemnifying Person.
6.4 [Reserved]
6.5 Upon the implementation of wireless number portability in any
portion of either the Dobson System or the ACC System, the Parties shall
cooperate in establishing an alternative method for exchanging ESN and/or
NPA/NXX information required to permit roaming by the other Party's Customers in
their respective systems.
ARTICLE VII.
FRAUD
7.1 The Parties will cooperate and, as necessary, supplement this
Agreement in order to minimize fraudulent or other unauthorized use of their
systems. If any Party reasonably decides that, in its sole judgment, despite
due diligence and cooperation pursuant to the preceding sentence, fraudulent or
other unauthorized use has reached an unacceptable level of financial loss and
is not readily remediable, such Party may suspend the use of applicable NPA/NXX
combinations, in whole or in part, pursuant to the terms of this Agreement.
7.2 Each Party shall take reasonable actions to control fraudulent
Roamer usage, including without limitation using either (i) a positive
validation/verification ("PV") system provided by a mutually agreed upon
validation/verification service under which the ESN and/or NPA/NXX used in a
call in the Serving Carrier's system is compared against a list of Authorized
Roamers or (ii) SS-7 connections through a network of carriers. The Parties
shall work together in good faith to designate and implement a system as
specified in the preceding sentence and enhancements thereto or alternative
systems as they shall agree in the future. The Home Carrier shall have no
responsibility or liability for calls completed by a Serving Carrier without
obtaining positive validation/verification as required herein.
7.3 In addition to other procedures set forth in this Agreement, a
Home Carrier may notify a Serving Carrier by facsimile, with written
confirmation, that certain NPA/NXX combinations are not to receive Service. Any
calls completed using such NPA/NXX combinations made one full business day or
more after such notice has been given shall be the sole responsibility of the
Serving Carrier, and the Home Carrier shall not be charged any amount for such
calls.
-8-
<PAGE>
7.4 Each Serving Carrier shall use commercially reasonable efforts to
provide each Home Carrier with real-time visibility of call detail records
delivered through a network compatible with AT&T Wireless's network. Such
information shall be delivered within one hour of the applicable call. In the
event that the Serving Carrier provides such a real-time visibility system, the
Serving Carrier shall not be liable in any event for a temporary failure of the
system unless the Serving Carrier has been notified of such failure by the Home
Carrier and the Serving Carrier does not take commercially reasonable steps to
remedy the failure. If the Serving Carrier has been so notified and has failed
to take such commercially reasonable steps, the Serving Carrier shall be liable
for all unauthorized usage attributed to Home Carrier's subscribers during the
period from the time Serving Carrier was notified of the problem to the time
that the problem has been resolved to the reasonable satisfaction of the Home
Carrier.
7.5 For purposes of notification under this Article VII, the following
addresses and facsimile numbers shall be used:
If to Dobson: Dobson Cellular Systems, Inc.
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: ________________
Tel. No. 405-________
Fax No. 405-________
If to ACC: ACC Acquisition LLC
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn:
Tel. No. (405) ___-____
Fax No. (405) ___-____
Each Party may change the names, addresses and numbers set forth above by
providing notice to the other Party as provided in Article XVI below.
ARTICLE VIII.
BILLING
8.1 Each Home Carrier shall be responsible for billing to, and
collecting from, its own Customers all charges that are incurred by such
Customers as a result of service provided to them as Authorized Roamers by the
Serving Carrier. The Home Carrier shall also be responsible for billing its
Customers for, and remitting to, the Federal Government all federal excise tax
that may be due in connection with the service being billed by it to its
Customers. While the Serving Carrier will be responsible for the computation
and remittance of all state and local taxes, each
-9-
<PAGE>
Home Carrier shall be liable to the Serving Carrier for all such state and
local taxes remitted by the Serving Carrier, for Authorized Roamers
regardless of whether these amounts are paid to the Home Carrier by its
Customers.
8.2 Each Serving Carrier who provides Service to an Authorized Roamer
pursuant to this Agreement shall forward Roamer billing information, within five
business days of the call date, in accordance with the procedures and standards
set forth in the CIBER Record to the Home Carrier's Authorized Receipt Point.
CIBER Type 50 and CIBER Type 70 records shall not be accepted without mutual
signed agreement and if such mutual agreement is reached it will be attached to
this Agreement. Any future revisions of the CIBER Record or additional record
types must be mutually agreed upon before implementation. In the event the
parties use the CIBERNET Net Settlement Program, or alternative settlement
program such information must be in a format in compliance with the CIBER Record
requirements or agreed upon format.
8.3 Where the Authorized Roamer billing information required to be
provided by the Serving Carrier in accordance with Section 8.2 above is not in
accordance with the CIBER Record, the Home Carrier may return a record to the
Serving Carrier as provided in the CIBER Record. Returning the defective record
will be in accordance with CIBER Record established procedures. The Serving
Carrier may correct the defective record and return it to the Home Carrier for
billing, provided that the time period from the date of the Service call at
issue to the receipt of the corrected record does not exceed sixty (60) days.
8.4 No credit for insufficient data or defective records shall be
permitted except as provided in Section 8.3 above, unless mutually agreed upon
by both Parties.
8.5 Each Home Carrier may at its discretion perform any necessary
edits at its Clearinghouse on incollect or outcollect call records to ensure
compliance with the terms of this Agreement.
ARTICLE IX.
SETTLEMENT
9.1 Each Party will settle its accounts with the other Parties on the
basis of billing information received as described in this Article IX. In the
event both Parties use a net financial settlement procedure, the Parties shall
not submit a paper invoice but will make payments in accordance with such net
financial settlement procedures provided that the Parties may submit call
records for payment that relate to calls made more than sixty (60) days from the
date of the call if such call was the subject of a dispute or investigation
regarding fraudulent or unauthorized use.
9.2 If an incorrect roaming rate is charged by the Serving Carrier to
the Home Carrier, the Serving Carrier shall refund all amounts in excess of the
contract rate back to the Home Carrier within forty five days of notification by
the Home Carrier. Each carrier shall have ninety (90) days from the end of the
settlement period to invoice for amounts in excess of the contract
-10-
<PAGE>
rate. The Home Carrier will send a collection letter within sixty (60) days
of the invoice date, within ninety (90) days of the invoice date, and within
one hundred (120) days of the invoice date. If the invoice remains unpaid
after one hundred twenty (120) days from the original invoice date, the Home
Carrier may withhold the amounts from the CIBERNET Net Settlement Program or
alternative settlement program.
9.3 In the event that either Party does not use a net financial
settlement procedure, the billing and payment for charges incurred under this
Agreement shall be as set forth below.
9.3.1 The parties shall determine amounts owed to each other for
Service provided to Roamers in one-month periods with such period beginning on
the sixteenth day of each calendar month and ending on the fifteenth day of the
following month in which Service is provided. The end of this Period shall be
referred to as "Close of Billing."
9.3.2 The Parties shall send each other an invoice for Services
used under this Agreement within fifteen (15) days after the Close of Billing.
9.3.3 Each invoice shall contain the following information.
a. Billing period used by Serving Carrier
b. Batch sequence number
c. Serving and Home Carrier System Identification Number
d. Air Service charges
e. Total toll charges (both intrastate and interstate)
f. All other charges and credits
g. Total taxes
h. Total charges
9.3.4 Payment on such invoices shall be made in the form of a
check or a wire transfer which must be received by the invoicing party within
thirty (30) days from the date of the invoice. Late payments shall be charged
with a late payment fee of one and one half percent (1.5%) of the outstanding
balance for each thirty-day period (or portion thereof) that such payments are
late.
9.3.5 Each Party may offset the amount owed to the other Party
under this Agreement and a single payment of the balance to the Party entitled
to receive such balance shall be made.
9.4 If the Serving Carrier provides pre-call validation of the Home
Carrier's Customers, the Home Carrier agrees to implement Negative File
Suppression at the Clearinghouse and the CIBERNET Negative File Guidelines and
procedures do not apply.
-11-
<PAGE>
ARTICLE X.
INTEROPERABILITY
10.1 The Parties agree that their respective obligations under this
Agreement related to the interoperability of the Dobson System and the ACC TDMA
System shall be construed in accordance with the following general principles:
10.1.1 The Parties agree, confirm and acknowledge that one of
their primary objectives in entering into this Agreement is to promote the
establishment and operation throughout the United States of a mobile wireless
service that is TDMA-based and that will appear to their respective subscribers
as a single mobile wireless network with a common User Interface pertaining to
the Adopted Features, and that they intend to achieve such purpose and objective
as set forth in, and subject to the terms and conditions of, this Agreement.
Adopted Features shall be made available to all Customers of a Party when
roaming in the Dobson System or the ACC TDMA System, subject to the terms of
this Agreement. Each Party shall use good faith efforts, when implementing any
software or other System change or upgrade, to confirm the continued
availability of the Feature interoperability provided for herein, and in the
event of any interference with any Feature interoperability shall work
expeditiously to restore required functionality. Without limiting the
generality of the foregoing, in the event the Authentication Fraud Protection
Feature (or any subsequent or comparable fraud protection Feature) is disabled
or affected by any network change so as to interfere with its interoperability,
the Party responsible for such network shall restore interoperability within 48
hours of notification from the affected Party.
10.1.2 The Parties agree that each of their respective
obligations, duties, rights and entitlements pursuant to this Agreement shall be
interpreted, to the extent such interpretation is required to resolve any
dispute or uncertainty concerning this Agreement, in a manner that is reasonably
consistent with, and which reasonably supports, the purpose and objective of
this Agreement as set out in Section 10.1.1.
10.1.3 The Parties agree that they each shall, in good faith, work
together, cooperate, and use the rights that they each have granted the other
under this Agreement for the purposes set out in Section 10.1.1 and on the terms
and conditions of this Agreement.
10.2 The Parties agree to implement TDMA-based systems as follows:
10.2.1 The Parties each acknowledge and confirm that their digital
standard for, in the case of Dobson, the Dobson System and, in the case of ACC,
the ACC TDMA System, is currently (as of the Effective Date) TDMA.
10.2.2 The Parties shall deploy TDMA throughout the ACC TDMA
System and the Dobson System within twelve (12) months after the date of this
Agreement. The Parties shall use commercially reasonable efforts to promote the
use of TDMA-based communications devices among their respective Customers who
roam on the Dobson System or the ACC TDMA System, as the case may be.
-12-
<PAGE>
10.3 Each of the Parties agrees that it shall operate and support its
TDMA-based System, to the extent installed, to ensure that the other Party's
Customers can use the Adopted Features when roaming on the Serving Carrier's
TDMA-based System in the same manner that such Customers use such Adopted
Features on the Home Carrier's TDMA-based System.
10.3.1 CORE FEATURES. Each Party shall, at its own expense,
implement the Core Features in the Dobson System, in the case of Dobson, and in
the ACC TDMA System, in the case of ACC, as soon as reasonably practicable and
in any event within one (1) year after the Effective Date. Thereafter, Core
Features shall be implemented at the time any TDMA-based system is placed into
operation.
10.3.2 FUTURE CORE FEATURES. The Future Core Features shall be
those features that are agreed upon by the Parties from time to time after the
execution of this Agreement. Each Party shall, at its own expense, implement
such Future Core Features within one (1) year after the General Availability of
such Future Core Features, provided that, and subject to such Party's
determination, in its sole and absolute discretion, that such implementation is
both financially feasible and economically viable, and consistent with such
Party's objective of maximizing its financial performance. In the event that a
Party opts not to adopt a Future Core Feature in accordance with this Section
10.3.1, it shall promptly notify the other Party of that decision. Future Core
Features shall be implemented in accordance with this Section in the areas
specified for each respective Party in Section 10.3.1.
10.3.3 The Parties shall use commercially reasonable efforts to
comply with the network performance standards with respect to the Adopted
Features that are set out in Schedule E-2 to Exhibit E attached hereto.
10.4 Neither Party shall provide the other Party's Customers with
Service inferior in quality to that provided to its own Customers. Each Party
shall provide Service to Customers of the other Party of a quality level, based
on criteria customarily used to evaluate the performance of wireless voice
systems, comparable to or exceeding industry norms. Any assessment of "quality"
shall be with reference to the System's performance as a whole within a specific
MSA, RSA, or BTA, as the case may be, and shall be over such a period of time as
reasonably necessary to yield an accurate depiction of System "quality" taking
into account all of the variables which may affect System performance.
10.5 In order to facilitate performance by each of the Parties of their
obligations under this Article X, the Parties agree to exchange and share
information with each other as follows, except that nothing contained herein
shall be construed to require a Party to exchange information that the Party
considers confidential or proprietary.
10.5.1 Subject to Article XVII of this Agreement, the Parties
shall provide each other, on a reasonably prompt basis, with all information
and materials that either has a right to disclose that is necessary to meet the
interoperability standards set forth in this Article X, including without
limitation the following information:
System Engineering:
-13-
<PAGE>
- Minimum Standards for Systems
Features:
- Capability description of present Core Features and other
Features
- User Interface (codes)
- Implementation procedures
- Roaming requirements
- Feature functionality design documents
Research and Development:
- operational test results
- operational defects and bugs
- remedial/back-up plans
- operational, functional and technical specifications
- all related documentation
- systems integration
10.5.2 Each Party agrees that it shall, in performing its
obligations to provide the other Party with information in accordance with
Section 10.5, act reasonably, and in good faith toward the other Party.
10.5.3 Nothing contained herein is intended or should be construed
to constitute the transfer or grant by one Party to the other of any ownership,
license, or other rights of or to any trade secret, know-how, or other
intellectual property by one Party to the other.
10.6 Each Party shall provide for automatic call delivery for Customers
of the other Party who are Roamers in such Party's system. To this end, each
Party shall continuously provide the hardware, software and transmission
facilities required for such call delivery either directly between the systems
of the Parties or indirectly through a separate network of wireless
communications carriers. The hardware, software and transmission facilities
provided by each Party hereunder shall at all times be operated and maintained
to provide the most efficient level of service that is technically feasible and
commercially reasonable to minimize transmission errors and Service
interruptions.
10.7 If the Parties have implemented linking facilities as contemplated
in Section 10.8, the Serving Carrier shall automatically hand-off to the Home
Carrier, and as requested shall automatically accept hand-off from the Home
Carrier in order to provide Service as specified in Article II, calls to or from
a Customer of the Home Carrier in accordance with the hand-off procedures
established for such linking facilities. To this end, each Party shall
continuously provide the hardware, software and transmission facilities required
for such call hand-off either directly between the systems of such Home and
Serving Carrier or indirectly through a separate
-14-
<PAGE>
network of wireless communications carriers. The hardware, software and
transmission facilities provided by each Party hereunder shall at all times
be operated and maintained to provide the most efficient level of service
that is technically feasible and commercially reasonable to minimize
transmission errors and Service interruption.
10.8 The Parties will work together to evaluate the economic advantage
of various switch linking options to interconnect and facilitate networking of
the Parties' respective Systems as required by this Agreement. Should the
Parties agree to install and maintain linking facilities, the cost of the
linking facilities shall be allocated pursuant to the following provisions:
10.8.1 Dobson and ACC will each pay one-half of the equipment
costs for the establishment of microwave facilities to link the Parties'
respective Systems for the purposes of automatic call delivery and automatic
call hand-off. Each Party is solely responsible for the costs of preparing its
own facilities for the System link.
10.8.2 Equipment costs for the establishment of a landline link
(T-1) to link the Parties' respective Systems together for these purposes shall
be split between the Parties as follows:
(a) Dobson and ACC shall each pay one-half of the cost
for the installation, use, modification, or discontinuance of the linking
facilities. Each party is solely responsible for all costs to prepare its own
facilities for the link between the Systems.
(b) For ease of administration, Dobson will order and be
the customer of record ("COR") for such facilities. ACC will reimburse Dobson
monthly for its share of the recurring costs of such facilities. The COR shall
be responsible for invoicing the other Party for its share of the costs, with
payment due within 30 days of receipt of the invoice.
10.8.3 The Parties agree that this Section 10.8 relates only to
those costs necessary to establish the referenced facilities. This section is
not applicable to the allocation of costs with respect to the provision of
service for each Party's Customers.
10.9 The Parties agree that the revenues and costs for a call belong to
the Party whose System operates the originating cell site (the "Bill and Keep
System").
ARTICLE XI.
REPRESENTATIONS AND WARRANTIES
11.1 Dobson hereby represents and warrants to ACC that:
11.1.1 Dobson Cellular Systems, Inc. is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Oklahoma. Dobson Cellular Systems, Inc. has all requisite power and authority
to execute and deliver this Agreement and to
-15-
<PAGE>
cause this Agreement to be the binding obligation, to the extent provided
herein, of those of its Affiliates listed on Schedule 1 or added to Schedule
1 hereafter in accordance with Section 2.4.
11.1.2 This Agreement is the legal, valid, and binding obligation
of Dobson Cellular Systems, Inc., enforceable against Dobson Cellular Systems,
Inc. in accordance with its terms, except that such enforceability may be
subject to (a) bankruptcy, insolvency, reorganization, moratorium, or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (b) equitable principles of law and the discretion of any court or arbitral
body before which any related proceeding may be brought.
11.1.3 The execution, delivery, and performance of this Agreement
by Dobson Cellular Systems, Inc. does not and will not conflict with or result
in a material default, suspension, or termination of any agreement, contract,
obligation, license, or authorization with or granted by any third party or
governmental body.
11.2 ACC hereby represents and warrants to Dobson that:
11.2.1 ACC is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware. ACC has
all requisite power and authority to execute and deliver this Agreement and to
cause this Agreement to be the binding obligation, to the extent provided
herein, of those of its Affiliates listed on Schedule 2 or added to Schedule 2
hereafter in accordance with Section 2.4.
11.2.2 This Agreement is the legal, valid, and binding obligation
of ACC, enforceable against ACC in accordance with its terms, except that such
enforceability may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium, or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) equitable principles of law and the
discretion of any court or arbitral body before which any related proceeding may
be brought.
11.2.3 The execution, delivery, and performance of this Agreement
by ACC does not and will not conflict with or result in a material default,
suspension, or termination of any agreement, contract, obligation, license, or
authorization with or granted by any third party or governmental body.
ARTICLE XII.
TERM, TERMINATION AND SUSPENSION OF AGREEMENT
12.1 This Agreement shall have a term commencing on the Effective Date
and continuing for a period of twenty (20) years; PROVIDED, that the provisions
of Section 2.5 shall terminate on the earlier of (i) the fifth anniversary of
the Effective Date and (ii) termination of the roaming preference obligations of
Dobson under Section 8.2(a) of the LLC Agreement. Thereafter, this Agreement
shall continue in force on a month-to-month basis unless either party terminates
the Agreement by written notice to the other party given at least 90 days prior
to the
-16-
<PAGE>
date of termination. Otherwise, this Agreement may be terminated or
suspended only as provided in this Article XII.
12.2 This Agreement may be terminated or suspended by either Party
immediately upon written notice to the other of a Default (as defined in Section
13.1) by the other Party. In addition, either Party may suspend this Agreement
immediately upon written notice to the other Party pursuant to Section 13.1.1 of
the existence of a breach of this Agreement, whether or not such breach
constitutes a Default, which materially affects the Service being provided to
Customers of the non-breaching Party. While any suspension of this Agreement,
whether in part or in whole, is in effect, the obligations of the Parties shall
be only those that survive termination and to work together to resolve as
expeditiously as possible any difficulty that resulted in a suspension. At such
time as the Party originally giving notice of suspension concludes that the
problem causing the suspension has been resolved, that Party shall give to the
other written notice to this effect. This Agreement shall resume in full effect
within five (5) business days after the Parties have mutually agreed that the
problem has been resolved.
12.3 The Parties shall cooperate to limit the extent and effect of any
suspension of this Agreement to what is reasonably required to address only the
cause of such suspension.
12.4 In the event that a Party transfers control of an Affiliate listed
in Schedule 1 or Schedule 2, as the case may be, the Party shall provide at
least four months' prior written notice to the other Party and upon such
transfer such Affiliate shall be deleted from the appropriate Schedule, but
doing so will not relieve a Party of its obligations under Section 14.1.
12.5 The termination or suspension of this Agreement shall not affect
the rights and liabilities of the Parties under this Agreement with respect to
all Authorized Roamer charges incurred prior to the effective date of such
termination or suspension.
ARTICLE XIII.
DEFAULT
13.1 A Party will be in "Default" under this Agreement upon the
occurrence of any of the following events:
13.1.1 Material breach of any material term of this Agreement, if
such breach shall continue for thirty (30) days after receipt of written notice
thereof from the nonbreaching Party;
13.1.2 Voluntary liquidation or dissolution or the approval by the
management, board of directors, stockholders, or owners of a Party of any plan
or arrangement for the voluntary liquidation or dissolution of the Party;
-17-
<PAGE>
13.1.3 A final order by the FCC revoking or denying renewal of
CMRS licenses or permits granted to such Party which, individually or in the
aggregate, are material to the business of such Party; or
13.1.4 Such Party (i) filing pursuant to a statute of the United
States or of any state, a petition for bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee for all or a
portion of such Party's property, (ii) has filed against it, pursuant to a
statute of the United States or of any state, a petition for bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
for all or a portion of such Party's property, provided that within 120 days
after the filing of any such petition such Party fails to obtain a discharge
thereof, or (iii) making an assignment for the benefit of creditors or
petitioning for, or voluntarily entering into, an arrangement of similar nature,
and provided that such filing, petition, or appointment is still continuing.
13.2 All claims and disputes relating in any way to the performance,
interpretation, validity, or breach of this Agreement, including but not limited
to a claim based on or arising from an alleged tort, shall be resolved as
provided in this Section 13.2. It is the intent of the Parties that any
disagreements be resolved amicably to the greatest extent possible.
13.2.1 If a disagreement cannot be resolved by the representatives
of the Parties with day-to-day responsibility for this Agreement, such matter
shall be referred to an executive officer of each of the Parties. The executive
officers shall conduct face-to-face negotiations at a neutral location or such
other location as shall be mutually agreed upon. If these representatives are
unable to resolve the dispute within ten business days after either Party
requests the involvement of the executive officers, then either Party may, but
is not required to, refer the matter to mediation or arbitration, as applicable
in accordance with Sections 13.2.2 and 13.2.3.
13.2.2 In any case where the amount claimed or at issue is One
Million Dollars ($1,000,000) or more and the Parties are unsuccessful in
resolving the disagreement, the Parties agree to submit the disagreement to
non-binding mediation upon written notification by either Party. The Parties
shall mutually select an independent mediator experienced in telecommunications
system disputes. The specific format for the mediation shall be left to the
discretion of the mediator. If mediation does not result in resolution of
the disagreement within thirty days of the initial request for mediation, then
either Party may, but is not required to, refer the matter to arbitration.
13.2.3 Any disagreement not finally resolved in accordance with
the foregoing provisions of this Section 13.2 shall, upon written notice by
either Party to the other, be resolved by final and binding arbitration.
Subject to this Section 13.2.3, such arbitration shall be conducted through, and
in accordance with the rules of, JAMS/Endispute. A single neutral arbitrator
shall decide all disputes. Each Party shall bear its own expenses with respect
to the arbitration, except that the costs of arbitration proceeding itself,
including the fees and expenses of the arbitrator, shall be shared equally by
the Parties. The arbitration shall take place in a neutral location selected by
the arbitrator. The arbitrator may permit discovery to the full extent
-18-
<PAGE>
permitted by the Federal Rules of Civil Procedure or to such lesser extent as
the arbitrator determines is reasonable. The arbitrator shall be bound by and
strictly enforce the terms of this Agreement. The arbitrator shall make a good
faith effort to apply applicable law, but an arbitration decision and award
shall not be subject to review because of errors of law. The arbitrator shall
have the sole authority to resolve issues of the arbitrability of any
disagreement, including the applicability or running of any applicable statute
of limitation. The arbitrator shall not have power to award damages in
connection with any dispute in excess of actual compensatory damages nor to
award punitive damages nor any damages that are excluded under this Agreement
and each party irrevocably waives any claim thereto. The award of any
arbitration shall be final, conclusive and binding on the Parties. Judgment on
the award may be entered in any court having jurisdiction over the Party against
which the award was made. Nothing contained in this Section 13.2.3 shall be
deemed to prevent either party from seeking any interim equitable relief, such
as a preliminary injunction or temporary restraining order, pending the results
of the arbitration. The United States Arbitration Act and feeral arbitration
law shall govern the interpretation, enforcement, and proceedings pursuant to
the arbitration clause in this Agreement.
ARTICLE XIV.
SUCCESSORS AND ASSIGNS
14.1 Neither Party may, directly or indirectly, sell, assign, transfer,
or convey its interest in this Agreement or any of its rights or obligations
hereunder, including any assignment or transfer occurring by operation of law,
without the written consent of both Parties, except that (i) either Party may
assign or delegate this Agreement or any of its rights or obligations hereunder
to an Affiliate of such Party without the consent of the other Party, but such
assignment or delegation will not relieve the Party of any of its obligations
hereunder and (ii) a Party may assign its rights and obligations hereunder to an
assignee of its Service license or permit issued by the FCC, provided that such
assignee expressly assumes, by written instrument approved in writing by the
other Party, all of the obligations of such Party hereunder and thereby becomes
a Party hereunder. In no event will an assignment permitted under this Section
14.1 without the consent of the other Party obligate a Serving Carrier to
provide Service to Customers of the assignee or any of its Affiliates other than
Customers residing in the area in which the assignor previously was licensed to
provide Service.
14.2 No person other than a Party to this Agreement or an Indemnified
Person shall acquire any rights hereunder as a third-party beneficiary or
otherwise by virtue of this Agreement.
-19-
<PAGE>
ARTICLE XV.
NO PARTNERSHIP OR AGENCY RELATIONSHIP IS CREATED
Nothing contained in this Agreement shall constitute the Parties as
partners with one another or render any Party liable for any debts or
obligations of any other Party, nor shall any Party hereby be constituted the
agent of the other Party.
ARTICLE XVI.
NOTICES AND AUTHORIZED REPRESENTATIVES
Unless otherwise provided herein, any notice, request, instruction or
other document to be given hereunder by any Party to the other shall be in
writing and delivered by hand delivery, certified mail (postage prepaid, return
receipt requested), facsimile, or overnight air delivery service, as follows:
If to Dobson, to: Dobson Cellular Systems, Inc.
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
with a copy to: Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
If to ACC to: ACC Acquisition LLC
c/o Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
with a copy to: Dobson Communications Corporation
13439 North Broadway Extension
Oklahoma City, OK 73114
Attn: General Counsel
or such other address as any Party may from time to time furnish to the other
Party by a notice given in accordance with the terms of this Section. All such
notices and communications shall be deemed to have been duly given at the time
delivered by hand, if personally delivered; three business days after being
deposited in the mail, if mailed; when receipt is confirmed, if by facsimile and
received by 3:00 p.m. local time on any business day and otherwise on the next
business day; and the next business day if sent by overnight air delivery
service.
-20-
<PAGE>
ARTICLE XVII.
CONFIDENTIALITY
17.1 Each Party shall, and shall cause each of its Affiliates and each
of its and their employees, agents, and contractors, to keep confidential and
not use for any purpose except as contemplated by this Agreement, any and all
information and know-how provided to it by the other Party which is identified
in writing as confidential ("Confidential Information"). Identification of
information as confidential shall, in the case of information delivered in
tangible form, appear on at least the face or first page of such information
and, in the case of information communicated verbally, be given verbally
contemporaneously with the delivery of the information and confirmed in writing
within five business days thereafter. Notwithstanding the foregoing, the
following information shall be treated as Confidential Information without any
further identification as such: (i) The terms, but not including the mere
existence, of this Agreement; and (ii) all information exchanged pursuant to
Article VI.
17.2 Notwithstanding Section 17.1, a Party shall have no obligation to
keep confidential any information that (a) was rightly in the receiving Party's
possession before receipt from the disclosing Party, (b) is or becomes a matter
of public knowledge without violation of this Agreement by the receiving Party,
(c) is rightfully received by the receiving Party from a third party rightfully
in possession of and, to the best of the receiving Party's knowledge, with a
right to make an unrestricted disclosure of such information, (d) is disclosed
by the disclosing Party to a third party without imposing a duty of
confidentiality on the third party, or (e) is independently developed by the
receiving Party without the use of any Confidential Information. In addition, a
Party may disclose any Confidential Information to the extent required by
applicable law or regulation or by order of a court or governmental agency;
provided, that prior to disclosure the Party shall use all reasonable efforts to
notify the other Party of such pending disclosure and shall provide any
reasonable assistance requested by the other Party to maintain the
confidentiality of the information.
17.3 The Parties agree that a Party will not have an adequate remedy at
law in the event of a disclosure or threatened disclosure of Confidential
Information in violation of this Article XVII. Accordingly, in such event, in
addition to any other remedies available at law or in equity, a Party shall be
entitled to specific enforcement of this Article XVII and to other injunctive
and equitable remedies against such breach without the posting of any bond.
17.4 The obligations under this Article XVII shall survive the
termination of this Agreement for a period of three years.
ARTICLE XVIII.
MISCELLANEOUS
18.1 The Parties agree to comply with, conform to, and abide by all
applicable and valid laws, regulations, rules and orders of all governmental
agencies and authorities, and agree
-21-
<PAGE>
that this Agreement is subject to such laws, regulations, rules and orders.
All references in this Agreement to such laws, regulations, rules and orders
include any successor provision. If any amendment to or replacement of the
same materially alters the benefits, rights, and duties of the Parties
hereunder, the Parties agree to negotiate in good faith an amendment to this
Agreement to restore the respective positions of the Parties to substantially
the same point as existed prior to such amendment or replacement.
18.2 The Parties agree to use their respective best, diligent, and good
faith efforts to fulfill all of their obligations under this Agreement. The
Parties recognize, however, that to effectuate all the purposes of this
Agreement, it may be necessary either to enter into future agreements or to
amend this Agreement, or both. In that event, the Parties agree to negotiate
with each other in good faith.
18.3 This Agreement constitutes the full and complete agreement of the
Parties with respect to the subject matter hereof. Any prior agreements among
the Parties with respect to this subject matter, are hereby superseded. This
Agreement may not be amended, except by the written consent of the Parties.
Waiver of any breach of any provision of the Agreement must be in writing signed
by the Party waiving such breach or provision and such waiver shall not be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other provision. The failure of a Party to insist upon strict performance of
any provision of this Agreement or any obligation under this Agreement shall not
be a waiver of such Party's right to demand strict compliance therewith in the
future.
18.4 The headings in this Agreement are inserted for convenience and
identification only and are not intended to describe, interpret, define or limit
the scope, extent or intent of this Agreement or any provision thereof.
18.5 This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same Agreement.
18.6 This Agreement shall be construed in accordance with the internal
laws of the State of Delaware without reference to the choice of law principles,
except as subject to the United States Arbitration Act and the Federal
Communications Act.
18.7 Except for claims by third parties which fall within the scope of
a Party's indemnification obligations under Section 6.3, neither Party shall be
liable to the other Party for any special, indirect, consequential, or punitive
damages.
18.8 The Parties agree that they will not use the name, service marks
or trademarks of the other party or any of its Affiliates in any advertising,
publicity releases or sales presentations, without such Party's written consent.
Neither Party is licensed hereunder to conduct business under any logo,
trademark, service or trade name (or any derivative thereof) of the other Party.
18.9 No Party shall make any public statement or issue any press
release concerning the terms of this Agreement except as necessary to comply
with requirements of any law, regulation, or the order or judgment of a court or
tribunal of competent jurisdiction. If any such
-22-
<PAGE>
public statement or release is so required, and Dobson and ACC mutually agree
to such statement or release, the Party making such disclosure shall consult
with the other Party prior to making such statement or release and the Party
shall use all reasonable efforts, act in good faith, to agree upon a text for
such statement or release which is satisfactory to Dobson and ACC. Nothing
contained herein is intended to limit the ability of the Parties to make
statements regarding the availability to such Party's Customers of the
Services to be provided hereunder by the other Party or that such other Party
is the provider of such Services.
18.10 Neither of the Parties will be liable for nonperformance or
defective performance of its obligations under this Agreement to the extent and
for such periods of time as such nonperformance or defective performance is due
to reasons outside such Party's control, including, without limitation, acts of
God, war, acts of any governmental authority, riots, revolutions, fire, floods,
explosions, sabotage, nuclear incidents, lightning, weather, earthquakes,
storms, sinkholes, epidemics, strikes, or delays of suppliers or subcontractors
for the same causes. Neither Party shall be required to settle any labor
dispute or other third party dispute in any manner which is deemed by that Party
to be less than totally advantageous, in that Party's sole discretion.
18.11 Except as specifically provided herein, this Agreement is a
non-exclusive arrangement between the Parties and nothing contained in this
Agreement is intended or should be construed to preclude or limit a Party
from obtaining from or providing to a third party Service of a type available
or required to be provided under this Agreement.
-23-
<PAGE>
EXECUTED as of the date first written above.
DOBSON CELLULAR SYSTEMS, INC. ACC ACQUISITION LLC
By: ____________________________ By: AT&T Wireless Services JV Co.
Name: By:________________________________
Title: Name: _____________________________
Date: __________________________ Date: _____________________________
Title:_____________________________
Date:______________________________
By: Dobson JV Company
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
-24-
<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
February 2, 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. 5 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
February 2, 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. 5 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 1,500,000 shares of its Class A Common Stock.
/s/ Ernst & Young LLP
Chicago, Illinois
February 2, 2000
